Why Spanish Property Is Not a Bargain

According to recent reports, Spain is heading for a recession with unemployment reaching levels that haven’t been seen since the 1930s. The slide is predicted to be so bad that it will take at least a decade for the country to recover. So what does this mean for Spain’s property market?

The Madrid research group RR de Acuña & Asociados has said the collapse of Spain’s building industry will cause the economy to contract for the next three years, with a peak to trough loss of over 11pc of GDP. The number of properties unsold still on the Spanish property market are said to be over 1.6 million, dwarfing the annual Spanish home demand of just 218,000. If no properties are built in the next few years, this means that it will take around seven years before the excess number of properties are sold.

Experts have said that Spain’s unemployment levels may rise as high as 25 percent. Spanish workers usually receive around half of their annual pay for 18 months if they lose their job, however the Spanish government have seen there is a potential crisis coming and has rushed in new laws giving 420 Euro a month to the long-term unemployed to help see them through. For those lucky enough to keep their jobs, many believe that wages will be squeezed down in a similar manner to the wage squeeze seen in Germany after the reunification.

Many property experts have said that now is a good time to buy property in Spain, as long as you are there for the medium to long-haul. However, we at BuyingForeignProperty.com disagree.

Yes, Spanish property prices may have dropped around 20% over the last year or so but this isn’t necessarily a reason to buy. The backlog of unsold or unfinished homes in Spain is tremendous and even without new homes being built will take around seven years to clear.

UK buyers probably represent the highest number of foreign property purchasers in Spain. However the UK is going through a housing market correction with the number of UK properties being repossessed increasing. This means that UK Spanish property owners may have a higher chance of defaulting on their holiday homes – and repossessed properties are often sold cheaply at auction, pushing down prices in the local area.

The high levels of unemployment in Spain may cause tourism to suffer in Spain. For anyone hoping to rent out their Spanish property, this will be a problem as less tourists means increased competition; and this usually pushes rents down and therefore return on investment will also fall.

The ‘credit crunch’ may also not yet be over – and this means Spanish property prices may fall even further. When the Spanish economy does recover, property prices are unlikely to rocket like they have done in the past meaning it may be several years before your Spanish property reaches the price you bought it for, let alone a price which will bring you a profit.

Overall, talks of a Spanish property recovery and a Spanish property market full of ‘bargains’ appear to be a lot of spin and a lot of false optimism. If you are planning to buy property in Spain now, it is advisable you only do so if you are planning for the very long haul – and you need to ensure you buy in a good area as backwater properties are unlikely to be a good investment. Whilst we wouldn’t say don’t buy Spanish property full stop, caution is most definitely advised.

In conclusion, the oldest advice in the book is more true now than it has ever been: Observe the market and do your research – look for unbiased opinion and don’t rely on marketing spin for your facts and figures.

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