View the article online at http://citywire.co.uk/money/article/a486424
Is it time to buy Spanish homes again?
Linton Chiswick reports on a rare bit of good news for Spanish property investors - and considers whether it'll last.
Linton Chiswick reports on a rare bit of good news for Spanish property owners - and considers whether it'll last.
Spain’s Minister for Public Works, José Blanco, will – according to Spanish newspapers – make London the first stop in an international 'property roadshow' to promote Spanish coastal property to overseas investors and attempt to spread the message: it’s safe, possibly even sensible, to invest in Spanish property.
No doubt, he will draw on recent Bank of Spain data showing foreign investment in Spanish property rising for the first time since the dog days of the property bubble, up 2.9% in 2010. It’s a modest rise, but it’s a Euro rise at a time when property values are decreasing, and it’s a rise that really took off in Q4, suggesting that a trend that might continue in 2011.
The sceptics – on the other hand – can point out that the 2.9% rise follows a 31.5% fall-off in the previous year, that the Bank of Spain expects prices to continue falling, and that a recent industry poll by CB Richard Ellis showed 75% of respondents fully expecting a negative outlook for Spain’s property market this year.
There’s no denying the scale of the recent rout. The official bank line is that property prices have fallen 17% since 2007, but that’s a valuation rather than completion index. Different independent analysts estimate falls of anywhere between 20% and 50% depending on the location, with the heaviest blows struck to regions where overdevelopment was most persistent. There are more than half a million new homes lying empty, another quarter of a million half-finished. In total, there are somewhere between one and two million Spanish homes lying empty. To add a little perspective, there were fewer than half a million completions in the whole of 2010.
But Blanco isn’t a lone voice. On the basis that a good investor doesn’t wait for proof that a market has bottomed out before buying into it, but just tries to time a purchase as close to the bottom as possible, there have been plenty of recent reports claiming Spanish property’s officially, now, good value and on the point of becoming a firm 'buy'. Millions of pounds have been shaved from the top end of the market. The poor exchange rate has developers bending over backwards to accommodate their traditional UK clients.
Enthusiasts also argue that the market can only fall so far. A generation of Spanish homeowners might be in negative equity, but the Spanish system (unlike the American one, and more like our own) doesn’t reward people for handing the keys back to the bank. Defaulting Spanish borrowers remain liable for the whole mortgage, so they’re much better off fighting to keep their homes.
And as for the Bank of Spain’s own forecast that residential property prices will continue falling, it’s based on their own flawed index, taken and compared to retrospective data from previous house price slumps. If recent falls have been more like 30% or more, the market’s likely to be much closer to its lowest point than they’ve forecast.
It’s also in the government’s interest to protect the house prices wherever possible.
The Spanish economy’s relationship with residential property is complicated and interdependent. While the savings banks (or cajas) that account for the half the country’s banking sector are saddled with under-performing properties, their ability to service the economy with credit suffers.
When José Blanco embarks on his tour, he’s said to be likely to promise measures to safeguard foreign investors' legal concerns, following (continuing) issues about illegal homes, resulting in properties being demolished after developers failed to follow property planning procedure.
So is it time to start buying Spanish property? With so many empty properties, and with Euro-mortgages in short supply, there’s little danger of a new boom grabbing property prices and hurtling them skyward in the short term. Even if prices are near to their trough, it’s likely to remain a buyers’ market in Spain for some time.
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