How to Gain From the Pain in Spain

International Living Postcards--Saturday Edition

Saturday, May 5, 2007

Property prices in Spain doubled between 2000 and 2006 according to The Telegraph newspaper in the United Kingdom. Last week the stock prices of many Spanish construction and development companies fell by as much as 22% in a single day.

A friend of mine (who owned a real estate agency in this country) has a theory that the real estate market in Spain runs in six- or seven-year cycles. The fear now is that the Spanish market has reached the point of over supply. Last year 800,000 properties were built with an estimated demand of only 600,000.

The driving factor for the Spanish market in the last couple of decades has been sun seekers from other Northern European countries and the UK buying second homes and retirement homes. The draw of the sun, low property prices, and a lower cost of living attracted buyers. However, with the opening up of Eastern Europe in the last few years, along with the rising prices in Spain, more options became available.

The supply curve has finally caught up with the marketplace…which could mean opportunity for anyone looking for a retirement home or second home in Spain. The local real estate agents have been expecting a "correction" for the past 18 months…now their talk is of experiencing that correction.

The best properties shouldn't be hit too hard. Oceanfront property will, of course, remain a limited commodity, as will old classic-style apartments in the center of cities like Barcelona. The cookie cutter apartments along the Costa Blanca and the multitude of condos in golf resorts that aren't on the golf course will likely feel the brunt of the correction.

By The Telegraph's estimate, the market in Spain is overvalued by as much as 30%, depending on the location. Price reductions that high certainly help offset the current strength of the euro if you are buying with dollars. Predicting when the supply/demand curve will move back to parity won't be an easy task, but now is when you should begin your research into buying property in this market. Wait for the fall to play itself out, over the next six to 12 months. When prices bottom out and the next cycle begins…you'll be ready to act.

Lief Simon
For International Living

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P.S. I'm speaking at International Living's inaugural Live and Prosper in Europe conference in Barcelona in September (discounted tickets are available from events@internationalliving.com). As well as my opinion on the Spanish market, you'll hear from Spanish real estate experts (including Rita Fryer, director of the Property Finders--write to her at catalunya@thepropertyfinders.com) who can help guide you through this market.