The RICS Global Real Estate analysis released mid-November was rather sombre in its outlook on Spain. With Spain at the heart of the present Euro crisis it could hardly be otherwise, but in quoting official statistics on mortgage lending, property values and economic growth, the report indicates that on a national level home purchases, property values and GDP growth has all slumped again, spelling out a difficult year ahead.
In general regarding Spain as a whole, I agree with what has been said,” says Campbell D. Ferguson of Survey Spain. “The level of debt in the economy, both institutional and personal, is huge and it will take many years for that to be removed. Effectively, the years of boom were based not so much on increasing productivity and wealth, but largely on borrowing from the future. The future has now arrived and the debts have to be paid.”
He also points out that RICS and their researchers have to work from official statistics and these are notoriously unreliable when it comes to property and especially the actual prices paid. This could account for the difference between the Bank of Spain figures and the others in that a substantial amount of the price of a property has traditionally been paid in cash that may not pass through the banking system.
“The overall picture received from national statistics must, of course, be put into context,” says Campbell. “There are locations and properties that are popular. Areas not so dependent on buyers from the Spanish economy are seeing continued demand, with Russians and Nordic buyers being especially active. These and other economies outside the euro have seen their purchasing power rise as the euro and sterling decline. Buyers requiring standard mortgages will struggle if they don’t have a substantial amount of independent funds available. Cash buyers are undoubtedly in a very strong position and can dictate the prices they wish to pay.”
Though cautiously pessimistic, Campbell has his doubts about the ability of the new government to turn the country’s fortunes around: “It has been said that what Spain needs is a ‘Maggie Thatcher’ to carry out a ‘revolution’ of attitude and bring more financial reality into present day business and personal finance culture. Whether that can be done without considerable strife and ‘counter revolution’ I doubt, which will further weaken the financial situation of the country. The history of the country is one of swift polarisation of views. Are Rajoy and his team the ones to have the courage, strength and charisma to see it through? I have my doubts!”
Given all of this, do Spanish property prices need a further downward adjustment? “Prices reflect the economy and supply and demand. Will they drop further? In my view, undoubtedly. By what amount I cannot say and I don’t think that anyone can, as there isn’t a base level through which they cannot pass. For many years it’s been questioned, who is to occupy all these properties? Perhaps the base level is that of a ‘bed for the night’ as the property does not offer anything more in quality or location. As stated above, those in a good location could and are seeing movement, which will keep their prices higher. Those in the ‘lost city’ areas far back from the attractions of tourism and urban life will undoubtedly struggle to sell at any time.”
To read the full RICS report download a pdf version here
Campbell D. Ferguson, FRICS, is a chartered surveyor in Spain. His company, Survey Spain Network arranges valuations and surveys anywhere in mainland Spain, the Balearic and Canary Islands, and Gibraltar.