A "soft landing" is not a drop in prices at all, quite the contrary – housing across Spain became more expensive at the end of the year than at the beginning. However, both official statistics and professional data confirm that the rate of price growth is no longer so intense when compared with previous years.
The wind of change from Andalusia
The statistics on Andalusia can be considered the most indicative, because it is this area of Spain that has been experiencing the largest rise in the country's construction industry and real estate market for the second decade. The average increase in housing prices near the coast was only 11% in 2005, and preliminary data for 2006 give an even lower figure. This is the most modest rise in price since 1999
. Of the cities that are not considered resorts, the lowest price increases in Andalusia are observed in Seville and Granada, but Cordoba defies the general trend: the cost of 1 sq. m. m is growing there by 15% per year, and there is an explanation for this – Cordoba was connected to Madrid not so long ago by a high-speed railway line. The city authorities, who are interested in their city growing and expanding, encourage the local construction industry. And as bait for tourists, the mayor's office announced its intention to build a city beach on the banks of the Guadalquivir River – solely in order to entice those tourists and investors who dreamed exclusively of the seashore.
Coastal zones have overtaken the average statistics. Malaga and its surroundings – the famous Costa del Sol coast - can be considered the champion in the marathon price race. The average cost of 1 sq. m. The cost of housing there has increased from 512 euros to 2,180 in 10 years. Marbella, Seville and Cadiz also participated well in the "competition". However, the slowdown in growth rates also affected this region, which is very popular with foreign buyers – in 2005 prices rose by only 12.5%, and it is expected that even smaller growth will be recorded by the end of 2006.
There are similar price indicators on another popular coast – the Costa Blanca. "If in 2005 the price increase was about 15%, then by the end of 2006 this figure is unlikely to exceed 10%," says Anatoly Brovko, head of Lazy Days. So experts are unanimous – throughout Spain, including in popular resorts, the housing market is entering a new phase.
There is no need to hurry anymore
The first reaction of economists to the slowdown in the real estate market was cautious. This is understandable – before rejoicing over the signs of stabilization, it was necessary to figure out what was the reason?
Most experts agree that the rapid price growth will not happen again. The cost of housing in Spain will continue to grow, but the pace will inevitably turn out to be close to the pan–European indicators - 6-8% per year. It is unlikely that Spain will ever return to the situation in 2000-2001, when there was peak demand. At that time, both Spaniards and foreign buyers were interested in purchasing housing at the same time. The stock market crisis of those years, the transition to the euro, and the extremely flexible mortgage policy of most banking structures provoked accelerated construction rates.
However, now the surge in massive investments in the real estate market is behind us. Investors began to approach the purchase more thoughtfully. If a few years ago new buildings on the coast or in large megacities "flew away" in just a couple of months, today housing sellers need more time – the client has become more picky, he has the opportunity to choose. Moreover, if we are talking about foreign buyers, they choose not only between the Spanish coasts, but also between different countries – and competition has intensified in recent years.
First of all, the train
As for the Spaniards themselves, they seem to have no intention of maintaining a constant price race anymore and are looking for alternative options. A striking example of a change in attitude towards their own housing is the city of Toledo, located 71 km from Madrid, where about 40,000 Madridans moved last year. Of course, one of the reasons for this situation was the high cost of Madrid housing, but the main thing is that Toledo and Madrid were connected by a high–speed railway line. Many of those who used to stand for hours in Madrid traffic jams, having moved to Toledo, abandoned the car and spend only half an hour to get to the capital by train, and then transfer to the metro.
It is noteworthy that the most expensive apartments and houses in Toledo are located in the area adjacent to the railway station. But many of the new arrivals, tempted by the prices, do not give up residential areas either. A typical apartment with an area of 90 sq. m. An apartment can cost about 190,000 euros here against 400,000 for housing of the same characteristics in Madrid. Note that Toledo's development plans include the construction of an urban high-speed surface train, which will simplify access to the railway line.
"Citizens, rent a house!"
Another purely national factor that influenced the slowdown in price growth can be considered the growing concern of the state about what is happening in the real estate market. In no case is this about some kind of "mechanical" price adjustment. The state supports investments in construction, but it is not interested in turning the real estate acquired by investors into a dead weight. Currently, only 20% of Spanish residents prefer rented housing to their own – compared to countries such as the United Kingdom or France, where rental housing is much more common, this is an insignificant indicator.
