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Can Property Prices in Spain Drop by 75% Because of Ageing?

 
The Bank of International Settlements (BIS) has recently released the conclusions of an investigation about how ageing affects the future of house prices in 22 developed countries including Spain. And the conclusion was… What a forecast!!!! … By 2050 Spanish property market prices will drop by 75%.
 
One of the key pieces of data for the BIS forecast  is that the Spanish population will be the oldest in the EU in 2050: 36,5% will be above 65 years old, according to Eurostat.
 
 
This is the conclusion of the BIS’ paper explained in a very simple way:
 

  • If property prices have risen by 230% during the last 30 years (after the baby boom of the 70s), from now on the house prices in lovely Spain will shrink by 75% in the next 40 years because of an ageing population that is not growing.
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    Economic theory suggests that ageing affects asset prices negatively, which is widely accepted. But apart from the ageing effect in the property market in Spain, there is a huge over supply (more than 700,000 unsold brand new units), combined with a few additional factors.
     
    That is why the BIS analysis needs to be implemented with market facts.
     
    The key factors that have boosted the market
     
    However, there are four factors in the last 15 years that have boosted the property market in Spain beyond the potential demand that the buyer demographic alone could generate:
     

  • expansion of credit since 1999
  • low interest rates
  • property assets becoming an easy and profitable market for investments from non-professional investors
  • a tricky legal framework that encourage the building of new property developments like “mushrooms growing in the forest”
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    These factors are, from my point of view, the reason why, between 2005 and 2009, a total of 2,753,600 properties were built in Spain according to the Ministry of Housing.

     

    Do not rely on immigration

    So, Spain is getting old. This means less and less people will be able to buy the large stock of 700,000 new and unsold units because they are more dependent on an active population.
     
    In the case ten years ago, authorities hoped that immigration could slow down the ageing trend of Spain, but now such expectations have been ruined by the economic climate. Foreigners who moved to Spain for economic reasons are moving back to their countries. In a quarter of a year there are less than 100,000 immigrants to the country.
     
     
    Migration trends and city markets
     
    Cities are still a reliable market for primary residence properties. The Spanish urban population has grown since 1970 until 2000, from 66% to 78%, and currently the rate is slightly above 80%. This means that property in cities will always offer a good exit strategy to the investor in Spain. In addition, the market for second residences, top end investments and luxury properties will have a good market, but different networks and different marketing strategies for investors are needed.
     
    Prices

    Demography, migration flows, offers, demand, location, blah, blah, blah… they all come together to the main point: price.
     
    It is known that prices have dropped an average of 12% in the cities and certainly a further fall will come. Prices performance not only varies depending whether an area is rural or urban, but also depending on region.
     
    So far, the highest prices fall per region (-16%) have been in the provinces where the new property developments were higher during the property bubble, increasing the stock by 30%: Guadalajara, Toledo, Huesca, Alicante, Málaga,  Las Palmas y Murcia (according to the Dr  Julio Rodríguez López).
     
     
    CONCLUSIONS
     
    Based on demographics, stock, and trends, Spanish property needs new input from market players and regulators. Here we have some conclusions:
     

  • To forecast a 75% pricing fall in Spain by 2050 is nonsense. I am sure that there are properties in Spain that will drop 100%, but there are also many houses that will not drop more than 10% (if they drop at all).
  • It does not matter how much the average price drops in such a vast and variable market. If you are an investor, be concerned about the location of the property and the market profile that you target. Major cities and “top end” properties are the best options for investors.
  • It is very difficult and misleading to assess the property market in Spain as a whole, especially in regards to prices. Do your micro research and do not get lost. Get professional advice.
  • It will be a good idea to categorize property stock according to market performance, location and potential.
  • The rental market is the cornerstone for investors, especially if prices keep dropping. The legal framework needs to be improved.
  • If you are looking for retirement in the sun… be happy and search the best bargain for you. If you are looking for a good place to retire happily, do not worry about all of this.  Just enjoy Spain to the fullest. But in searching for your house, do not get too emotional or stunned: consider location, services such as hospitals, transports, amenities, social networks, etc…
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    6 thoughts on “Can Property Prices in Spain Drop by 75% Because of Ageing?

    1. Stan Dickens

      I couldn’t agree more with your article Daniel. Making predictions even one year ahead is difficult so predicting prices in 2050 seems ludicrous. How many people predicted the house price crash in Spain even five years before it happened?

