Spain Sliding Down The Pan

[Deckard]

Given the published stats on Spanish house prices and the collapse in the £ Sterling, I would guess many uk based holiday home owners are feeling pretty pleased with their investment

Unless they have a mortgage in Euro

[Gone baby gone]

Mmmm, excellent!

Looking forward to snapping up a little holiday apartment for the price of a new car.

As the Bubbster pointed out, they will continue to build since a large part of the Spanish economy is based on the construction sector (although what they build is open to question).

[Gigantic Purple Slug]

cant be done though...think of Banco Santander and their balance sheet....needs protection from the real world...as do alltheother western banks whose best investment stragtegy is in property.

But let's say, hypothetically, Banco Santander was to fail, who would/could step in to save it ?

[interestrateripoff]

So there's a slight over supply of property then?

[LiveAndLetBuy]

IMO the main problem with the PIIGS is not debt, it's labour market rigidity.

The level of personal debt is nowhere near the UK, and many people actually try to save.

However, the trade unions think that we are still in 1968 and people are entitled to a job for life, both in the public and private sector - and the sheeple sadly agree.

In a downturn, labour market rigidity coupled with the inability to use the IRs/exchange rate levers is a real killer, particularly considering that all the PIIGS rely heavily on exports and tourism.

Spot on.

However, many Spanish people I know support membership of the euro because they think having a strong currency will force their government to change this situation. They believe that if they still had the peseta their government would persistently devalue it in order to avoid making painful economic reforms, such as creating a flexible labour market, cutting taxes and reducing the size of the state. It is unfortunate that at the moment they have a government that is hell bent on doing exactly the opposite and is driving the economy into the ground.

[Trampa501]

IMO the main problem with the PIIGS is not debt, it's labour market rigidity.

The level of personal debt is nowhere near the UK, and many people actually try to save.

However, the trade unions think that we are still in 1968 and people are entitled to a job for life, both in the public and private sector - and the sheeple sadly agree.

In a downturn, labour market rigidity coupled with the inability to use the IRs/exchange rate levers is a real killer, particularly considering that all the PIIGS rely heavily on exports and tourism.

That's quite a well-informed view (with one minor exception which I'll come to later). Spain is relying on the improvement in the French and German economies to lift her out of the mire - with some logic too - French tourist visits to Spain have`actually improved this year, and Germany is Spain's prime export market. Few are as optimistic as Prime Minister Zapatero though, who recently said

The recession will be less than in other European countries. Our banking sector has avoided the crisis, and that will aid the recovery. Of course, the main problem is unemployment. Recovery will only take place when we create jobs. Our strategy is social protection and to reform the growth model to focus less on housing and more on innovative sectors like renewable energies and biotechnology.

From my view, property prices will be hit hardest in resorts populated mainly by British expats - their purchasing power is diminished dramatically by the fall in the pound. As other posters have pointed out, you may get Germans buying even more holiday homes, but I suspect they'll stick to areas they've already colonised or alternatively seek out purely Spanish areas, like a couple of friends of mine did in Cantabria on the north coast. I can't see them making a bee-line for failed Brit areas, although you never know. On a wider scale, although prices will come down a bit in places like Barcelona and Madrid (where the jobs are) it's more likely that a stagnation will take place there as people need accommodation close to the workplace. Even now in the middle of a recession you can search on Spanish job sites and find thousands of vacancies in the big two cities.

Here's where I differ a bit from VWYF. There are now a lot of contract/temp type roles in the private sector in Spain (I accept that wages do not go down in the public sector). Indeed if you've looked at vacancies over a long time on places like infojobs.net you'll have seen a major cut in salaries offered (similar to the contracting sector in this country). If you were for example to set up a data centre and/or IT base in Madrid you'd get it a lot cheaper than the equivalent in London (cost of property rental, IT professionals salaries etc would all be a lot lower even at pound parity). So there are areas where Spain can be competitive; unfortunately this does not benefit the laid-off construction worker in Andalucia nor the car production worker in a northern town.

[Agentimmo]

You can get that in UK too. A 2-bed chalet with all amenities in the £20k ballpark. Almost tempted myself.

With a swimming pool and 200 days of sun included ?

Joking aside, if that is the price for an appt on some holiday site can you post a link? It sounds tempting. I'm assuming it's somewhere in the north?

If it's for a mobile home type chalet, that's not the same as a bricks and mortar appt. On the French riviera you can buy a 3 bed mobile home for 20,000€, 250 days of sun included

[non frog]

....

