Spanish Holiday property. Reports of its Demise are Over Exaggerated

Listening to and reading reports this week about the recent slump in Spanish Construction companies stock on the Spanish Stock Exchange and the imminent demise of the Spanish property sector instantly brought to mind the well known quote that I have used in the title. The British press and television coverage has been quick to link this correction to a crash in the property market for holiday property in the coastal areas, (Costa’s), and the dangers for UK citizens purchasing property in Spain.

The headlines and suppositions of these so-called experts are based more on scare-mongering than economic fact and the data from the agents on the ground and some basic economic fundamentals tells a very different story.

For those who live in Spain and work in the Property industry I think the jitters in new construction companies stock comes as no surprise. Whilst triggered more by domestic concerns, the sheer volume of new construction in progress and planned, in the Costa regions was bound to outstrip the demand eventually and a correction in stock prices due to the new start figures needing to be revised was somewhat expected.

To link this to a wholesale crash in property prices across the market would, however, be wholly unjustified. Firstly, new construction should be viewed separately from the largest sector of the market, re-sales. Which in itself should be viewed as separate from the Spanish domestic market.

The reasons behind this statement are as follows.

The first thing to recognize is that the domestic property market in Spain and the market for holiday properties on the Spanish Costa’s are two distinct different economic models. Whilst they may overlap in terms of new construction from large domestic building companies, the largest proportion of the coastal property sector reacts completely independently from that of the domestic market.

Supply and demand, the basic factors that drive price in the market are completely different for the two models and thus to compare the market as one and predict trends based on both, based solely on the changing factors in one, would be naïve at best.

If we look at the demand for property in the coastal areas of Spain we find that over 70% of this comes from outside Spain. Moreover, nearly 60% of it comes from the UK market as those that can afford to leave their home shores look for some peace and serenity in the sun and use the accumulated equity they have earnt on their UK property to purchase a second home or move completely to sunnier climes.

It is possible to track recent corrections in the Spanish market directly to jitters in the UK property market, the last of which occurred approximately three years ago when interest rates in the UK turned upwards and rising oil prices and worries about the war in the Gulf brought about a market slowdown in the UK. This spilled over to the Spanish property market which had been making record profits on the back of the UK market and signaled a correction in prices.

Since then the market has steadied and in the past twelve months has resumed a steady growth in demand.

The fact is that whilst people continue to make equity profits from their property in the UK, they will continue to purchase property in Spain and whilst domestic construction may falter, this can be attributed more to domestic issues and an overzealous expansion regime that got ahead of the game than to a lack of demand. Over supply in new construction will correct itself. Demand for property in Spain is still growing and therefore continues to fuel a steadily increasing property sector.

Problems will only arise should the domestic market in the UK suffer a downturn on a scale not seen since the end of the 1980’s, which is something unlikely to happen soon.

The Spanish Holiday Property Market. Reports of its Demise (Apr 07) are Over-Exaggerated