Tips on key point to decide whether to buy or not to buy in Spain?

The financial crisis has reached a new peak after the bail-out of Ireland. The pressure is now on Spain (and Portugal). The Spanish financial problem differs from the Irish one, but it is still bringing a debate as to whether Spain needs a cash injection from the EU as has happened in Ireland. Whether it does or it doesn't, the Spanish financial situation is still complex and has significant implications for the property market in many ways.

It makes sense to ask yourself ″Am I going to slip up?″ when buying in Spain.

To buy or not to buy in Spain? It is a difficult question. Let us be honest. The right answer "depends of your strategy". I would pay attention to the following key points of all the financial mess affecting property market:

1. Unemployment & Purchasing Power Influencing Housing Demand and Affordability.
2. Buy−To−Let.
3. Prices.
4. Market Supply.
5. Mortgage.
6. Currency.

Advice: do not buy yet unless you really need to invest your cash or find a good bargain. Do not rush! Prices will improve in 2011. Keep an eye on our next features to follow up how the market is moving!

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Banesto, La Caixa, CAM and Caja Madrid have launched aggressive marketing campaigns to attract home buyers in order to reduce their stock. Like in a high street after Christmas, buyers have now 50% off marketing campaigns plus added value messages such as “we –the Bank- pay the notary cost” among others.

But the strategy of the Banks does not seem to be limited to marketing and discounts. The General Council of the Association on Spanish States Agents (Consejo General de los Colegios de Agentes de la Propiedad Inmobiliaria (COAPI)) has recently reported that 70% of the property sales of State Agents are “blocked” by the Banks because the clients do not get finance. In short: the Council point out that the Banks only finance Bank’s property transactions.

Read the completed article and its conclussions: Spanish Bank property portfolio

In the construction sector, seasonally adjusted production fell by 2.1% in the euro area and by 1.7% in the EU27 in September 2010, compared with the previous month. Spanish property is leading the fall in construction in the EU. It dropped by 31,7 in September 2010 compared to September 2009.

Compared with September 2009, output in September 2010 dropped by 8.1% in the euro area and by 3.6% in the EU27.
These first estimates are released by Eurostat, the statistical office of the European Union.

Monthly comparison
Among the Member States for which data are available for September 2010, construction output fell in nine, rose in four and remained stable in the Czech Republic. The largest decreases were registered in Slovenia (-8.3%), Slovakia (-7.6%) and Portugal (-4.6%), and the highest increases in Romania (+4.0%), Poland (+2.9%) and Sweden (+1.4%).
Building construction fell by 0.6% in the euro area and by 2.3% in the EU27, after -0.9% and +0.5% respectively in August. Civil engineering decreased by 2.0% in the euro area and by 0.2% in the EU27, after -0.6% and +0.5% respectively in the previous month.

Annual comparison
Among the Member States for which data are available for September 2010, construction output fell in ten and rose in four. The largest decreases were registered in Spain (-37.3%), Slovenia (-18.5%) and Romania (-14.2%). The highest increases were recorded in Poland (+13.4%), Sweden and the United Kingdom (both +6.9%).
Building construction decreased by 7.5% in the euro area and by 4.6% in the EU27, after -5.9% and -2.7% respectively in August. Civil engineering dropped by 9.9% in the euro area, but increased by 2.6% in the EU27, after -11.6% and +1.9% respectively in the previous month.

Articles related to this post

• Larger Spanish property stock and less transactions in September
• What’s really happening on the Spanish property scene?
• Confusing statistics
• The mortgage strategy of the Banks
• Are Spanish Banks a junk box of properties?

To solve the stock of the property market in Spain may take more years than expected. The Bank of Spain has reported that the Spanish banks hold a stock of nearly half a million houses, according to the newspaper 20minutos. Taking that figure into consideration, certainly the Banks have guaranteed to play  the main role in the sector.

All the agents indicate that the stock will increase gradually in 2011 and also credits will be even shorter than in 2010, especially for property investment. So, we have stock issue for several years.

Bad news never come together. Another negative and relevant figure for the market was released yesterday by the National Institute of Statistics (INE): in September the number of buying transactions has fallen by 4,1%.

Evolution of Property transactions in 2010:

The recent warning from the Bank of Spain (BOS) to Spanish Banks, calling for more transparency about their property stock in order to ease the sector during this crisis, is another sign of the tendency in 2011: prices may fall to the bottom to adjust themselves to the reality of the market.

Banks have €181 billion of “problematic property assets” – which obviously includes “toxic assets”. For this reason, it is better not to raise false expectations to buyers regarding further price drops, since a big fall would probably affect precisely these sort of assets.

On the other hand, the margin for negotiation would be reasonable for buyers of prime properties, depending on the finance capability and payment guarantees provided by the buyer.

The banks must accept responsibility for their losses and consequently, make decisions. According to an interview published in idealista.com, Carlos Ferrer-Bossom, Director of the residential market in Spain at Jones Lang Lasalle, states it could be better for Banks to start lowering the prices soon, even if they take a 5% loss, because in 2011 financial entities could lose around 15% on administration fees.

In the same interview, Ferrer-Bossom said that the fact that the banks are acting as real estate agents because of repossessions is a good sign for buyers. The reason is that the banks try to reduce losses by reselling repossessions whereas estate agents always try to generate a higher profit as possible since property is the nature of their business.

Regarding prices, the Jones Lang Lasalle director said that nobody knows exactly if prices will reach the lowest point in 2011, but it will be positive if it happens soon.

Once prices have descended, they will be stable for a period of years and the market will start reshaping itself for a new cycle.

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Spanish property scene, what is going on?

Are Spanish Banks property portfolio really toxic assets?

Well, it looks like the Spanish property market has been forgotten after the looters took away the treasure during the property boom and the economy fell in depression. It’s the right impression and we do not blame you if this is your viewpoint.

But the reality is that the market is alive, the rental sector is a strong option and investors have a tough task to find good properties in a market with plenty of underperforming properties.

To approach the current Spanish property market it is necessary to understand 3 key points and to put them together:

1)    The nature of its huge property stock

2)    Given the high unemployment rate (20% – more than 4 million unemployed) and the deep credit shortage there is a relevant lack of purchasing power and also many repossessions.

3)    The unwanted role of Banks as estate agents.

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