If it's for a mobile home type chalet, that's not the same as a bricks and mortar appt. On the French riviera you can buy a 3 bed mobile home for 20,000€, 250 days of sun included

Yup and it will have water - unlike the rubbish in Spain.

IMHO a great deal of what has recently been built will be knocked down or left to rot.

We looked in southern Spain 10 years ago (before buying the place here in Montpellier) and even back then there was a water issue. I remember very well a newly built dam with nothing but a tiny stream and a lonely horse on the side where there should have been millions of litres of water.

There are good buys this side of the border if you are looking for holiday apartments with Costas type sun and beaches, I think many will be up for grabs on the cheap next year (seem to have been selling well this summer). We looked at some in Cap d'Agde at about 40K. My concern is the heat in August is getting more intense and this is prime rent-out time. As the world heats up we will see 40C plus in August too often and I think that will tone down the demand this far south in favour of the Atlantic coast like the Vendée.

[rondy]

will be able to soon, they will be giving them away, and with all the problems people have with property over there,

add all this to it, spain property = worthless

i for one am laughing ,

And you know something? Some idiots on other forums are still pretending they have reached the bottom in Spain and prices will start growing?

Easy to guess that they all are estate agents...

[rondy]

Those crafty Germans with any savings left will soon be buying up swathes of the Costas. A 2 bed appt for 1 year's wages, for example. There are winners and losers in any cycle. This time it's the Germans. For the last 15 years it was the Brits and their mew'ed lifestyles that built the Costas. The Spanish

Germans already bought in Spain. There is no one left in Germany without Spanish property. Even the DDR guys...

[Guest_James Toney_*]

And you know something? Some idiots on other forums are still pretending they have reached the bottom in Spain and prices will start growing?

Easy to guess that they all are estate agents...

yeah i think you are, right,

great news though, lets hope for it to really tank in coming months,

[VeryMeanReversion]

But let's say, hypothetically, Banco Santander was to fail, who would/could step in to save it ?

UK govt guarantees Alliance & Leicester deposits to £50K still.

They are paying over 3% for instant access now so I keep under £50K there.

VMR.

[Trampa501]

Germans already bought in Spain. There is no one left in Germany without Spanish property. Even the DDR guys...

It's not an argument I subscribe to myself, but I've seen it said that the housing market in Spain (note NOT resorts on the coastal fringe) will be held up by migrant workers (and believe it or not Spain has accepted more immigrants in recent years than the UK) investing in property for their sons and daughters. I find this hard to believe as most of these workers are at the bottom end of the pecking order and are (usually) the first to be given their marching orders when redundancies are announced. Even so, you never know - some can (and do) prosper, for example:

Martin Varsavsky

The argument for large numbers of migrants is always they bring new skills, attitudes etc that benefit the economy in the long run. If this argument is true, then we can see a rosy future for Spain as it benefits from large numbers of Latin Americans, Rumanians, Russians, Moroccans etc. Personally I have my doubts, but let's see! Spain may surprise everyone. (cue joke about No-one expects the Spanish xxxx here)

[LiveAndLetBuy]

...

Here's where I differ a bit from VWYF. There are now a lot of contract/temp type roles in the private sector in Spain (I accept that wages do not go down in the public sector). Indeed if you've looked at vacancies over a long time on places like infojobs.net you'll have seen a major cut in salaries offered (similar to the contracting sector in this country). If you were for example to set up a data centre and/or IT base in Madrid you'd get it a lot cheaper than the equivalent in London (cost of property rental, IT professionals salaries etc would all be a lot lower even at pound parity). So there are areas where Spain can be competitive; unfortunately this does not benefit the laid-off construction worker in Andalucia nor the car production worker in a northern town.

The problem with the IT industry in Madrid is that while wages are lower than the UK, companies would rather pay more for people with the right skills and who they readily can "hire and fire" on a contract basis. That cheap Spanish IT worker suddenly becomes quite expensive when you find out that when the project is over and you no longer need him/her, you still have to keep paying them for 18 months. In fact I know people here in Madrid who have zombie jobs because their company cannot afford to make them redundant. Absolutely crazy.

Spanish IT workers tend to prefer secure, permanent contracts, partly because going freelance in Spain is very bureaucratic, expensive, and insecure. If the next government changes this situation (this one won't) then yes you might see the IT industry in Madrid start to take off. But I'm not holding my breath.

