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Our Property Winter is Not Over Yet

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December 1, 2010

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Even at Christmas, it is as well to remain realistic when it comes to matters financial. So, as we assess the global, Spanish, and Mallorcan property markets as the year turns, what’s the best we can say? Well, maybe this time next winter will be better!

Nobody likes to be curmudgeonly during the season of goodwill, but when we ask four key questions, we quickly realize that reality looks like this: there is a slow recovery, it is by no means sturdy or reliable and given the state of the Spanish economy, we are hopeful about 2011? But anything could happen.

Q: Are we over the worst of the global crisis?

A: Yes, hopefully.

Q: Are we seeing a recovery?

A: Yes, though a slow and tenuous one.

Q: Is the Spanish market as a whole looking more solid?

A: Individual markets are picking up slightly, but demand remains weak and there’s still massive oversupply.

Q: One the basis of the above, are we out of the woods and in sight of a fully fledged recovery?

A: No. Not yet. Not by a long chalk.

In the end though, perhaps Michael Cunnington of MJC Associates, which works with Savills, may have the right idea for Christmas and the New Year: he’s done with the uncertainty and planning to focus solely on signs of real estate cheer

About the only constant in the media are the fluctuations between a double-dip recessions on the one hand, and substantial growth on the other so I’ve decided to ignore everyone else’s opinion in future and concentrate on the positives, he told abcMallorca.

Cunnington concedes, however, that recovery in terms of enquiries, visits and sales has been slow and that when buyers do sign on the dotted line, they’re typically doing so at around ten percent below the asking price, a chastening (probably at times harrowing) experience for vendors.

And yet, as we’ve observed before, the hope in the real estate business is that buyers chasing bargains will see that there are better opportunities now than at any time during the past decade and more some of those opportunities, unfortunately, arising out of bank repossessions.

Bank repossessions do pop up from time to time, Cunnington acknowledges. They often arise at short notice. They’re excellent opportunities for investors. And while they usually require a substantial deposit to attend the auction, that deposit is refundable.

To put all this in context, it’s worth reminding ourselves just how unsustainable the Spanish market actually became between, say, 1996 and 2007:

The national average property price rose by 197 percent. 
The average price of properties along the Mediterranean coast surged by 250 percent, as hundreds of thousands of foreigners, mainly British, Germans and French, bought. At the same time, the average price of properties in the two main cities, Madrid and Barcelona, rose 188 percent so the price inflation wasn’t solely attributable to foreigners

Now though, the party is well and truly over. At the end of September, a line was drawn in the sand by trade unions who staged a 24-hour general strike the first since Socialist Prime Minister, José Luis Rodriguez Zapatero, took power six years ago.

The strike took place to coincide with a European day of action which had its main focus in Brussels. But at home the unions’ targets were the Government’s swinging austerity cuts and the fact that unemployment has topped 20 percent and is expected to remain over 15 percent until at least 2013.

And yet how about this for mixed messages? The very day before Finance Minister, Elena Salgado, unveiled the outline of her tough 2011 budget, which will increase income tax for the better-off and require belt-tightening all round, Prime Minister Zapatero declared: I believe that the debt crisis affecting Spain and the euro in general has passed?

So that’s the political and economic context; confused and not very pretty.

And according to the Bank of Spain, those economic concerns will continue to have a real and present impact on the domestic property market which won’t start to recover in any meaningful way for at least another six months.

At year-end 2010, the Bank of Spain report gives us this update:
- Residential investment will continue to contract until the middle of 2011, at the earliest
- The property and construction sector has shed around two million jobs as a result of the crisis
- The glut of newly built properties stands somewhere between 750,000 and 1.2 million, not all that different to where it was at the end of 2009

As we’ve seen before, however, the Mallorca micro-market tends to be somewhat more insulated from the harsh reality of the mainland than locations such as the Costa del Sol, for instance.

That’s perhaps why a quick totally unscientific abcMallorca straw poll of real estate experts here in the middle of the year showed the first signs of optimism, appropriately hedged around with caveats.


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Peter Cluskey

Peter Cluskey

An Irish journalist who worked for some years as a war correspondent for the national television station in Ireland – RTE. In recent years, he has specialised in writing about the real estate market worldwide – focusing particularly on the luxury second home destinations. He is a sought-after contributor to a number of international property publications, based on his reputation for well-researched and excellently written articles.