Has Spain’s sparkle gone?

In recent times, Spain’s property market has seen a sharp upward trend and has seen the most upward movement out of most of Europe. But is the attraction of Spanish property starting to wane? Last year, property prices increased by about 9%.

The housing minister noted that this was the weakest rise in the last 6 years. The Deputy Prime Minister also confirmed this but said she felt it was good news that property prices were starting to fall.

In 2005, the annual property price increase stood at around 12.6% and ended a decade of massive property investment thanks to cheap and easy credit, huge economic growth and strong immigration. However the years of double digit rises was unsustainable and many households were unable to keep up with the rise. Spiralling debt in Spain has led to a slowdown of property prices, and in some areas, a property price fall. Combined with rising European Central Bank interest rates and household debts at one of their all-time highs, some households are being pushed over the edge.

Although there is some concern, the general concensus is that there will not be a housing crash – at least not yet. Employment in Spain is still strong and there is still a strong demand for housing. The lull may yet be a temporary one – thousands of properties across Spain are now standing empty and investors are ready to snap them up. Should more foreign investors start to buy Spanish properties whilst the prices are lower, there will be more demand than supply which will start to push prices up again.

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