A Sinking Feeling in Sunny Spain
The property market in Spain is sagging. Areas with a glut of new apartments appear to be struggling the most. Mortgage interest is on the rise and there are far too many planning approvals, according to experts there. Spanish builders constructed 750,000 houses and apartments last year, more than in France and Germany combined, while annual demand runs about 60% of that, according to the Finance Ministry.
While Spain’s economy has been strong and overall unemployment is low, 18% of the country’s GDP is housing related, compared to 9% in the EU overall. For some time, there has been concern that a construction-lead recession could occur. Now, with the turmoil in U.S. mortgage markets and the flight from risk in Europe, Spain’s prosperity is genuinely threatened. Banks are now having difficulty syndicating loans and real estate listings on the Madrid stock exchange have plummeted.
Housing prices haven’t fallen as yet, but sales are down.The average house price in Spain was 276,300 euros or $370,670 as of last December, up 107% since the same period of 2000. Defaults on Spanish home loans in the first quarter were the highest in at least four years, according to Standard & Poor’s.