An oversupply of properties, over-development and poorly constructed housing stock.
It is likely to take several years to absorb the stock of properties that have to re-enter the market by being sold. It is understood there is nearly 2 million properties are for sale in Spain, with about 1 million being new build stock and around 600,000 second homes or holiday homes being vacant and for sale for over 4 years.
Many of the properties for sale have been built quickly, with poor planning, in secondary locations and may never be sold. Their appearance is often oppressive and tenement like.
The Economist states home owners have already been subjected to 5.5% fall in 2011 coupled with the 9.3% fall in 2012. They consider prices are still 20% over valued.
This is an alarming scenario.
It may be the case that these properties become time-share, retirement or council properties. Other more radical options considered to deal with this problem includes demolition
Interestingly, 317,715,734 m2 of building land is allocated to future housing, still awaiting development, and the number of unrealised housing units is 2,471,399.
There have been calls for the reclassification of land to adapt it to demand for different uses at certain times according to the market, and for its adaptation to new structural and urban sustainability requirements.
The actual over supply of properties will take years to be absorbed by the market
Comparatively high purchase and sales taxes, purchase costs and other expenses.
Although some discounts are being offered on purchase taxes on new build (down from 8 to 4%) resale tax remains at 7% and legal costs can amount to another 3 to 4%. If you are disposing of a property as well, agency fees remain high at around 5% so it would be prudent to allow around 20% of the value to be lost in a sales/purchase transaction.
In our view, the relatively high taxation of property sales and purchasers doesn’t help the fluidity of the market.
For the first time since the transition to democracy Spain has to deal with political instability. There is the unemployed unrest, Catalonia’s and the Basque country’s separatist ideals and regular union led strikes and protests.
The uncertainty about Spain’s future may be affecting inward investment in real estate.