Should You Invest?
Whether Spain is teetering on the brink of a housing market
collapse or merely resisting a re-evaluation of property prices
remains to be seen, but one thing is for certain, with 18% of
Spain's GDP invested in the housing market, the government are
unlikely to let it slump readily.
Drawn by reliably hot summers, mild balmy winters, a laid back
lifestyle and just a 2 hour flight from the UK, British
investors have arrived in their droves and find Spain eternally
appealing. Inline with this interest, Spanish property has
increased in value by 160% over the last 10 years and remains one
of the most popular second home destinations.
- A stable and dynamic economy.
- Properties still available for less than 120,000 Euros.
- Strong rise in property prices predicted for 2008.
- Great opportunity for life time buyers interested in long term
capital gains.
- Only two hours flight direct from the UK.
- Well established property market with an estimated 5–7% growth
over the next ten years.
- Second behind France for Worldwide Tourism.
- Pockets of Spain still offering good affordability and
potential for long term capital gain.
Rental Yields
Returns from rentals are low. Flats in Madrid yield only up to
4.2%, with an average of 3.4%. Barcelona flats yield a bit lower at
an average of 3.1%, only reaching 3.75% for a 30 sq. m.
apartment.
Landlords are often better off keeping the unit unoccupied
because the damage done by tenants is often higher than the rental
income. In 2001, 14% of the total housing stock was vacant, bigger
than the entire rental stock. In 2004, only 10% of all housing was
in the rental sector, down from 20.8% in 1981.
Price History
With the phenomenal price rises over the last decade, the
Spanish market is very well established. More recently though,
prices in many areas have begun to level out and overbuilding on
some Costas has even pushed prices downward.
The first sign of a slow down in the property market was
detected as long ago as 2004 and continued throughout 2005,
although the OECD (Organisation For Economic Co-operation and
Development) yearly report stated at the end of January 2006 that
prices for dwellings in Spain were still 30% overvalued. From 2007,
prices are forecasted to fall by approximately 20% and then flatten
staying at the same level for some time.
Although such price drops are yet to become evident, there has
been a decrease in sales. In response to this downturn, 100%
financing was made available to Spanish locals with payment terms
up to 50 years, but 15% increases in interest on mortgages in 2006
counteracted this move and halted the market again.
Properties are still selling in Spain but at the extreme ends of
the market. Cheap properties below €120,000 are popular and luxury
homes over €500,000 offering sea views are also selling. As sales
have fallen, house price appreciation has subsequently slowed
falling from 9.1% in 2006 to 7.2% in 2007.
Spain's real estate market future then remains uncertain. If the
economy slips into a recession, house prices are likely to plummet
however if the country manages to stabilise and dissipate the
current risk, then prices should merely stabilise rather than
fall.
To give a general indication of Spain's average property prices,
a 1 bed apartment can be found from £117,000, a 2 bed apartment
from £175,000, a 3 bed villa from £280,000 and a 4 bed villa from
£350,000. These prices however are averages based on popular
tourist areas meaning if you head inland to less well known areas,
property prices will start at a much lower rate.
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