The Latest Spanish Property News from Kyero.com

50% of Spain’s capital investment is in property, which is also responsible for half of all new jobs and a significant contributor to Spanish GDP. The continued inflation of house prices has put a home in Spain beyond the reach of many foreign and national buyers just when more and more buyers are needed to support a building boom - which is largely underpinning the economy of the country.

Recent news of the stock market devaluation of Spanish property developers has been on the cards for a long time. The Spanish government knows that the economy is dangerously reliant on the housing market. The recent clean-up in Marbella and the European Parliament focus on Valencia’s ridiculous ‘land-grab’ practices are signs that the Spanish property market is undergoing a shake up. It’s been overdue for quite some time, it might cause some temporary pain (particularly to those developing or selling property in Spain) but it’s obvious that things will change in Spain.

It’s no secret that there’s currently a glut of property for sale in Spain - at prices people aren’t willing or able to pay. Last year, 800,000 new build properties were started - three times the EU average. In 2007, another 600,000 new build starts are predicted. Who will purchase and live in these homes? Spain’s 40M population is growing at less than 0.2% each year and foreign purchasers historically account for only 10% of new sales. Combined, this equates to an absolute maximum of 150,000 ‘new’ property purchasers per year.

In 2006, just over 400,000 newly-built properties were sold. If 800,000 builds were started in the same year and there’s a maximum of 150,000 ‘new’ purchasers - we’re seeing a glut of at least 250,000 new properties in one year alone. What will developers do to meet bank loan obligations or free up working capital when they’re not selling a quarter of a million homes with a construction cost of around €20 Billion? Some market analysts estimate that property in Spain is currently overvalued by as much as 30%. Developers certainly have the margin to enable them to absorb this kind of reduction in price - and still make a profit.

I think that, short term, developers will slowly discount their excess property stock in Spain until buyers start biting again. This will undercut the resale market and reduce the number of second-hand transactions and increase the average ‘for sale’ time. Sellers who want to, or must sell quickly will need to compete on price with equivalent new build properties. Thus, developers will control the reduction or levelling-off in house prices, just as they have controlled its increase.

Clearly, there’s more angst and pain yet to come but all is not doom and gloom. Spain is becoming a buyers market again. In the short-term, we’ll see distressed sales and property auctions accounting for an increasing number of property transactions. Better informed and savvy purchasers are increasingly using the Kyero.com Spanish Property Index to identify property bargains and benefit from the current situation. The Kyero.com Price Index is independent of any government or sales spin and is the only accurate guide to house prices and trends in Spain.

I think the Spanish government are realising they need to take firmer control of the economy and wrestle that power away from the developers. I think they’re increasingly understanding the responsibilities of being on the team of European players and their contribution to the European economy. When ‘normality’ returns to Spain and house prices and the supply of homes match purchasers needs again, Spain will be all the stronger for having weathered this current storm. Until then: Buyers, get moving on those bargains. Sellers, be prepared to move on price.

Martin Dell, director of Kyero.com, the largest English-language property portal in Spain. The Kyero.com Spanish Property Index is updated on the first business day of every month and is freely available to download from http://www.kyero.com/price_index