The development of the Spanish real estate market since the 2000s, part 1 of 3
- The development of the Spanish real estate market since the year 2000
- Is now the time to buy a home or make an investment to real estate in Spain?
The real estate bubble bursts in Spain, Blog-series part 1/3
The Spanish real estate market has been quite turbulent since the early 2000s when, first, the strong rise in house prices stalled, followed by a collapse in the real estate market. What was it all about? At the beginning of the 2000s, Spain was an attractive investment for Northern European and English investors. House prices were relatively inexpensive in the home market and new real estate was built in Spain that responded to customers' demand. At the same time, the British had the opportunity to raise their own future pensions in advance and to place this money towards an apartment under the palm trees. House prices rose year after year and a strong positive trend took place.
However, the largest single factor, or rather the whole industry, which allowed for a strong rise in house prices, was the Spanish banks. The banks made it possible for people to buy their homes without worrying. As a result, the entire house production went through strong growth and house prices rose sharply. At the fiercest time, between 2005 and 2006, it was normal to get a home loan of 110% or up to 120% of the purchase price of the real estate and as a security it was enough to use the apartment in question. Banks took part in the rapid rise in real estate prices and it was thought that next year the prices of houses would be again 10-15% higher than at the time of purchase. The risks were not seen or were not wanted to be seen. As in all economic cycles, at some point, the rise will end and only at that stage people will wake up to reality. There was no recession in Spain, but there was a complete burst of the housing bubble, collapse in house prices and the consequent crisis in the banking sector which almost lead to a total collapse. This time, the overall collapse was only blocked by the EU by granting a giant 100 billion euro support package to the Spanish banking sector in the summer of 2012.
However, the stagnation of the housing market and the ensuing collapse of prices occurred much earlier. The best year of all-time housing sales in Spain was in 2006, when a total of 955,000 homes were sold throughout the country. After that, the decline in real estate volumes continued year after year, and finally in 2013, the 2000-century low point of 300,000 real estate transactions in a year meaning that since 2006 the sales were down 70% and housing prices had collapsed. From the point of view of housing investment, however, it is more interesting to look at housing price developments. This is what we are going to tell you about in the next part of this blog, but let it be stated that the absolute lowest real estate prices were depending on the region in 2012-2014. Many were able to seize the opportunity, many just wondered.
The next part will be published on December 22, 2018 and it explains more about real estate price developments.
The source: The official statistics of the Spanish Ministry of Commerce Foundation: www.fomento.gob.es