Although all I can see is continuing property pain in Spain, I keep reading suggestions that now is the time to snap up a bargain. But people in the industry have said this many times.  For example you would have lost a lot of money following this advice from early 2008:

“It is an exciting time in Spain, it's a buyer's market and quite frankly, it's never been better.” [Mediter Real Estate February 2008]

So after years of false and dangerous optimism is now, August 2009, the time to buy? Here are my 10 reasons to doubt it.

1. The backlog of unsold or unfinished homes in Spain

There are estimated to be 900,000 unsold completed dwellings weighing down the market with many more unfinished constructions. The problem is growing: during the first of the year twice as many new builds were completed as were sold.

2. Repossessions

As in the UK repossessed properties are adding to market woes and this drag on prices is set to worsen. The Spanish paper Expansion reported recently that “one in five households are at a high risk of default” .

3. Unemployment

High unemployment is likely to weigh on both the Spanish and UK housing markets for a while. It’s hard to see the market for Spanish property rising with unemployment approaching 20%. 

4. The “Credit crunch” is not over

As in the UK mortgages remain hard to come by as banks rebuild their balance sheets and remain wary of lending to all but those with perfect credit. A sustained recovery requires the return of the “normal” buyers who don’t have 30% deposits to put down. Would-be buyers often fall foul of highly conservative valuations by the banks. 

5. Tarnished reputations

Even with normal credit conditions there are other reasons to doubt that Spain can shrug off the property crash at least in coastal areas popular with foreign buyers. The perception that owning a property in Spain is a sun-drenched dream has been buried by:

>Estate agents’ hype prior to the crash (see above). Who will ever believe that Spanish property is a rock-solid investment again?

>Illegal build scandals in Andalucia and Murcia may be resolved without all the affected homes being bulldozed but the damage to reputation has been done.

>Valencia’s “Land Grab” laws which have tainted all Costas by association.

>Bankrupt promotors have left a trail of broken promises to those that bought offplan, not to mention many half-built and badly maintained developments

6. The weak pound

As I write sterling is at €1.17, much better than its nadir of than €1.03 in January, but a far cry from the €1.40 to €1.50 range that used to make Spanish property seem so attractive. Can the pound recover further? I don’t know but I wouldn’t bet on it while UK government borrowing is spiralling out of control.

7. Prices have fallen everywhere

Many of the industry’s boosters say that because Spanish prices have fallen they must now be bargains. This is not necessarily true because prices in most countries that attract British buyers have also fallen eg Dubai and Bulgaria

8. Murky figures

It might help us see light at the end of the tunnel if we could rely on reported statistics but the old cliché “lies, damned lies . ..” rings all too true in the world of Spanish property. The main government (INE) and private (TINSA) indices show prices falling 7-10% from the peak but property writer Mark Stucklin says “in reality, the index has to be taken with a pinch of salt”.

9. Buyers returning?

Some agents have reported increasing numbers of enquiries latterly but these claims should be treated with caution for a number of reasons:

>they are made by Estate Agents! Is it really true, as Dreamhomes Worldwide claim on their website that “there is definitely no shortage of clients in search of properties on the Costa del Sol”?

>the crash has forced many agents out of business so the surviving agents should be getting more enquiries, other things being equal

>how many “buyers” are actually just looking? Completed transactions are the real test and these are still showing double digit year on year falls in most areas.

10. The end of a super boom

The industry is able to get away with its propaganda about “bargains” and “undreamed of” price rises in the future because the property boom mentality is deeply ingrained in the British and Spanish collective psyches. We have become used to a cyclical pattern with higher and higher peaks following periodic busts with seeming inevitability. There is every reason to believe that this time will be different and that we have reached the end of a super boom in property and asset values generally.

CONCLUSION

If you are being tempted into buying in Spain by all the talk of recovery and bargains I would advise caution. There is no rush. Take time to observe the market making sure that you are reading unbiased opinion and facts not manipulative propaganda from industry insiders posing as experts. A good place to look is spanishpropertyinsight.com which I have found to be a rare source of solid independent market information.

The complete version of this article is available on our website.  The author is senior partner with a Spanish law and accountancy firm serving the English-speaking community of Southern Spain. We have a Spain property law department.