Is it time to look at Spanish property?
Since the height of the Euro crisis the Spanish economy has been mired deep in recession so news of the first quarterly increase in Spanish gross domestic product for 2 years has been well received by investors. While an increase of 0.1% in GDP between July and September is minimal and may not signal the end of the long-term downturn, it is certainly a move in the right direction. This comes amid signs that investors are now beginning to show interest in Spanish property and Spanish construction even though the much talked of long-term economic recovery could still be some way off.
The Spanish property market slump continues with house sales down by 15% in August from 12 months previous. Home mortgage approvals fell by an even greater 43% in July according to official statistics issued by the Spanish authorities. So, are we moving towards a gradual recovery or is the long-term downtrend continuing?
Spanish property market
It is no secret that the Spanish property market has been under significant pressure for some time and indeed there is still an enormous overhang of unwanted properties. Spanish banks have been weakened by the economic turmoil and their mortgage books contain an array of unwanted properties from investors who could not afford to maintain their financial repayments. There have been rumours for some time that Spanish banks are looking towards a short-term firesale of unwanted properties at any price.
Quote from PropertyForum.com : “While many people believe that the worst of the Euro crisis is now behind us, the fact remains that financial institutions across Europe are still reluctant to lend anywhere near the amount required for short-term debt maturity in the European property market.”
Against this background it is not difficult to see why some property investors are still sitting on the sidelines with regards to their Spanish property market exposure. There is no point jumping in heavily at this moment in time only to find that the rug is pulled from underneath you by Spanish banks looking to offload unwanted assets.
The medium to long-term outlook
While there is no doubt that on paper a variety of local Spanish property markets do look good value, we also have to take into account the wider European picture which is still very much shrouded in uncertainty. There are tentative signs that the European economy is consolidating and may be ready to move ahead in the medium to long term although the short-term signals are mixed. An increase of just 0.1% in Spanish quarterly GDP would not normally grab so many headlines but set against the recent downtrend it is perhaps easy to see why some investors are now grabbing at straws.
The Spanish government has gone through a very difficult period introducing an array of austerity measures which have pushed many people and businesses to the limit. This has caused unrest and conflict between the authorities, businesses and the Spanish population which will take some time to fix. One of the major elements of a buoyant property market, and indeed a buoyant economy, is positive sentiment which is still very scarce amongst Spanish investors and international investors looking towards the country.
Conclusion
While it is good to see that the Spanish economy is starting to consolidate, an increase of just 0.1% in quarterly GDP is not normally something which would grab the headlines. Many experts are forecasting a further slump in the short-term although there are hopes of a medium term recovery which should lead to long-term stability and greater confidence and interest in Spanish property.
Those looking longer term may wish to tentatively increase their exposure to Spanish property and indeed the fact that Bill Gates recently invested over $150 million into a Spanish building company is perhaps a sign of things to come. Using traditional investment measurements there seems to be good value in the Spanish property market but it is worth remembering that we get are in very non-traditional investment times. The Spanish economy, and indeed the wider European economy, has taken a major battering over the last few years and the financial repercussions will take some time to filter through.