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News: Spanish investors in limbo

Wed, 02 May 07

The Spanish expat community is in the grip of confusion after recent speculation over an imminent housing market crash...

However all hope is not yet lost according to property investment firm Assetz, who believe that a correction in the share prices of Spanish property companies will help to stabilise current prices.

Managing director of Assetz, Stuart Law, says:

“Spanish property company shares were clearly overpriced and investors are bailing out after finally recognising that prices cannot keep growing.

“This could be good news for the property market as a whole, as it will reduce the vast gearing of listed property companies, reduce the high levels of house-building which has led to some oversupply in the market, and also decrease levels of illegal house-building in Spain, which is very distressing for buyers when they discover their purchase is not secure.”

’black money’ reduced by legal pressure

The country currently benefits from a 7 per cent rate of annual growth, with a long term growth rate of 5-7 per cent looking highly sustainable, especially in tourist hotspots.

Law says that developers have already been offering good discounts for two years in order to maintain sales volumes, although these have not shown up properly in house price indices:

“The reason for this is that black money (cash passed over the table at the time of purchase to reduce capital gains) has been reducing over the last two years or so under legal pressures, which has led to reported prices of sales transactions increasing. Two years ago, the Spanish new build house prices did suffer a correction, but it was very little reported.”

Law concludes: “Our view now is that house prices in Spain are firm but sustainable. The Spanish holiday home market is also underpinned by strong rental yields in holiday hotspots, and good yields will always ensure a healthy capital value of a property”.

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