My Home In The Sun - Are Properties in Spain Overpriced?

25/04/2007

Spain comprises many market locations, just like UK.
In addition, there is the native Spanish market and the foreign buyer market, which can be differently priced though very close physically to each other.
Also the market can be segmented into areas for permanent residence and others that are better suited to short-term tourist occupiers.
Some areas, such as the Costa del Sol, have hit a value ceiling and bounced down to a level where demand and supply are now more evenly balanced.
The speculators have gone - they distorted the market, which must in the long term equate occupiers with properties.
The speculators bought on the correct assumption of more demand than supply and thus the prices rose. Now that the prices have risen to the level that they are discouraging buyers, there is possibly too much supply.
Prices will drop to bring buyers in again and thus a more stable price plateau is being created.
This price drop is disguised by developers by their keeping the 'headline' price the same or even a little more, but making offers such as paying buyer's purchase expenses or their first year's mortgage or the like. Effectively, the overall price is reduced.
Also, there are bargains as individual investors, hoping to sell to occupiers, find that there aren't enough of those around. They bought cheaply and thus they can accept a reduction below the 'market' price to sell and still make a profit, though less than they had anticipated.
In addition, as everywhere, there are others who for private reasons need to sell urgently and they will offer their property below the market level to make it more attractive than similar properties offered at the market level.
So now one can say that properties were overpriced, but sellers are lowering their prices and so the market is becoming stable.
The difference in prices around the country and indeed the world tends to reflect the ease and cost of travel, the climate, the absence of long-term investment risk and the maturity of the infrastructure.
Costa del Sol has the best of all and thus the prices are highest.
'Emerging' markets are the lowest because one or more of these items is missing or deficient.
Also price rises, etc., tend to be reported in the form of percentages. Starting from a low base of say 100,000 pounds, a profit of 50,000 pounds is 50%. However, a profit of the same amount, 50,000 pounds, on 300,000 is only 16.7%. The former looks the better investment, but the profit is the same amount. The lower base reflects increased political or financial risk, poorer year round weather and rental potential, lower quality of life and health security, etc.
You tend to get what you pay for and one needs to quantify much more than just the raw prices in the long term.
It has to be said that generally the tourist world is improving its average standards overall, so secondary markets today could soon reach the level of the best today, and the best must therefore also be moving upwards to stay ahead.

Copywrite of Survey Spain and Campbell D Ferguson. Copies and extracts must contain a credit to Survey Spain. 1st February 2006.

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