Properties overvalued in Spain

Overvalued real estate prices could condition economic growth in Spain.

A half yearly report on Spain by the Organisation for Economic Development and Cooperation (the OCDE) has predicted a growth in GDP by 3.3% in 2007 and 3.1% in 2008, however it has detected some imbalances: low productivity and the overvaluation of properties in the housing market by as much as 30%. According to the report, if these two issues are not addressed then economic growth will drop to 2% over the following decade.

The report, which was published on Wednesday, has reinforced worries regarding the property market in Spain. The OCDE indicated that property prices in Spain have doubled since 1998. It also noted that while a large number of properties remain empty the possibilities for renting in Spain are limited, something which is bad both for the mobility of the labour force and the unemployment rate. The report said that careful analysis had shown property prices to be overvalued by around 30% something which could result in serious economic imbalances over the long term.

Furthermore, the level of debt that Spanish families are getting into, partly due to high mortgages and rising interest rates, is increasing at an exaggerated rate of 22% according to economists from the OCDE. The report highlights the need for stabilisation in the property market.

The report also stresses the need to properly address the current distortion in the housing market which on the one hand stimulates demand but at the same time makes it more difficult for young people and those on low incomes to get onto the property ladder. According to the report by the OCDE, the solution lies in gradually eliminating some of the measures helping property buyers and creating a balance between the incentives to buy and sell property.

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Property for sale in Spain