Prices have dropped by 15.2% in Q3/2012 and will keep falling in 2013

December 17, 2012

These are some comments about the latest relevant figures that predict further property prices fall for 2013 and 2014. Prices will probably not recover until 2017 but in the current climate property bargains are already there. At the same time, expectations on foreign buyers are high.
 
The national market is ill and sales are still low: There is a need of properties in Spain but not the conditions to generate a demand.
 
A) Two new surveys (run by the Institute of National Statistics, INE, and the property valuer Tinsa) illustrate that the outlook for house prices in Spain looks bleak, with prices falling Some stats and comments.
 
Property prices will probably not recover until 2017, and it is likely that once prices hit rock-bottom, there will be a plateau. The question is:   When will prices bottom out?  The Spanish property market is vast, diverse and contains different “micro-markets”.  In some areas, prices are already reaching their very lowest, and the market is certainly moving with sales that keep the business alive.  In others, there is the potential for a lot of room for prices to adjust.  The over-developed coasts are really pulling down the national average figure to a 33.7% fall since 2007.
 
 
B) The 15.2% fall in quarter three of 2012 (compared with Q3/2011) is the most severe decline since late 2007 when the property index began, according to figures from the Spanish Institute of Statistics (INE). And the latest index from property valuer Tinsa shows house prices have fallen 12.3% in 2012 as of November.
 
It was predicted that if something will be sure in 2012 it is that prices will go down as quickly as ever, as we said in January: Property prices will drop faster this year
 
 
C) The price reductions and the January 1st VAT increase on new homes from 4% to 10% is reducing demand, says the INE.
Price reductions can only motivate the demand whereas the VAT increase on new homes can only reduce the demand on new buildings.  The announcement of the increase has been manipulated in an attempt to encourage demand in the final stretch toward 2013…but it has not worked as well as desired.
Obviously, according to the latest INE figures, price reductions are not low enough to pick up demand in this economic climate.
 
From my point of view, the key point in the current market is the economic situation.  In such a bad economic environment, the demand cannot be reactivated and probably will not be reactivated until confidence and employment grows.  There is, indeed, a need of properties in Spain by Spaniards, but there is not demand because that need is not accompanied by economic health (caused by employment, better regulation for entrepreneur,s income and savings) and credit.  So the situation in the internal market is difficult.
 
 
D) This is the 18th quarter running that house prices have fallen in Spain, with the worst performances coming in the last two years.  Existing property sales were down 4.4% in the previous quarter.
In 2013 prices will keep going down but, in such a bad economic climate, it will be difficult for the national market to increase sales.  There are sales, but not enough to reactivate the market.  We will see if in 2014 prices will settle on a plateau or the fall will persist.
 
Spanish property sellers have started relying on foreign buyers.
 
Advice for UK and overseas property investors is to spot a good micro-market to buy into (city centres) and to try to deal a well Below Market Value that will guarantee a margin for any further pricing fall.  But as already mentioned, in prime areas with good demand already ( selling and renting ), prices are already reasonably low.
 
There are already bargains in Spain, so do not be afraid but still cautious. Good property search!!!
 
 
Other articles of interes
- Property prices fall by 11.5% within 12 months!!!
- Consequences of the economic crisis for property in 2012
- Low budget investors are chasing the property market
 
 
 

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Daniel Talavera