Bank of Spain estimates House Prices have fallen by 34.4% since 2008

According to the Bank of Spain, house prices have plummeted by 34.4% in real terms since the second quarter of 2008, when the downward trend started. Having just released their 2012 annual report, the Bank confirmed the downward adjustment was continuing into 2013, albeit at a slower pace.

The Ministry of Public Works said earlier this year house prices had fallen by 27% in real terms. This picture is not universal; there are some property hot spots like the Canary and Balearic Islands and parts of the Costa del Sol, such as Marbella, where a positive trend set in last year and has continued to cheer estate agents and homeowners alike.

The Costa del Sol is as popular as ever with buyers - only now they come from Nordic countries like Norway, Finland or Sweden, not Britain. Russian and Chinese buyers have also been very active over the past year, while British buyers are still put off by unresolved issues over land grab scandals, illegal planning permits and corruption, not to mention new taxation legislation that forces foreigners to declare their world-wide income or face high fines.
The Bank of Spain stated tax changes, together with the launch of a new Tenancies Act, would “introduce greater freedom” into the housing sector for all parties concerned, and would eventually lead to more activity in the rental market - a target for private equity firms buying up hundreds of properties. Institutional investors buying Spanish real estate at the Costa del Sol or Costa Blanca will welcome changes that make the rental market and tenancy agreements more flexible.

However, foreign home owners who have hitherto made some money from letting out their properties privately when they were not using their holiday homes them selves, are now facing a bureaucratic regime and tax burden that won’t make it worth their while to rent out their properties.

Marbella has recently had some bad press. Europe’s capital of crime and first choice for villains to retire to, British headlines stated.

However, the fact remains that owning a property at the Costa del Sol - and within close proximity to Marbella - is still the aspiration for many people.
With local amenities fit for princes and a climate that boasts 300 days of sunshine per year, Marbella is easily accessible via Malaga Airport and has a large expat community of many different nationalities. It also has established businesses that are still thriving despite the worst recession in living memory and in spite of what’s happening along the rest of the coast. At the Costa Blanca, where overdevelopment in some parts led to thousands of unwanted homes standing empty, resort bars and restaurants are still closing down at an alarming rate.

British expats who bought into the dream but suddenly found they were trapped in a property nightmare of negative equity and redundancy spread the news that the dream was over and they wanted to go home. As a result, British buyers who once formed the core of foreign investment into Spain’s property market have continued to remain cautious and have left the field open to buyers from other countries.

Encouragingly, German buyers have returned in greater numbers, as have American and French buyers, prompting a modest surge in prices in Mallorca this year. Luxury property across Spain is outperforming mainstream design and built, which should provide ample food for thought to developers, once the construction of new housing starts up again.

The Bank of Spain is blaming weak demand and a huge surplus of unsold homes on the downward trend for house prices and a lack of new homes being built. However, they seem to overlook the fact that quality build homes in Marbella, Ibiza and Mallorca are still selling at the current time, while many “cheap as chips” properties at the Costa Blanca and in Murcia cannot be sold at any price and may have to be pulled down.