Effect of crisis on property market in Spain

The number of unsold houses rises as the credit crunch continues to affect the Spanish real estate market

According to an internal study by the Ministry for Housing the national average number of unsold new flats that are on sale per buyer out of every thousand inhabitants is 11 and this number rises to 25 in Toledo and 30 in Castellon.

The report estimates that around 502,983 new houses or flats have been on the market since 31st June, which is 21.6% more than at the end of last year. Even more worrying is that statistics tend to be unreliable in the housing sector and the real figure could be much more.

The Housing Minister, Beatriz Corredor, confirmed that in her opinion the stock of unsold new housing could rise to 650,000 by the end of this year. The housing expert Julio Rodríguez has calculated that the real figure could be as high as 800,000 and other estimates, such as that by the housing valuer, Tinsa, places this figure even higher at 920,000.

After years of frenetic activity in which 800,000 new houses and flats were built, which is more than France, Germany and the UK put together the crash in the Spanish property market has left housing promoters with the problems of what to do with the number of unsold properties on their hands.

The report for the Ministry of Housing has used information supplied by 252 municipalities which represents more than 55% of the Spanish population.

According to this report the stock of 413,000 unsold flats at the end of 2007 has shot up and is now over half a million. This increase has been particularly obvious in parts of Spain such as Castilla-La Mancha and the Canary Islands where the number of unsold new housing has gone up by 30%. In places like Catalonia the number of new housing for sale has increased by a whopping 61% and in provinces such as Lugo or Segovia this figure has increased by even more (73%) in the space of just 6 months.

On the other hand, Vizcaya, Melilla, Ceuta and Badajoz are the only places where there are less than 5 unsold new houses or flats per thousand inhabitants.

Furthermore according to the Ministry for Housing property prices have gone up in inter-annual terms by 0.7% whereas according to the Spanish National Institute for Statistics prices have dropped by 0.3%.

According to Tinsa property prices have fallen by 6.5% over the last twelve months. Tinsa has highlighted that this is the biggest drop since prices began to go down 8 months ago. Therefore in line with these calculations prices are now at the levels they were in September 2006.

The biggest drop in prices has been in Mediterranean costal areas with a fall in prices of 8.9% followed by metropolitan areas (7.

6%) and capitals of provinces and major cities (6.7%). In the Balearic Islands prices have fallen by 5.4% and 5.3% in the rest of Spain.

Almost all sources of information show that properties are now losing value but according to some not enough. In a report on renting Aguirre Newman, explains that prices need to drop by 23% in order for the housing sector to be reactivated. This has been calculated on the price of renting per month compared to the price of an average mortgage per month. Aguirre believes that the housing sector in Spain will become buoyant once again when the price of an average mortgage is not more than 30% of net income per month which would mean that the cost of buying would not be very different to the cost of renting.