[Guest The Relaxation Suite]

Ireland cannot be far behind. **

And UK not far behind that. And Italy. Dominoes.

[Traktion]

But let's say, hypothetically, Banco Santander was to fail, who would/could step in to save it ?

IMO, that's a big concern.

They can't keep borrowing to bail out the banks as they have strict limits debt to GDP and they can't use things like Quantitative Easing to make additional "borrowing" from the future (beyond what the bond markets dictate).

The consequences of such could mean bond yields would have to go up to fund the increasingly risky borrowing. At some point, they will either start to suffocate under the cost of government borrowing or the EU will try to stop them borrowing more than 60% GDP (probably more likely the former - latter will be ignored in "crisis" imo).

Presumably, all increased costs in government borrowing would have to be reflected in the increasingly less competitive/appealing interest rates offered by the struggling bank. This could lead to more defaults, putting more pressure on the bank's and the government's finances.

What happens then? The banks being propped up would at some point fail. The state would also fail, with perhaps the IMF sandbagging their ultimate destiny for a while.

Of course, it might not get that bad, but with so many loans going rotten on their books, how can it be avoided? That massive overhang of property is going to keep falling in price until demand picks up. Where is that demand going to come from? The Germans will struggle to find customers (cos we're all in too much debt!) and once the stimuli run out, this will be a problem too.

I just can't see a pleasant way out of this. The best case is probably a Japanese like deflation, but I can't see how Eurozone countries can do this. They are in the same situation as the US was on the gold standard in the Great Depression, yet the amount of credit is much higher... how bad will/can it get? I dread to think, tbh...

[We're all dooomed!!!]

great news all of it, ,

Sorry, I want a HPC as much as the next man but its pretty nasty to say that its 'great new' that 25% of people in Spain will be unemployed!

[Deckard]

They can't keep borrowing to bail out the banks as they have strict limits debt to GDP

So do Italy (over 100% public debt/GDP ratio), Greece (over 90%) and Belgium (over 80%), but that's not stopping them from issuing more an more debt.

http://en.wikipedia.org/wiki/List_of_count..._by_public_debt

The consequences of such could mean bond yields would have to go up to fund the increasingly risky borrowing.

Correct.

Which is why the recently re-launched BTP futures are being hailed as a more efficient way to hedge against imbalances within the EZ.

http://www.bloomberg.com/apps/news?pid=206...id=a1na80VTdbyM

[SHERWICK]

Sorry, I want a HPC as much as the next man but its pretty nasty to say that its 'great new' that 25% of people in Spain will be unemployed!

Only three ways to solve this problem for Spain that I can see:

1. encourage mass immigration to try and create demand for housing.

2. encourage the spanish to have as many babies as possible to try and increase demand for housing.

3. massive and sustained government spending to support 1 and 2 above. (Can they even do this as part fo the Euro?).

[We're all dooomed!!!]

Merge if already on....

RR de Acuña said the overhang of unsold properties on the market, or still being built, has reached 1,623,000 . This dwarfs annual demand of 218,000, and will take six or seven years to clear. The group said Spain's unemployment will peak at around 25pc, comparable to the worst chapter of the Great Depression.

Quick - buying opportunity!

The Spanish government can do little to cushion the downturn. "The room for manouvre in fiscal policy has been exhausted," said Mr Ruiz.

Big room. Leave the euro.

http://www.telegraph.co.uk/finance/economi...depression.html

I own a half-share of a property in Majorca (bought about five and a half years ago - very frustrated at UK property prices, the property in Spain was much better value, I love Spanish way of life, plus may want to live there/spend lots of time there when I'm older). I don't care if values go up or down (within reason) as I get a lot of pleasure time I spend there and a get a very small amount of income from lets to people I know.

Anyway, the point is that the falls aren't universal in Spain. Development on the Balearics has been better controlled, the resorts have better infrastucture and property is not as over-supplied. Therefore prices haven't really fallen much there (although new builds are not selling). Agree that on mainland Spain it is a bloodbath.........

[rondy]

I own a half-share of a property in Majorca (bought about five and a half years ago - very frustrated at UK property prices, the property in Spain was much better value, I love Spanish way of life, plus may want to live there/spend lots of time there when I'm older). I don't care if values go up or down (within reason) as I get a lot of pleasure time I spend there and a get a very small amount of income from lets to people I know.

Anyway, the point is that the falls aren't universal in Spain. Development on the Balearics has been better controlled, the resorts have better infrastucture and property is not as over-supplied. Therefore prices haven't really fallen much there (although new builds are not selling). Agree that on mainland Spain it is a bloodbath.........

