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Spain Real Estate

Spanish real estate market, burgeoning since at least 1980s, shows signs of weakness. The real estate developers on the Madrid stock exchange saw their shares falling down by an average of 7.5 percent. Some lost more than 10 percent in a single day earlier this week. The panic began after growing doubts about the real value of some shares. Just to put the picture in comparative perspective, the real estate shares in Spain are almost 100 percent more expensive than in France, a country with older and more mature stock market. The question, the way it's asked, is whether Spain is on a verge of a real estate crash after some decades of unprecedented boom. The question is broader than the real estate market itself. In this country, the entire economy is heavily dependent on new real estate developments. To put again the country in comparison, with an economy of approximately half of the Britain's, Spain builds four times more residences. By the way, a very significant number of new buyers come from Britain, looking for better climate, cheaper residences, and last but not least, for good investment returns.

To be perfectly honest, the problems on the Spanish real estate market don't begin with this week's mini-crash. Since 2003, the real estate market is gradually cooling down. During that year, the net positive return of the real estate, if we eliminate the general inflation factor, was at least 15 percent. Between 2003 and the early 2007, this net return has been falling to barely 2-3 percent. Thus, the initial question instead of being whether Spanish market is on the verge of crash after decades of boom, should rather be whether the ongoing slowdown will bring the real estate on track with entire economy, or will the real estate temporarily suffer from a depression? Answering this question requires looking at Spain as both domestic and international market.

As a domestic market, it's already long time ago over-heated, over-saturated, over-constructed, and over-indebted. Nothing short of a miracle, defying the laws of the physics is that it's still moving up. A rich nation with almost entire population living in owned residences, a nation with slim population growth and birth rates. What so many people are still buying for? On the other hand, however, Spain is an international market, more than that, one of the principal international markets, at least in Europe. Spain is still considered as sparsely populated, even with more than 40 million inhabitants. Coastlines are already full or almost, but the interior still offers plenty of affordable investment opportunities. Unlike some competitors of Spain in Eastern Europe, in this country the distances aren't a big obstacle given the excellent transportation infrastructure. The only obstacle may come from falling down returns, but this shouldn't be a problem for those looking only for more sunny days in the year.