Spanish Housing Market

If you think things are bad in the UK property market, spare a thought for the Spanish Housing Market.

The Spanish Housing Market has seen a spectacular boom in the past decades. It hasn’t just been a boom in house prices, but also boom in new supply. Spanish house prices averaged £187,000 in December 2007 - twice as expensive as in 2000. Whereas the UK market struggles to build new houses, planning permission is much easier in Spain. In particular, new homes have been built in touristy areas - often for the British buyer. About 70,000 people in the UK own a property in Spain.

However, there are now signs that the Spanish Market faces a drop in house prices of upto 30%

Although, Spanish banks have been much more cautious about bad credit rating lending, the credit crunch is sill starting to hit the Spanish mortgage industry. Demand is falling from both domestic and foreign sources.

Over Supply. The property boom caused an unparalleled building of new houses. In 2006, the number of new houses built in Spain reached a record 866,000 units (compare that to the 140,000 new houses built in the UK last year). Santiago Aguirre, chairman of property consultancy Aguirre Newman, said Spain had overproduction of up to 1.5 million homes and there had been a “spectacular” fall in sales so far this year, which he assessed at 85 percent. A fall in demand combined with an oversupply on this scale can only lead to a sharp fall in prices. At least the UK has only falling demand to contend with.

In Spain, the construction industry account for 10% of the workforce, compared to 6.5% in the US, this sector is facing a deep recession as demand for new homes dries up. The housing market fall in Spain will have a bigger impact on the economy because it is such an important aspect of the economy.

Although, Spain’s economy is currently expanding and house prices are yet to fall; investing in the Spanish housing market in current conditions seems inadvisable.

Why UK House prices are falling

Homeowners warned of house price crash in Spain

Is Spain heading for a crash at Economist