Spanish Property: Austerity = Opportunity

After last week's article entitled Spanish property: Delusionism or Optimism, I received an interesting email from Property Pulse reader, Steve Dimmock:

"I have also been looking to buy over the last two years and have just purchased. I am no economist or estate agent, but the reason I have just purchased and not in the previous 2 years is that i feel the prices now are about right and are not overvalued - which is one reason people are now interested again, nobody wants to pay more than they have to."

Speaking with estate agents, Steve is certainly not alone. Properties priced to sell in Spain are actually selling. No great shock there, but what is surprising is the amount of price-bloated property stock still on the market. Again, the question arises, how do you find the properties which are competitively priced?

The TINSA House Price Index is now out for August, and it continues to reveal an encouraging trend. Sure, their data is based on valuations, not actual transaction prices, but their index does accurately describe the peak of the market in 2007 and its subsequent decline.

What the TINSA index tells us is that house prices are still falling in Spain, but the decline has stabilised. Here's an explanation of why I think the TINSA data is the most useful currently available, and here are some ideas of how to use it to figure out the right price to pay for a Spanish property.

You can also search our news archives for more ideas about using the TINSA reports.

Interpreting data correctly has always been a challenge - and understanding what's happening to Spain's inflation is no exception.

In this article from Reuters: Spain: August Inflation Matters, it's actually quite hard to grasp the fact that a little inflation is a good thing - and Spain's rate of inflation continues to dwindle - a bad thing leading to deflation and self-perpetuating price cuts.

What the government desperately wants and needs is inflation to gradually increase, so that consumers pay more and bolster Spain's massive deficit. Instead, faced with unemployment and general financial uncertainty, Spaniards are economising. Zapatero rightly concludes that, for Spain, there will be a Prolonged Period of Austerity Ahead.

One reason this is more true of Spain than other nations is that the country doesn't have a competitive edge in any key industries. Its draconian labour legislation means that it cannot compete in a world market, and monolithic companies in major industries effectively block the march of progress within the country.

Spain has yet to figure out how it will balance its books or where the money will come from - a situation succinctly described in Spain Ignores Calls for Crisis Reform.

What does all this mean to you? In this Financial Times article speaking of a W-shaped Recovery in the UK, one commentator spoke of the recent growth in UK house prices as a "false dawn in a mini-bubble".

When you combine the various trends described by this week's news articles, I think this might create some tempting possibilities for foreign buyers of Spanish property. Here's how I see that happening:

1. Spain's exceptionally weak economy will make it a laggard in a more general European economic recovery


2. The value of Spanish property will continue to slide due to suppressed internal demand and over-supply of properties


3. The inhabitants of some other European countries will have greater relative spending power in Spain


4. The 'false dawn' in the UK property market will encourage UK buyers to look outside the country for property

Of course, the key to making this work for you is ensuring you pay the 'right' price for a Spanish property. Do your research and use an independent lawyer. If you can, have the property professionally valued (don't rely on a bank valuation).

Do let me know how you get on.