Graham Norwood, The Guardian, Saturday 2 April 2011
Spanish homeowners used to have little in common with the wealthy north Europeans snapping up holiday villas and
apartments on the Costas. Now both are united in adversity. Both are suffering in a market preoccupied with falling values,
negative equity, a glut of unsold new property and, in some cases, doubts about the legality of new estates. An estimated
600,000 new homes, and 200,000 part-completed ones remain unsold, a sizeable proportion of which are in holiday areas.
The Bank of Spain says official house prices have fallen 17% since 2007, but many observers believe that the market is
much worse than that, as the bank's index is based on valuations, not achieved sale prices. Estate agents say prices of homes
have typically fallen 20% to 50% in different parts of the country, with no sector unaffected.
"There is an entire generation of young Spaniards with a millstone round their necks," says Enrique Quemada of One to One
Capital Partners, a business consultancy. "They will have to work their whole lives to pay for houses now worth half what
they bought them for." Meanwhile, the holiday home market also remains in the doldrums. A three-bedroom bungalow in
Castellon, north of Valencia, has been slashed by its British owner from £109,000 to £79,000, and then to £66,000, but still
has no takers. Taylor Wimpey, a British developer which has been building homes in Spain for more than 50 years, has new
villas on the Costa Blanca for sale at £140,000, down from £235,000. On the Balearic Islands, until recently thought of as
immune from the crash, prices are down as much as 40%.
"There are some real bargains, especially at the top of the market," says a spokeswoman for Savills estate agency, which has
one new luxury villa on Mallorca slashed from £15.4m to a mere £9.5m. Desperate developers are also faced with a slump in
British demand because of the poor euro-sterling exchange rate. As a result, a golfing resort in Catalunya is selling its homes
with a guaranteed rate of €1.25 to the pound on all purchases over the summer; the market rate is €1.14. Most commentators
believe that more price falls are inevitable, but even if Britons choose to buy now, the prospect of getting a Spanish mortgage
is "pretty bleak," according to Melanie Bien of broker Private Finance.
"Spain stands out with a housing market and a lending record that's far worse than France, Portugal or Italy. If you must buy,
somehow try to remortgage money from your own home back in Britain," she advises. The latest figures to emerge from
Spain show little respite from a downturn that is now in its fourth year. Although there was a small rise in the number of
homes sold early in 2010, this was driven by the desire to beat deadlines for the scrapping of mortgage tax relief and a rise on
VAT on new homes. By the end of last year, sales volumes were again on the slide. Despite the glut of unsold new homes,
another 257,443 were completed in 2010. Even so, there has been a 43% collapse in the value of the Spanish construction
industry, according to EU figures, and a collapse in land prices of about 50%.
Spanish banks – many of which hold thousands of repossessed homes as assets – are legally obliged to start selling these
homes after holding them for two years. As a result, more properties are expected to flood the market for sale this year.
Meanwhile, as if that's not enough, the scandal of Spain's "illegal homes" continues. For more than a decade there have been
disputes over some new developments retrospectively declared illegal by councils, controversial compulsory purchase
powers given to developers by some local authorities, and politicians who have been jailed for accepting bungs.
The most recent controversy blew up last month when 12,697 new homes were declared illegal in the Almanzora Valley in
south-east Spain, an area popular with holiday-home buyers. Some 920 have been earmarked for demolition, while the
remainder may be rezoned, thus allowing them to be declared legal and have utilities connected. "How many will be made
homeless, or lose their life savings, if 920 houses are demolished? Who's going to compensate those who bought in good
faith?" asks Maura Hillen, president of Abusos Urbanisticos Almanzora No, a local pressure group composed mainly of
British residents. Similar groups of disgruntled UK buyers exist across many of Spain's tourist areas.
Now the housing crash has become so much a part of the modern Spanish psyche it has been accorded the ultimate tribute –
its own television soap opera. Crematorio has a storyline that includes unhappy foreign buyers, corrupt councilors, lurid
affairs, drugs and violence against a backdrop of the Spanish Costas.
Far-fetched? Not this time. Many believe the fiction is some way behind the fact. Britain and Spain aren't a million miles
apart when it comes to home ownership aspirations. Both are big on owner-occupation. Spain has one of the highest rates in
the whole EU – a whopping 82% – with the rental market concentrated in a few major cities such as Madrid and Barcelona,
says the Rics European Housing Review 2011, a major annual study of Europe's property markets. Tax breaks have
encouraged people to invest in housing, though many of these have now been scrapped as part of the recent austerity
And it's not just Brits and other northern Europeans who have responded to the siren call of Spain's sun-kissed beaches. The
Rics study points out that, among Spaniards, "there is also a high propensity to aspire to own a second home in the
countryside or on the coast: over a fifth of households own one. This helps to make crowded urban conditions more tolerable
for those that can afford it".
The latter point is a reference to the fact that Spain's houses are typically pretty busy, bustling places. Says the report: "This
cramped lifestyle reflects cultural factors, as well as housing shortages, as several generations of families may live together
in dense urban accommodation. The number of rooms per dwelling is quite high by average EU standards, yet they tend to be
small, with the usable floor area towards the bottom of the rankings."
Property prices may have fallen, but last month Spain was named one of the world's most overvalued housing markets. A
report in The Economist claimed Spanish homes are overvalued by more than 43%, and said this compared with just under
30% for Britain, 20% for Ireland and -12% for Germany (ie, the market in Germany is "undervalued"). It reckons home
prices should reflect the rents that tenants pay, so its index calculates the ratio of prices to rents in 20 economies. Spain was
the fourth most overvalued after Australia, Hong Kong and France.
But, writing on his Spanish Property Insight website, Mark Stucklin says: "You have to take these figures with a pinch of salt
as far as Spain is concerned." The problem, he says, is they are based on official figures which "significantly understate the
true extent to which prices have fallen. Spanish prices have fallen much further than this index suggests ... If you want to
know what's going on in the residential property market, a much more revealing figure is the collapse in planning approvals,
down by 90% since 2006".