Independent and accurate property prices in Spain

The RICS European Housing Review 2009 is commissioned and published by RICS (Royal Institution of Chartered Surveyors) which is the largest organisation for professionals in property, land, construction and related environmental issues worldwide.

The Spanish property market slowdown intensified during 2008, though recorded prices in the two official indices surprisingly showed only stagnation or moderate falls.

The Housing Ministry information based on the property registry, which significantly lags market transactions, recorded a -3% year-on-year change in 4q 2008 and the new INE index based on data from notaries, shown a slight negative change in 2q 2008.

The country had one of the biggest housing market booms in Europe, so the expectation is for a more marked price correction, partly for domestic reasons but also because the second home market had been so strong and foreign buyers played such an important part in it. Now they are few and far between.

Spanish property prices increased by 2.2 times in real terms between 1996 and 2006, housebuilding rates rose to record heights, and mortgage debt increased dramatically.

Housing investment alone was 8% of GDP in 2006 and construction as a whole, much of it related to real estate, about 13% of GDP; while household debt reached 125% of personal disposable income in 2007 – three-quarters of it related to mortgages.

Non-price data were showing the extent of the market turnaround in 2008, which seemed to accelerate significantly from the third quarter onwards. Transactions were down by 30% year-on-year in 3q 2008.

Housing starts were down by almost a half in June 2008 compared to the year before as developers dramatically cut back output.

In contrast, completions were actually up by a third on the year because developments from the previous period of high output were still being built out. This continuing flow of new stock onto the market has been exacerbating an already significant supply overhang.

What is more, Spain’s housebuilding has been at extraordinarily high levels for a country of its size and even the mid-2008 level of starts was likely to be far higher than the market would absorb in the months to come.

So, new supply will continue to put downward pressure on prices and further substantial falls in building are to be expected.

Spain was Europe’s largest user of capital markets to fund mortgages. Around 30% of them utilised residential mortgage-back securities and the rest covered bonds.

The impact of the credit crunch on mortgage availability has unsurprisingly been dramatic and mortgage lending had fallen almost 45% year-on-year by August 2008.

Worrying factors are the impact of the credit crunch on the availability of mortgages; the ability of the housebuilding industry to continue to cut back output in order to limit supply overhang; and the weakening of an economy that is contracting because of the scale of the reduction in housebuilding and the ending of a consumer boom.

The government has introduced some fiscal measures to revive the economy and offset the decline in the housing market but the scale of the downswing is such that any actions are only likely to moderate some effects rather than negate current housing market dynamics.

Second homes markets are obviously not only affected by developments in Spain but also by events in the originating country of purchasers.

Many buyers in Spain have been from the UK, which is expected to have the worst recession amongst the major EU economies and, furthermore, sterling has slid substantially against the euro, significantly raising sterling-denominated Spanish house prices.

Such factors further add to housing market woes in many parts of Spain, especially around the coast and on the islands.

Download the complete RICS 2009 European Housing Review (pdf document) or visit RICS.org for more information

Winner of the 2008 & 2007 CNBC award for Best Property Portal Spain and 2007 Best International Property Portal, Kyero.com is the leading web site connecting buyers and sellers of Spanish property. Featuring 100,000 properties from 1,500 estate agents, Kyero.com is privately owned and based in southern Spain.

Kyero.com was the first dedicated Spanish property portal to join the Association of International Property Professionals (AIPP), a consumer association setting standards and protecting buyers of overseas property.

Each quarter Kyero.com collates pricing information from thousands of properties to produce the Spanish House Price Index