Both economists and legislators have seriously thought about how to optimize the rental housing market. In this case, everyone would benefit – the owners of currently empty apartments would receive a permanent source of income, and potential tenants would be able to choose between a mortgage and the opportunity to rent a house. Choosing to lease would exclude for many debt obligations to banks, which on average stretch for 25-30 years. The Spanish Ministry of Housing is developing a guarantee system, thanks to which the owner who leased the property could be calm about timely payments by the tenant and the safety of housing.
Developers – for business transparency
It seems that another reason for the more restrained price growth is the activity of the authorities in the fight against corruption in the housing market. It took the state machine several years to understand that illegal construction and official corruption have nothing to do with the investment attractiveness of the housing sector. Across Spain, there are about 100,000 apartments and houses built illegally – on land that was not subject to development, but was "privatized" thanks to corrupt officials. There are about 30,000 such apartments and mansions in Malaga alone. The "black list" includes many buildings in Valencia, Alicante, the Canary Islands and Cantabria. Today, no one would even think of buying something on the coast without checking to the last comma the origin of the potential acquisition.
In relation to corruption, today's Spain is very different from itself in the early 1990s. The land law of those years was dictated by the leitmotif "everyone can build everywhere." Today, the document is under revision, since its main provisions do not correspond at all to the current state policy. Now the authorities prefer a much more cautious approach.
By the way, the developers themselves understand that the transparency of the market will only benefit them. An example of one of the largest construction concerns is illustrative. Not so long ago, Astroc (Valencia), whose capital is estimated at 1,600 billion euros, decided to conduct a public offering of shares. Representatives of the company explained that the entry into the stock exchange was dictated, among other things, by the desire to prove that the housing construction market in Spain is entering a new stage. Non-professionals and those who operate contrary to the letter of the law are forced to leave it.
Buy wisely
Investors in Spanish real estate are guaranteed a restful sleep – a collapse in prices is not expected. But the situation requires a competent approach to buying. A beautiful view from the window is far from the main condition for the purchase to pay for itself and bring profit. When choosing a home, experts advise you to pay attention to the key points, since the conditions of a calm market allow you to approach the purchase without haste.
The first thing to study is the quality of housing. It depends not only on the age of the building, but also on the building materials. This is logical – if the roof is constantly leaking in the house, such an acquisition cannot be called successful. It should be borne in mind that a building, say, 15 years ago may turn out to be much more capital than a house that is rented on a turnkey basis. If you are buying a new building, it is useful to ask about the "portfolio" of builders: how long has the company been operating in the housing market, whether there have been complaints from residents of previously rebuilt buildings.
But what should not be done istry to save money by refusing the services of professionals when buying. "There is an opinion that you can do without a realtor at all," says Anatoly Brovko. – Indeed, in Spain, unlike in Moscow, you can see the phones of private sellers in the windows of apartments and villas. It should be borne in mind that such a seller can set a price higher than that of a realtor, since he also wants to do without a specialist, and evaluates his capabilities and efforts higher. There is another question – who will guarantee the purity of the transaction? Since we are talking about an expensive purchase, of course, a conscientious consultation of a professional familiar with the previous work of the developer, the features of a particular complex, street, house is necessary. A good realtor will answer a lot of questions for free that go beyond the scope of the deal. An independent search for answers is fraught with great losses."
Next, you should pay attention to the area in which the potential acquisition is located. Thus, despite the general stagnation of prices, there are areas on the Costa del Sol where, according to the results of 2006, real estate prices are expected to increase by about 15%. According to Oleg Bakalyuk, head of Cadespa, this is primarily the area of the "New Golden Mile", which stretches from Estepona to the millionaire city of Sotogrande, as well as a stretch of coast to Gibraltar. This dynamic is explained by the fact that prices here are still lower than in Marbella, and the prestige and level of infrastructure development is not inferior to the Golden Mile. The largest shopping and entertainment center in Europe, as well as one of the largest marinas on the Mediterranean coast, will be built in Estepona, a high-speed railway line will connect the city with Madrid. It is quite possible that in the near future it will be to Estepona that the title of the unofficial capital of the Costa del Sol will pass.
In general, good transport links are very important. If one day you decide to sell your home, the trump card may be that the house is located near a highway or subway. It is extremely useful to ask how the locality is connected to Madrid or Barcelona. Does the airport accept enough local and international flights? Does the AVE high-speed train pass through the city? Affirmative answers to these questions are extremely important.
An analysis of the chosen housing will be even more thorough if the investor tries to imagine some kind of collective image of a potential buyer or tenant. Who might be interested in buying or renting your property? The profile of a potential client and his financial capabilities should correspond to what you intend to offer him in the future.
