Spain: When the property market runs out of steam

Article published on Sept. 25, 2006
Article published on Sept. 25, 2006

This article has not been vetted by an editor at Paris HQ

Buying a house is a life-long project for many Spaniards. In a market where prices have gone through the roof, investing in property seems like a miracle solution – but this trend is starting to change

Ana Cebrian is happy. At the ripe old age of 26, she and her partner are the owners of a newly-renovated apartment in the centre of Valencia. “I got a bargain,” is the first thing she says. “I only paid half of what it’s worth because we bought it from my mother-in-law. Still, we had 65 000 euros worth of repairs”. Pedro and Yolanda Collado are just as happy. They have been married for two years and managed to buy an apartment off-plan. “It was my mother who decided to make the investment,” explains Pedro. “She saw a billboard promoting the project and basically twisted my arm. We were really lucky as it sold out within 2 days.”

These two examples are characteristic of Spaniards’ love affair with ‘bricks and mortar’, generally considered the best possible investment. However, despite a booming Spanish economy, largely due to construction, the trend is starting to reverse, or at the very least, to slow down.

A threat to tourism

On September 10, the daily newspaper El Mundo set alarm bells ringing by openly referring to the cancellation of large property projects and to a drop in sales of 40%, evoking possible difficulties in the future. Far from denying this first hint of a slowdown, Bautista Soler, one of Spain’s biggest property developers of the last 40 years, explains that the changes in the trend are due to decreases in interest rates by the European Central Bank (ECB).

This opinion is shared by Cruz Sierra, the director of a weekly financial information newspaper based in Valencia. “For some time now, the key players in the sector have agreed that the growth rate is slowing down, dropping from more than 15% to less than 7%,” he says. In his opinion, nothing has changed: increasing interest rates still reduce demand.

Moreover, while some people remain optimistic and believe that the sector will start to grow again and that new opportunities will appear in emerging countries or Eastern Europe, Cruz Sierra is more sceptical. “In the Valencian Community, the 1994 Urban Development Activity Act, revised in 2005, has been counterproductive. At the time, we didn’t have access to land to build on and this measure was aimed at making it easier to get hold of land for construction. However, the scheme became corrupted and led to uncontrolled building. This has caused great damage to the Mediterranean coastline, threatening the future of tourism.” This is a major problem, given that tourism is the second greatest source of income for the Spanish economy.

50 year long loans and variable rates

What, then, can be done to sustain demand and avoid the economy's collapse? Financial institutions have started to act by introducing very long-term loans with repayment periods up to 50 years. These credits are only available to those aged under 35 and the majority are available at variable rates - with the risks that this contains. Loans are seen as a way to tie down buyers, linking them forever to their bank. However, they do allow young people with incomes under a thousand euros to become property owners.

Foreigners are another lifeline for the Spanish property market. Europeans or others are always happy to invest in apartments or houses. For Cruz Sierra, the importance of the role played by these buyers cannot be underestimated. "They have made the Spanish economy more dynamic over the years, increasing demand and generating jobs and growth.”

So what role does the state play in all this? How can it support the sector and avoid the brutal bursting of the property bubble? According to the majority of key players in this sector, not enough is being done. "There is not enough low-rent council housing and it is inaccessible,” criticizes Sierra. For Ana Cebrian, “the conditions that have to be met to gain access to such flats are never-ending and you need to be incredibly lucky to get the least bit of help in this field".

François-Arnaud Casalis - Paris - 25.9.2006 | Traduction : Luke Croll

Spanish youths fight the property bulge

“Housing is a right, not a business”. In Spain young people protest against spiralling property prices

Dissatisfied youths started the movement for a decent home anonymously on the internet. Thanks to emails and text messages, thousands of young people met in different Spanish cities on May 14 this year. The Association for a decent home finally made its mark during a major demonstration on July 2 which resulted in three unauthorised “squats” and 17 arrests.

These activists are pushing institutions to control high property prices. They demand ‘structural reforms’ to allow young Spaniards to ‘break free’, or to gain access to ‘minimal living conditions with their own resources’. According to Daniel Jiménez, spokesperson for the movement, more protests will take place on September 30 in Barcelona and October 21 in Madrid. They wish to alert the authorities and stop the real estate bubble with the slogan ‘I’ll be damned if I ever own a house’.