Wednesday, April 25, 2007

Has Spain’s property bubble just burst?

Has Spain's property bubble just burst?

First America, now Spain. It looks like the Spanish may be the first group of Europeans to experience a painful ending to the global property boom. Yesterday, the Ibex index in Madrid closed down 2.7% as it was swept by “fears of a property crash,” writes Ambrose Evans-Pritchard in The Telegraph this morning. The wonder is that it has taken investors this long to become nervous…

Posted by mary @ 10:33 AM (584 views)
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15 thoughts on “Has Spain’s property bubble just burst?

  • An interesting point is raised – those who have bought in Spain through MEWing their UK property are in big trouble – 1/2 to 1 Million people?

    Shows like ‘Buying Property Aboard’ and ‘A Place in the Sun’ – will be classic halcyon TV in a month or so time.

    A Middle Class Credit Crunch about to hit us then?

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  • This is a classic demand and supply issue which was the same as the commercial property crash of the late eighties. There have been 800,000 property starts in Spain compared to a predicted demand of 600,000 so the UK is in NO WAY comparable on the supply issue.

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  • Good point Maddison, but remember that Japan is roughly the size of the UK with twice the population but they experienced one of the biggest crashes in history.

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  • @Maddison,

    I am not clear on your point. Is there a “lack of supply” of housing in the UK?

    I flew as a military pilot in the UK for a few years and everytime I went up, all I saw was green space.

    What is the area of the UK and what is it’s population?

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  • Err try getting permission to build a house in those green fields..

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  • bidin'matime says:

    “there appears to be no obvious trigger for the sudden switch from euphoria to panic.”

    I keep saying – there was no obvious trigger for the 2000 dotcom crash – it just happened – that’s how it will be in the property markets.

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  • @Maddison,

    Area of Japan: 378,000 sq km
    Area of UK: 245,000 sq km

    Population of Japan: 127m
    Population of UK: 60m

    Available space for habitation in Japan 20% of 378,000 =75,600 sq km

    Japan has been KTFO’d for the last 17 years.

    Those dudes been picking the sand out of their teeth (House Price wise) since 1990/1991.

    WHat makes us so special here in the UK?

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  • george monsoon says:

    Just unlucky I guess..

    Now how much can I buy a home for, my missus is due to pop any second.!!

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  • I think that the UK is slightly different from japan in that people actaully want to come here and work. mainly for the mony, but also to learn english and get an education (yeah I know it’s not that good but better than most) etc…

    so there is more demand than there was is Japan.

    I do however think that we’ll head for a housing crash rather than economic deflation (which is what happened in Japan) mainly because deflation is much worse over the long term.

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  • Mark Wadsworth says:

    Ivmreader, to answer the last bit of your question, of course you only saw green firelds, only about 10% of the UK is developed.

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  • Building more properties than there are buyers is one way to change sentiment in a market certainly – so maybe that will be the factor that kicks things off here, with so many unwanted flats being built?

    But current demand in the UK, as far as the housing market is concerned, is only created by those able to afford to buy – if you are priced out by rampant HPI and higher interest rates, then I’m afraid you do not count. “Only those with the cash can sit at the table”, and there will be fewer and fewer people with the cash in the UK now (first time buyers going the way of the dodo, new BTL mortgages require that at least 100% of interest is covered by rent receipts, which is less and less easy to achieve, etc). The higher prices go, the fewer people can afford them, so demand actually GOES DOWN.

    Stop thinking about demand in terms of simply the number of households that would like to buy a house – does Ferrari predict demand by counting the number of people who would simply like to buy a Ferrari if they could? Get it?

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  • A drive around the dustier parts of the spanish coastline will illustrate all too well what is going badly wrong over there over the last 5 years, every spare shred of coastline that can be built on has been, golf courses and their associated developments of 2/3 bed apartments built with classic Spanish cheap’n’chearful low quality underneath the painted render style abound.

    If you buy one you can’t get rid of it as they are many only suitable for holidays and the competition from the huge number of new builds is immense.

    Supply well and truly outstrips demand as most buyers are Brits in their 50’s or 60’s who have decent pension prospects and have generally paid off their mortgages. The outlook is doubly bleak and will be compounded by oversupply of properties and lack of replacement buyers one the baby boomers have had their fill.

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  • George
    “Now how much can I buy a home for, my missus is due to pop any second.!!”

    Stroke of luck I have recently come back from Japan, the awnser to your question is about 100.000 pounds for a three bedroom house in Kyoto.

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  • C'mon Correction says:

    There isn’t a shortage of houses in the UK. Rent prices are the most affordable they have been in 20 odd years, BTL’s are sitting on voids all over the country desperate for tenants.

    I’ve heard it from very good authority that Barclay’s are now expecting a correction in house prices in 2008. They are starting to alter their lending criteria pricing this in. And please believe me, this is the truth – I was quite shocked actually and now I don’t feel like such a minority anymore !

    Also only last night a financial advisor in the family announced that “we’re in for a quite large property crash”, starting end of year and lasting on a downward trend for the next few years.

    Something is in the air !

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  • c’mon – you having a Phil Collins moment!

    I fear that the recent DOW high is reminiscent of 1929 – esp when you consider that it has gained 2,000 points since Aug 2006:

    “After an amazing eight-year run that saw the Dow Jones Industrial Average (DJIA) increase in value fivefold, prices peaked at 381.17 on September 3, 1929. The market then fell sharply for a month, losing 17% of its value on the initial leg down. Prices then recovered more than half of the losses over the next week, only to turn back down immediately afterwards. The decline then accelerated into the so-called “Black Thursday”, October 24, 1929. A then-record number of 12.9 million shares were traded on that day.”

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