The Spanish dream is still alive and well

The possible collapse of the Spanish property market is being treated in some quarters as the beginning of the end. Smug property watchers from rival markets are suggesting that a hard crash is looming, adding spin to further their own agendas. Yet when viewed independently, the facts and figures available point to nothing more dramatic than a slowdown in a market that has been racing at full tilt for the past decade. A slowdown was not only inevitable, but necessary.

Property prices in Spain are still rising, admittedly not as much as the 18% back in 2003, but they are still going in the right direction. Banco Bilbao Vizcaya Argentina (BBVA), one of Spain’s largest banks, recently released a report predicting house prices will rise between 3-5% this year, indicating a soft landing for a market that has been flying high.

When Spain joined the Eurozone in 1999, they inherited low interest rates, and in a country with a long history of home ownership rather than rental, consumers quite literally went on a shopping spree. Property prices rose by close to 20% in both 2003 and 2004, and now the Bank of Spain says Spanish homes are overpriced by an average of 30%. With the market now steadying out, household debt in the country (currently well over 10% of disposable income) will become less of a concern.

While share traders and real estate watchers are warning investors of an imminent crash, recent data has shown that during the first three months of 2007 house prices rose at an annual rate of 7.2%. So, with prices slowly levelling out, how does this indicate a market crash? The current price increases are at a comfortable level; a level which is beneficial for Spain’s economy, which grew by 4% last year. A less erratic housing market is likely to reduce the GDP growth to 3.5% or less, which is hardly cause for concern.

With a market that has been continuously derided for being overpriced, investment opportunities have always leaned towards those who want to buy and sell quickly in order to make a profit. The market is changing, noticeably, in favour of the buyer. House prices are not dropping, and there are still many bargains to be found.

Predicting that Spanish house prices have reached such a point that the sun is about to set on this once healthy property market could be deemed as a somewhat hasty response. Investing in Spain in order to acquire quick returns may not be the best idea in the current climate, but compared to the rest of the world, a 3-5% increase in prices denotes a normal, healthy marketplace.

Looking at the long term options, Spain is still very much a viable investment option. For those looking for a steady and comfortable rise in your investment, Spain is ideal. With a secure and steady economy, and the third most popular tourist destination in the world, the country is considered a sensible and safe option for long term investment.

With close to three million foreign residents currently in Spain, and the Spanish Ministry of tourism predicting another one million foreigners setting up home in Spain over the next six years, it comes as little surprise that Spain is the top destination for overseas property investors. For those who have already invested in Spain, this is reassuring news. Instead of house prices rising so ridiculously, investors are more likely to benefit long term from a steady economy and a safe and sound property market.

Also, with much of the negative press focused around the property prices in areas such as the Costa del Sol and Costa Brava, reports seem to have overlooked other, flourishing areas of Spain. Many northern areas in particular, such as Barcelona, Madrid and Galicia, have not been adversely affected by the market slowdown.

“The property market in Galicia has certainly not been affected by the market shift. We don’t believe the Spanish property market is headed for a crash as such. If anything, the market here is getting busier. With property prices in the north of Spain still very much stable, it seems many are moving here from the Costas as well as the UK and the United States,” says Sieni Volkers of GalicaVistas Inmo SL.

Developers on the Costa del Sol are only too aware of this trend shift. Rather than accepting defeat, their next step has been to slash prices in order to combat the problem of oversupply; such a move can only benefit the buyer and help to reinvigorate the market. In an area as well developed and well-liked as the Costa del Sol, empty houses do not stay empty for long. Such tit-for-tat tactics are likely to define the Spanish housing market in the near future; rather than an all out crash, expect to see added variety, more transient buyers and a market which is a lot more fluid than the current one.

So, although Spain as a whole may be slowing down, and some of the more established areas are experiencing reduced foreign interest, many areas of Spain are experiencing a healthy and expanding property market. With so much variety, Spain will always be a popular choice among property investors and holiday home buyers. House prices fall and house prices rise. The one constant is Spain’s enduring appeal