Prices for holiday homes are falling in Spain as a glut of new developments, corruption scandals and land-grab laws make foreign buyers think twice about one of Europe’s most popular vacation destinations.
A construction bonanza, driven by cheap credit, saw house prices more than double in seven years and helped Spain build as many new homes each year as France, Germany and Italy combined.
But overseas buyers — typically from Britain and Germany — are baulking at price tags for mushrooming pastel-coloured holiday villas near towns like Alicante and Malaga.
And economists will be watching the holiday-home market for early warning signs about whether Spain’s decade-long housing boom is headed for a soft-landing or a sharper downturn.
”Prices have dropped. In the past 18 months in particular, prices are cheaper,” said Brian David, chairperson of the Spanish chapter of Britain’s National Association of Estate Agents, based in Marbella on the Costa del Sol.
Gordon Turnbull of Blue Med estate agents, up the coast in Murcia, agrees.
”They’re building too many houses …,” he says. ”Places round here are flooded with resales. People were thinking they were going to realise their asset and make a lot of money, but it just didn’t happen.”
Two-bedroom, one-bathroom apartments on the coast, with communal pool and garage, that were selling for â,¬155 000 two years ago are now on the market for â,¬135 000, he says — a depreciation of 13%.
The number of Britons with second homes abroad has nearly doubled in two years, a recent survey by research analyst Mintel showed, fuelled by cheap flights and low interest rates.
Spain is the most popular location with more than four in 10 naming it their preferred destination, the survey said. Hundreds of thousands of northern Europeans live in Spain, with Britons alone accounting for about 760 000 people.
Corruption
Yet overseas investment in Spanish real estate dropped a third to â,¬4,8-billion in 2006, from ”7,1-billion in 2003, according to Bank of Spain figures.
Although the holiday-home market accounts for only about 15% of turnover in Spain’s coastal regions, its effect on the total property market is important, said Gilles Moec, economist at Bank of America.
”It’s a marginal market, so it’s usually what makes the market tilt from one side to another because it’s a much more volatile share of the market than the domestic,” he said.
Economists have long warned that the days are numbered for Spain’s 10-year property boom — which has driven economic growth above the European average.
One of the reasons people are shunning Spain in favour of destinations like Bulgaria or Croatia is that it has simply become too expensive.
People want second homes to be cheaper than their primary homes, says Moec, and an overheated Spanish market means this is now not the case for many northern Europeans.
Also putting off foreign buyers is a corruption scandal in Marbella, a resort which has wooed European royals, Saudi princes and Hollywood stars like Sean Connery since the 1950s.
Police have arrested 99 people in connection with the inquiry, including the mayor, and town councillors are in jail for taking millions of euros in bribes on property deals.
Prosecutors have identified tens of thousands of illegally built homes in Marbella. Their owners cannot sell, as authorities could order the properties destroyed at any time.
Local planning laws in the eastern coastal region of Valencia have also left foreign owners facing the loss of part or all of their property, further tarnishing Spain’s reputation, property analysts say.
Spain’s government says the law stops community development plans being blocked by individual owners. A European Parliament report said the legislation was being used by developers to force families off land without compensation and pay fees for services that did not serve their communities.
The European Commission has started legal action against Spain on the ”land grab” laws, but the damage has already been done in the eyes of some foreign buyers.
”I think a lot of people have been scared off because they’ve got the general idea that it’s corrupt out there,” says Briton Julie Bayliss, who bought her three-bedroom villa in the Valencia countryside three years ago. — Reuters