Spanish property market likely to be fragmented in 2013
The last 12 months have highlighted the difference in performance of the domestic and second homes market in Spain and it is fundamental issues such as this that buyers should take heed of, it is claimed. According to Barbara Wood of The Property Finders in her annual Andalucia Market Report, the region has multiple sectors within the market and they function independently of each other.
‘There’s the quality market in the prime locations chosen by international buyers, then there’s the lower end of that overseas market, high density developments in secondary locations and finally, there’s the Spanish domestic market,’ she explains. ‘While full year statistics are not yet available those we do have so far show that 2012 was another dreadful year for the domestic market. In contrast, overseas buyer numbers increased throughout 2012 and when full year figures are available I expect them to be 20% up on 2011,’ she says.
However, she also points out that the overwhelming majority of overseas buyers in 2012 bought quality property in prime inland and coastal locations. This left the lower end of the overseas market still in the doldrums and she expects that these sectors will again perform very differently throughout 2013.
Barbara Wood also advises buyers to be wary of Spanish property market statistics as they are notoriously unreliable. For example in 2008, the year global property markets were facing something akin to Armageddon, according to official Spanish Ministry of Housing, statistics showed property prices in Andalucía rose 2% even though it had been obvious to everyone that the market had been shrinking for at least two years.
Even Spain’s Institute of Statistics gave up on the official figures and started publishing their own version in 2009. ‘The underlying problem with the official figures is that although they are based on registered transaction prices, all well and good in a transparent market where the price paid is the price on the deed, the figures in Spain have always been distorted by the tax saving practice of under declaration,’ says Wood.
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She gives as an example a property bought for €500,000 in 2006 of which only €400,000 was officially declared. ‘A 20% under declaration was quite normal and was often higher, would, according to Ministry of Housing statistics, have fallen only 20% if sold in 2012 for a fully declared €320,000. But the seller paid €500,000 so is, in reality, taking a 36% hit, making the official stats wildly inaccurate,’ she explains.
The other main source of statistics is valuation companies such as Valtecnic and TINSA but, based on subjective opinions and not actual prices paid, their figures have also been more or less useless as a guide to price falls, with wildly differing valuations on the same property.
‘For years, in the run up to the crash, they were part of the problem, bringing in eye wateringly high valuations to keep the banks happy and now they have swung to the other extreme, again often at the banks bidding who want every opportunity to sell one of their own properties given that they are now all estate agents. There is plenty of anecdotal evidence that those needing a mortgage will see a property they want to buy valued so low that the mortgage offer is insufficient but then they are offered a mortgage by the same bank but only if they buy one of their properties,’ she added.
Looking ahead Wood expects little change in 2013 in the prime market with deals done at 30% to 40% below peak prices. She also suggested that there are still a good number of sellers who have not reduced their properties sufficiently but when they do they will be somewhere between 30% to 40% down. ‘As regards the bottom end of the overseas market it is not so easy to know how much prices have fallen because very little movement has occurred in this sector since the crash. We may be reaching the tipping point when prices are low enough to be tempting,’ she adds.