The usual "it is different here" point of view.

The bloodbath will be everywhere. SEll and rent while you can.

[Tim Miller]

I own a half-share of a property in Majorca (bought about five and a half years ago - very frustrated at UK property prices, the property in Spain was much better value, I love Spanish way of life, plus may want to live there/spend lots of time there when I'm older). I don't care if values go up or down (within reason) as I get a lot of pleasure time I spend there and a get a very small amount of income from lets to people I know.

Anyway, the point is that the falls aren't universal in Spain. Development on the Balearics has been better controlled, the resorts have better infrastucture and property is not as over-supplied. Therefore prices haven't really fallen much there (although new builds are not selling). Agree that on mainland Spain it is a bloodbath.........

I have a friend who has a apartment in a high rise development in Majorca, it's halved in value, he can not sell it. It was worth 190k but best he ever had was an offer at 90K quickly reduced to 70k.

I should know the answer myself, but I am moving probably to Lanzarote but possibly another canary Island, I need some advice please.

What do people think prices will do there? (years and % of going down)

Which are the very nicest Islands and why?

I can't do cold at all nor hills (very damaged heart and strokes)

I don't want a place where it's infested with chavs or find some pissed yob wearing a 'kiss me quick' hat is going to throw up on my door step whilst shagging some slapper he has just pulled in a club.

[Gigantic Purple Slug]

So do Italy (over 100% public debt/GDP ratio), Greece (over 90%) and Belgium (over 80%), but that's not stopping them from issuing more an more debt.

http://en.wikipedia.org/wiki/List_of_count..._by_public_debt

Correct.

Which is why the recently re-launched BTP futures are being hailed as a more efficient way to hedge against imbalances within the EZ.

http://www.bloomberg.com/apps/news?pid=206...id=a1na80VTdbyM

The parallels between Spain and the UK are interesting, especially with the UK having the more flexible monetory policy.

It we be interesting to see whose debt is preferred. The UK, with its quantitive easing or Spains.

Maybe with other countries issuing debt like crazy rather than quantitative easing the UK debt might be preferred, even if the pound is being devalued.

Also it will be interesting to see who long term ends up getting shafted the most. The UK with potentially lower debt repayment costs but with the inflation stealth tax or the Spanish with their horrendous debt servicing costs.

Guess if we vould figure out a way through the smoke and mirrors we could make a lot of money.

However, it does help me understand a bit that the reason UK debt may remain popular isn't because the UK looks particularly credit worthy, but because everyone else looks a hell of a lot worse.

[abharrisson]

Spain have a huge huge problem here although I don't think its as straightfoward as saying 1600000 available properties (overbuilt) only 200,000 annual demand. I suspect a lot of the overbuild is in the touristy areas and revloves around little flats etc..... so its likely that the overbuilt locations ( and thats not ALL tourist destinations) will have big big trouble for years to come, but prices in other parts of spain may not be so soft.

Either way the country has some serious problems as effectively they have lost 18% of their industry ( thats what construction used to be) have something like 12% unemployment (rising to 20% wouldn't surprise me) and their banks like it or not will have a large number of bad loans as a result... plus they have zero room for manoevre due to the euro.

Remeber Ireland is in a similar hole with an Overbuild (unoccupied/unfinished ) property bank equivalent to their ENTIRE rented sector.

Compared to these two the UK property issues are miniscule.

[Frank Hovis]

Spain have a huge huge problem here although I don't think its as straightfoward as saying 1600000 available properties (overbuilt) only 200,000 annual demand. I suspect a lot of the overbuild is in the touristy areas and revloves around little flats etc..... so its likely that the overbuilt locations ( and thats not ALL tourist destinations) will have big big trouble for years to come, but prices in other parts of spain may not be so soft.

Either way the country has some serious problems as effectively they have lost 18% of their industry ( thats what construction used to be) have something like 12% unemployment (rising to 20% wouldn't surprise me) and their banks like it or not will have a large number of bad loans as a result... plus they have zero room for manoevre due to the euro.

Remeber Ireland is in a similar hole with an Overbuild (unoccupied/unfinished ) property bank equivalent to their ENTIRE rented sector.

Compared to these two the UK property issues are miniscule.

Mmmm... not convinced about that last comment.

Just because we're not an obvious basket case at this stage does not mean we have huge problems. I think we do.