Real Estate News, Reviews and Investment
Article: avoid investment in the housing market in Spain.
The situation is dire and there is no use pretending that prices are going to recover or that the banks would start lending at any time in the near future.
The current state of the real-estate market in Spain can be gauged from the following:
Residential real estate
There are 800,000 used homes on the Spanish property market
What’s worse is that developers hold 700,000 completed units not on the market.
“The market is broken,” comments Fernando Rodriguez de Acuna of Spanish economic consultancy RR de Acuna & Asociados. “In places like Castellon, near Valencia, where over-development was mad, banks are not financing anything and there is a high probability these properties will never be sold. They will have to be knocked down. Banks are offering huge discounts and nobody is calling. Marbella has already fallen by 50% and prices are going down and down.”
One expert believes that the demand for property in the past was mainly because of buyers from the UK and Ireland cashing in on the higher values at home and then reinvesting the fresh mortgage proceeds in second homes in Spain.
Many of these buyers overpaid well beyond the limits of affordability. The Spanish banks are believed to have encouraged the process and the pursuit of profits much as what happened in other countries such as the United States. As this buying interest waned, so did the residential property market.
It seems that the market has not yet bottomed out with house prices falling 15% in the third quarter year on year while prices in Madrid declined by almost 18%.
The situation is bad enough to threaten the banking system and, in turn, the entire Spanish economy.
This has provoked anxiety about a fresh bailout in the Euro zone. The evictions have begun to trouble Spanish society and it has been reported that the stress caused one woman to go into labor.
In my opinion, the real cause of the downturn are the austerity measures of Prime Minister Mariano Rajoy as he struggles to control the national debt. Meanwhile you can see broken bubbles like Valdeluz outside Madrid where fewer than 1,000 people live in an area meant for 30,000 people.
Spanish law further complicates the problem. If you are unable to meet a mortgage payment, the bank can repossess your house and you still have to meet the entire loan commitment.
The bottom line
I would recommend that, for the present, the best thing that you can do is wait before investing—only when you are sure that the market has bottomed out.