Tag Archives: spanish property market 2013

Only 28% of families have a mortgage on their Spanish property

If you live in Spain and you are paying a mortgage, you may believe that everybody else is doing the same. Think again. The Spanish National Institute of Statistics has published figures showing that more than half of Spanish households (namely 50.7%) own their property, which is free from any mortgages.

Only 28.5% of families do have a mortgage on their main residence, down from 31.9% in 2008. This decrease may be due to demographic change but also to the financial crisis which has restricted bank lending to families.

However, in 2001 only 22.8% of families lived in a mortgaged house. The increase between 2001 and 2008 was a reflection of the credit boom.

In any case, these data confirm that Spain remains one of the European countries with the highest percentage of households who choose to buy, instead of renting, a home: 79.2 %, compared to the EU average of 60%.

Therefore, only 14.5% of households pay rent on their mainb residence , of which 2.5% pay lower “social” rents.

Although the preference for buying property is widespread throughout the country, there are certain differences by regions. The two archipelagos and Catalonia are the territories with higher percentages of rented properties. In the Balearic Islands , “only” 65.9% of households own the house they live in – still higher than the European average.

 

The latest figures for property prices continue to show a descent, but…

The latest index prepared by Tinsa, Spains’s largest valuation company, estimates that in September 2013 the average property price continued getting cheaper at a rate of 9.2%. Thus, since reaching their peak values​​, houses in Spain have suffered an adjustment of 39.1% overall. However, as we have stated in previous posts, the reality is very varied if data are analysed per region and/or per market segment, and Mallorca and Ibiza’s high-end properties continue to behave significantly better than average, proving to be somewhat immune to the general Spanish market.

Spanish property prices continue to fall… but the Balearics remain stronger.

The National Institute of Statistics (INE) has said in its House Price Index for the first quarter of 2013, released today, that house prices in the Balearic Islands have experienced a fall of 9.9%  from the same period last year, although the islands were the Spanish region that experienced the smallest decline.

For the whole of Spain, the fall was of 14.3%, being the third biggest drop registred since 2007, after those sustained in the second (14.4%) and third quarters (15.2%) of 2012.

House prices fell in all regions, but especially in La Rioja (18%) and Madrid (16.8%).

These declines coincide with the end of tax credits for new home purchases and the increased VAT on the purchase of brand new houses, which has gone from 4 to 10%.

 

Some facts you should know before buying property in Spain.

Borja Mateo (www.borjamateo.com) is a real estate expert and author who believes many people misunderstand the property market, which leads them to make the wrong investment decisions. He recently published an article in the Diario de Mallorca answering some basic questions about the current state of the market. Here we summarise his most interesting points.

The current state of the market can be gathered from the following facts: Prices of real estate have fallen around 48% since their peak. There are between 6.1 and 8.5 million properties which are either empty, under construction or in the rental market. The annual demand for new housing is of 130-170 thousand units, so the existing housing stock will be enough for many years. Current prices still do not reflect this over-supply reality.

“The area in which I am interested is different” This is a common mistake. The drop in real estate prices affects all areas to a greater or lesser extent. Reduced access to credit and the high supply of properties are relevant factors currently affecting all areas. It is true that some areas are less affected than others, but it will be dangerous to believe that a particular area is completely immune to drops in prices.

“Banks are going to start lending soon and prices will skyrocket”. Reality is quite different: banks are not going to go back to previous lending levels anytime soon. The Basel III reform, which has greatly affected the credit market, means in practice that much less credit will be available for families in the near future.

“Lowering the price any further would be like giving the property away”. False. No property owner thought prices would drop like they have, but it happened. Prices that seem bargains today, in a few years may be considered expensive. It is a fallacy that prices will not go any lower. Only when the number of property transactions has recovered strongly we will be able to say that prices have bottomed out: for this to happen, we think prices have to come down even more.

“Nobody is going to sell a property at a lower price than the one they paid for it”. These days, buyers and tenants have the upper hand. The over-supply of rental properties is pushing prices down. Lower rents mean lower property valuations, as their potential rental yield is factored in. This underlying conditions are not going to change for a while.

“The property is being sold at cost price”. The fact that the price of land has dropped by 80-100% from its peak, means building is now much cheaper than during the housing bubble. Therefore, it is perfectly feasible that the current market price of a property is now well below what it cost to build.

“Nobody is going to want to sell at a price lower than their mortgage”. Many people would happily sell just to cover the amount of their mortgage -just ask those who have been evicted. Today’s prices are 20% lower than last year’s, and more expensive than they will be in twelve months’ time.

“In my area, no one needs to sell, so prices will not fall”. An unemployment rate that may reach 28% in 2013 affects everyone. Prospective buyers demand discounts. As general supply increases and demand decreases the decreasing-prices dynamic intensifies.

“The bank is financing it, so it has to be a good investment”. Mortgages are great business for banks: buyers are offering a large asset (the property) as guarantee, plus their own personal guarantee (all their present and future assets), plus often those of a guarantor.

“After a cycle of drops in house prices, there must come one of rising prices.” In the current situation, with an existing house stock that exceeds 63 times the annual demand for housing, this cycle could perfectly last for 20 years since 2006.

“Why rent when you can buy. Renting is throwing money away”. In the same way that rent is an expense, so is the payment of interest -and much more so when it comes to acquiring an asset whose market value is falling. If we compare Mr A who buys a property with transaction expenses of 7%, a decrease in prices of 10% over the next 12 months, and a mortgage at 1.5%; with Mr B, who rents an equivalent property paying a rent priced at 3% of the property’s value, we can see how only during the first year, Mr A has lost 14.3% of the purchase price while Mr B loses only 3%.

So, as a general comment, the best thing now would be to wait as much as one can before buying or renting (or to sell as soon as possible) as prices will fall further in the foreseeable future.