Spain’s desperate property market

October 14, 2008
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, MADRID, October 14 – As the financial crisis bites ever deeper into Spain’s once-booming housing market, estate agents are resorting to desperate measures, such as offering "two for one" sales or free holidays, in a bid to offload their properties

The one-time "golden boys" of the property business were first hit in 2007, when 10 years of unrelenting expansion ended when the sector collapsed amid rising interest rates, oversupply and tougher lending conditions.

They are now suffering in the depths of the worldwide financial crisis in which the few potential buyers are unable to obtain loans and are at the same burdened by their own debts.

But despair has led to ingenuity.

The most recent example is a property developer in the southern region of Andalucia who is giving away two homes for the price of one in a bid to find takers.

"Buy a townhouse in Terrazas de Miraflores and get another one-room apartment in Baviera Golf," the Salsa Immobiliaria company says on its website below a photo of the townhouses surrounding a swimming pool.

And this type of initiative is not unique.

Early last year, as the government and developers were predicting a "soft landing" for the market, a chain of real estate agents, Re/Max, decided to have a sale of apartments during the legal period for sales in January.

As it became apparent that the property crash was going be worse than feared, the offers became more and more enticing — a free holiday or a car or a cheque in exchange for a signature on a property contract.

Some agents thought they had found the solution by holding "Dutch auctions" in which the auctioneer begins with a high asking price which is lowered until someone is willing to accept the price on offer.

But these sorts of initiatives have failed to stir the market. With salaries among the lowest in the eurozone and faced with rising inflation, unemployment and interest rates, Spaniards are not buying.

And many of those who want to buy can’t get mortgages.

"The credit restrictions have made the absorption of the oversupply more difficult," said Josep Oliver, an economics professor at Barcelona University.

"We have built 650,000 properties against a demand for 450,000 in 2007," said housing minister Beatriz Corredor.

The combination of elements has added up to a freefall in the market.

Sales plummeted 31.5 percent in the second quarter from the same period in 2007, the housing ministry said.

And developers see an even bleaker future.

Pedro Perez, the head of "G-14" property developers group, said there are now 800,000 empty properties in Spain.

Industry professionals believe that the price of new properties is down by around 15 to 20 percent, but refuse to go as low to 30 or 40 percent.

"Before they get to that point, they would prefer to sell to the banks," said Guillermo Chicote, the head of Spain’s association for developers and constructors associations.

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