      The real question at the moment is what is the current sustainable level of prices. My view is that prices are still artificial in Spain. Asking prices are no guide to true value. Who can say if the asking price is 10% or 50% above market value. Many of the residential valuations undertaken for the banks are not at all realistic in the view of many of those who really understand the Spanish property market. Many banks, which own residential property, (directly due to repossesions of developers assets and private individuals and also indirectly through shares in quoted property companies such as Metrovacesa and Colonial), are benefitting from this confusion.

      In short, I would say we need to know where we are today instead of predicting price trends in 40 years time. The only way we can do that is by opening up the property registries for public inspection and a change in attitude of brokers, buyers and sellers to reveal the true transaction prices. My website attempts to do this for commercial investment transactions in Spain but right now I wouldn’t consider attempting it for residential property.

      If Spain wants to increase confidence in its residential property market, especially for second homes, it must do everything possible to create more transparency. Then maybe we would see some worthwhile studies undertaken about which way prices are moving and possible a few tentative predictions about where they might be in a few years time. For “few2 read “five”.
      Stan Dickens

      Reply
    2. Stan Dickens

      I couldn’t agree more with your article Daniel. Making predictions even one year ahead is difficult so predicting prices in 2050 seems ludicrous. How many people predicted the house price crash in Spain even five years before it happened?

      The real question at the moment is what is the current sustainable level of prices. My view is that prices are still artificial in Spain. Asking prices are no guide to true value. Who can say if the asking price is 10% or 50% above market value. Many of the residential valuations undertaken for the banks are not at all realistic in the view of many of those who really understand the Spanish property market. Many banks, which own residential property, (directly due to repossesions of developers assets and private individuals and also indirectly through shares in quoted property companies such as Metrovacesa and Colonial), are benefitting from this confusion.

      In short, I would say we need to know where we are today instead of predicting price trends in 40 years time. The only way we can do that is by opening up the property registries for public inspection and a change in attitude of brokers, buyers and sellers to reveal the true transaction prices. My website attempts to do this for commercial investment transactions in Spain but right now I wouldn’t consider attempting it for residential property.

      If Spain wants to increase confidence in its residential property market, especially for second homes, it must do everything possible to create more transparency. Then maybe we would see some worthwhile studies undertaken about which way prices are moving and possibly a few tentative predictions about where they might be in a few years time. For “few” read “five”.
      Stan Dickens

      Reply
      1. the Spanish Brick

        Hello Stan,

        Thanks for your comments. You have spotted the right key player in the Spanish property market (Banks) and explained very well how they affect the prices of residential. Indeed, the market still under pressure and lacks transparency. I would say that apart from transparency there is not agreement about methology when it comes the time to assess prices and stock. Figures seem to be irregular and different from one to another source.

        It is very interesting that you make a distinction between commercial and residential markets. They seem to perform in a different way. If you have been in Spain in the last ten years you know very well that the residential market was a “mad” business and it is a difficult task to straight it up now. I guess the commercial market is more reliable in the terms that you suggest.
        Cheers,
        Daniel

        Reply
    3. Stan Dickens

      Hi again Daniel

      Yes, methodology is another important issue along with standardisation. By standardisation I refer to a code of measuring practice, valuation definitions etc,. These don’t exist in either the residential or commercial investment markets in Spain. It a headache for me on my website because we report sales prices of commercial investment transactions but sometimes its difficult to analyse the price on a €/m2 basis because different sources give different floor areas. Some brokers include the external walls and lift lobbies and internal columns and others take them out.

      One logical conclusion of a vistor from Mars might be that buildings stretch and shrink with the Spanish weather. I have seen the same buildings appear in agents letting details with substantially different floor areas each time. Some landlords specialise in misrepresenting the floor areas I believe. I’m sure that the same happens in residential.

      Conclusion: the Government needs to intervene to impose some standards with respect to measuring etc,. If you like take a look at my website. I cover some of these issues there but the site is mainly about commercial real estate investment in Spain rather than the residential market. By the way, if you need market reports and other resources they can be downloaded from the site free of charge. The Knight Frank and Aguirre Newman ones are best for residential.

      Regards

      Stan Dickens

      Reply
    4. will Needham

      Most of the properties sold to foreigners were to older Northern Europeans.

      Between 2000 and 2008, I worked for a large estate agency operating on the Costas, and we sold largely to retirees.

      I would say the average age was around 55 – 60 years old.

      With so many properties sold to this age group, who will be buying these properties when they die?

      Will the next wave of pensioners be retiring to the sun at 55-60 or will they working until they are 65 – 70?

      Reply

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