Spanish Property Speculation Burst the Bubble
July 28th, 2009
My star article this week is Realism Rules in Overseas Property. Although not specifically addressing the Spanish property market, it contains 10 pithy and basic questions to ask yourself when buying abroad – anywhere.
The most important one for me is No. 9 – “A property is a long-term commitment if you want to make money from it”.
If more people had actually payed attention to that piece of advice, we would have avoided the worst of the current economic crisis. Speculation about increasing property prices actually drove the property bubble to bursting point.
Two articles deal with the consolidation going on in the banking sector in Spain. In Three Spanish Building Societies Merge, we learn that three Caixa’s (pronounced kay-sher) in Catalunya are pooling their resources because, individually, they are at risk from the high level of loans in default.
The reasoning is that, even though they’ll also be pooling their bad debts, they’ll also be pooling their reserves, creating enough of a combined financial buffer to hopefully make it through the worst of the economic crisis.
In Spanish Building Societies Continue to Struggle, we learn that the Cajas (pronounced ka-ha) – the Castilian Spanish version of the Catalan Caixa – along the Andalucian costas are all set for consolidation too.
With more coastline than all the other regions – and less industry than most – Andalucia has been more susceptible to the sort of rampant urban overdevelopment and municipal corruption that helped precipitate the property market collapse.
One of the results of this level of bad debt and corporate panic in Spain is that the cost of long-term rents is coming down.
In this detailed Bloomberg article: Most Spanish Rental Property Since 1950′s, we learn that, in the larger cities, rents have decreased for the first time in a decade.
As Spain’s Caja’s and Caixa’s have already become the country’s largest group of Spanish property owners (which they are struggling to resell), expect them to also become the country’s largest group of landlords.
Finally, the latest Euro Weekly Update is another reminder that there’s a significant amount of money to be gained or lost in currency exchange when buying a property in Spain.
It’s likely that the summer will be a volatile time for Sterling. I’ll certainly be keeping an eye on the Euro/Sterling exchange rate and forward buying when and if it hits 1.15.
If you had bought Euros with Sterling at 1.184 last month, compared to today’s rate of around 1.16, you would have saved £2,400 for every £100,000 you exchanged.
That kind of saving or loss can quickly add up – which is why Moneycorp’s advice is to “hedge half your requirement and wait to see what happens”.
Martin Dell, Kyero.com
