The economic crisis had a huge effect on property markets all over the world, and Spain is no different, with the Mediterranean country suffering significantly as a result of the recession. To find out just how it impacted on Spain and everyone hoping to get on the property ladder in the country, read on.
1. Bursting of the property bubble
A few years ago, the story in Spain was very different. Indeed, immediately after Spain joined the euro, the country experienced a huge surge in housing values. Between 2004 and 2008, prices of property rose by 44 per cent.
However, growth on this scale was not sustainable, and this was particularly noticeable once the economic difficulties hit. When people became unable to afford the steep prices of property, demand for houses dropped and, subsequently, so did real estate values.
Many people who had taken out mortgages on their homes also found that their assets had declined in value despite them still owing a huge amount on their properties. Those who could afford their repayments were therefore left paying for more than their house or flat was now worth, effectively bursting Spain’s property bubble.
2. Values have dropped
As I briefly mentioned, all this activity resulted in a sharp decline in property values, and the reduction in the number of people who could borrow money and get on the market meant that there was little movement.
While the housing situation has slowly been recovering in recent years, Lloyds TSB figures show that typical values in Madrid dropped from £219,465 (€248,900) to £193,451 from 2010 to 2011. This is a decline of 11.85 per cent. Other Spanish cities have also felt a drop in property prices, with Valencia’s values declining by 10.15 per cent and Barcelona’s falling by 9.22 per cent in the same period.
Despite this decline, figures from the bank also reveal that Spain is the ninth most expensive place to buy a property out of 13 nations across the world, with the average price coming in at £170,737. It is therefore pricier to get on the housing ladder here than in Germany, the USA and the United Arab Emirates.
3. Rental market faring better
Spain isn’t just expensive in terms of sale prices, as Lloyds ranks it the tenth most expensive country to rent accommodation in, too. Its typical monthly rental price is £672, with Madrid being the most costly of the Spanish cities in which to be a tenant.
The rental market hasn’t been as badly affected by the recession as sales were, as more people were driven to renting property because they couldn’t afford to buy a home or pay their mortgage fees. As a result of this, there was no change in rental costs in Madrid between 2010 and 2011 (with average costs being £804 per month). There was only a small drop in prices in Valencia and Barcelona, declining by 1.62 per cent and 2.74 per cent over the 12 months respectively.
4. Construction has ceased
Another way the recession affected the property market is that many developers were no longer able to continue with their projects, as they couldn’t afford to finish the work and there were fewer people with the means to pay for the final product.
Construction work stopped, which had a huge impact on the property market, as no new assets were coming into the sector, causing it to stagnate.
5. Wider financial crisis
Of course, the property market collapse had other far-reaching effects; for instance, there were no jobs for construction workers, and those who had mortgages could no longer afford them, meaning a number of people lost their properties.
With unemployment levels at such a high (with half of all people between 18 and 25 years of age out of work), many people cannot afford to get on the housing ladder or pay for the home they have. What’s more, the fall in the number of people who can afford to buy a property will mean that there’ll be a lack of movement in the sector and they’ll be priced out of the market for a considerable amount of time.
For the property industry in Spain to improve, the entire country needs to lift itself out of its economic crisis, and it desperately needs expats to provide a financial boost to the market by buying houses there themselves. The good thing about purchasing a residence there now is that prices for properties are far lower than they were a few years ago.