Spain has long been seen as a go-to destination for overseas property investors, with its combination of good weather, popularity as a tourist destination and stable economy attracting a great deal of interest.
However, in recent times the property sector in the country has gone from a flourishing hive of activity to a stagnant market characterised by falling prices and dwindling demand.
In fact, analysing all of the most recent reports to come out of the country, Martin Dell, managing director of Kyero.com, suggests that there has been a fall in the number of property transactions in Spain of 56 per cent from the peak of its glory years.
In terms of a fall in prices, Mr Dell believes that it is realistic to assume that over the same time period real estate values have fallen by around 22 per cent in the country.
"Given that the number of property transactions is down by around 56 per cent, it's difficult to see how prices could not have slumped by at least 20 per cent as motivated sellers undercut each other to appeal to a reduced number of buyers," Mr Dell confirms.
He highlights the need for more transparency to be introduced to the market so that more consistent and reliable data can be obtained, and, in turn allow potential purchasers the chance to make more informed buying decisions.
"When data is lacking or incomplete, they [buyers] either make sub-optimal decisions or they decide not to buy at all. This lack of data transparency, in my opinion, is a significant factor in the continued suppression of the Spanish property market," he explains.
So why has Spain experienced this extraordinary turnaround in fortunes and what is stopping its recovery in line with other destinations hit by the global recession?
Banks Try to Offload Repossessed Homes
While a number of neighbouring markets begin to post signs of improvement, Spanish property continues to be held back from full recovery as banks and developers squabble over agency commission fees.
Overseas Property Professional has reported that the financial institutions are stifling the market's recovery as they try to offload the glut of repossessed real estate in their possession.
Ocean Village Gibraltar told the news provider that there was an estimated 180,000 repossessed homes on the bank's books. And the volumes are so great that it is squeezing out new developments.
"This whole process has been putting projects on hold and causing developers to go bust for at least a year now," Greg Butcher, of the company, said. "The banks are obsessed with their repossessions and new build is having to wait while they work out what to do."
Indeed, the situation is likely to lead to further falls in market values and could hamper the potential for full recovery even further.
Earlier this month, Fitch Ratings argued that the country's property correction could run until 2012, with overvalued homes expected to keep the pressure on the market while reducing its affordability for buyers.
However, this is not necessarily a bad time for buyers, with opportunities rife for canny investors.
As knowledge of a number of other European markets tells us, recovery will happen at some stage and with the surplus of distressed property clogging up banks' balance books, the institutions are being forced to offer attractive mortgage deals, low rates and long deferral periods.
Added to this, the current weakness of the euro against other major currencies means that buyers can expect their money to go further when they look at property in the country.
Although the current situation in Spain will put off a number of buyers, it is unlikely that they will stay away for long.
With the country still a popular tourist destination, Buy to Let investors
are likely to be tempted to capitalise on the current low prices and keenness of banks to provide mortgages.
How Does This Affect Overseas Property Investment?
Indeed, this will help bolster the sector and if the turbulent market in Spain is able to recover it is likely that this will have a knock-on effect on neighbouring countries similarly affected by the downturn.
In particular, it may go some way to tempting foreign buyers back to a number of European markets, many of which have looked to be no-go areas following the global economic downturn.
Subsequent price falls and a reduction in buyer confidence have not been aided by the recent Greek debt crisis, which has left a number of eurozone destinations' previously stable economies in a perilous position.
- Monday 19 July 2010