34 | CRISIS IN SPAIN WORDS | John Howell
Crisis? What crisis? U
nless you have spent the last fi ve years on Mars or you are brand new to this industry
you will know that, after the economic collapse of 2007/8, the property industry in Spain suffered badly; really badly. Of course, it was not alone in its sufferings but, arguably, it suffered most.
What went wrong? So what went wrong? More importantly, what is being done to put it right? With the benefi t of hindsight, what
went wrong is blindingly obvious. The world went mad – and Spain led the way. In the years up to 2003 Spain built steadily but then the volume of
construction exploded. Between 2003 and 2006 the number of properties built each year doubled (Fig. 6). Many – probably the majority – were sold to so-called investors, encouraged by easy money and the delusion that prices could never fall. Similar trends were seen elsewhere in Europe but nowhere else was the increase as dramatic. Consequently, when the fi nancial
crisis hit and the easy money dried up, the collapse in Spain was brutal. Sales collapsed, both to the local and the international market. (Fig. 2) Investment collapsed. New construction collapsed. Time will tell whether the economy will collapse. By 2011 the number of sales to
Fig. 1 - ‘Bad’ loans taken on by the Bad Bank Source: Central Bank of Spain
Region Cataluna
C. Valenciana Madrid
Andalucia Galicia
Castilla La mancha Canaries Murcia
Castilla Leon Aragon Asturias
I. Baleares La Rioja
Pais Vasco Cantabria Navarra
Extremadura Ceuta Otros Total
Value
(Euros millons) 3.817 3.354 2.712 2.122 1.295 951 798 794 519 364 193 184 134 96 91 87 28 1
653 18.193 Percentage
21% 18% 15% 12% 7% 5% 4% 4% 3% 2% 1% 1% 1% 1% 1% 0% 0% 0% 4%
100%
foreigners was down to about 20,000 in the whole year. Total sales fell from 1 million in 2006 to 350,000 in 2011. Yet it is important to note that the fall in sales volumes has not been the same throughout Spain. For example, compare the sales for the Province of Malaga – basically, the Costa del Sol – with those for Spain as a whole. (Fig. 4) New construction fell to one sixth of its peak levels as developers and,
“What went wrong? The world went mad – and Spain led the way”
increasingly, their banks struggled to dispose of vast numbers of unsold properties. (Fig. 6) Needless to say, the number of new
construction licences for new buildings has also fallen dramatically. (Fig. 7) Lots of available product and little
demand have led to a substantial fall in prices. The falls vary hugely depending upon the place, type of property and price point involved but falls of 50% have been common. Prices are still falling, down about
15% in the last 12 months, but – once again – they are falling at different rates in different places. The graph (Fig 5) shows the falls since the peak at the beginning of 2007. It understates the variations. For example, there are huge differences in what has happened to prices within the Region of Andalucia. There is some debate about the number of properties remaining unsold. The most dramatic estimates go as high as 3 million but the more likely number looks like about 1 million new properties plus about 500,000 resales. Either way, it is huge when compared with current sales levels – domestic and international – of about 350,000 properties per year. This is an overhang of about 5 years’ total sales! None of this is good. It has driven
countless developers into liquidation and many more are kept in existence only by the consent of their banks, which fear that closing them down could be even more painful than keeping them open.
Period
Q2/2006 Q3/2006 Q4/2006 Q1/2007 Q2/2007 Q3/2007 Q4/2007 Q1/2008 Q2/2008 Q3/2008 Q4/2008 Q1/2009 Q2/2009 Q3/2009 Q4/2009
FEATURE
www.opp-connect.com | DEC 2012/JAN 2013
There is no crisis in Spain. OPP’s ‘Big Issue’ trip to Spain came up with some surprises … and some predictable results. Anyone involved in the world of international property should read this report – even if they don’t do business in Spain. Spain led the way – both up and down. Where are they going next?
Fig. 2 - Sales to
ForeignersSource: INE Number of
Transactions involving a
Foreign Buyer
29.097 23.798 26.455 27.362 25.097 18.521 16.224 12.179 11.130 7.843 6.562 5.036 6.002 5.923 7.416
The banks already own over 600,000
homes and are probably in a position to repossess nearly as many again. The effective value of those properties is small, leading to vast (and as yet unquantifi ed and partly hidden) losses in the banking sector and the formation of SAREB – Spain’s ‘bad bank’ to take over these toxic debts. The loans and properties are
concentrated in a relatively small part of Spain. 66% by value are in just four regions – Cataluna, Valencia (which includes the Costa Blanca), Madrid and Andalucia (which includes the Costa del Sol) (Fig. 1). Even these fi gures hide huge variations: there is little property in Marbella, yet lots in the Province of Malaga – part of the region of Andalucia. The collapse of the property market
has left a huge hole in the Spanish economy. The construction industry
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