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From Times Online

October 19, 2007

Stormy outlook for British homeowners in Spain

The Spanish property market's soaraway success has ended its decade-long boom, with prices falling for the first time

Thomas Catan in Madrid

Spain’s soaraway property market has ended its decade-long boom, new figures show, with prices falling for the first time in many parts of the country.

In the country as a whole, prices inched up by just 0.3 percent in the third quarter of the year, the smallest increase since 2000. But prices fell in 13 of Spain’s 50 provinces, including many popular with British homeowners.

Selling prices fell by 1.1 percent in Valencia and 0.3 percent in Alicante, where hundreds of thousands of Britons own homes. Other areas where Britons have moved in recent years have also fallen, including Jaén (-0.7 percent) and Cádiz (0.4 percent). They dropped by as much as 3.2 percent in Navarre, in the rainy north of Spain. More than 1 million Britons are thought to live most or all of the year in Spain, and many others have bought property near the shore as an investment.

This week, the International Monetary Fund warned that the slide could turn into a rout in European countries such as Spain, the UK and Ireland, where house prices had risen far beyond traditional measures of affordability. It pointed out that prices were actually higher in several European countries relative to income than they were in the US before its drop in prices.

“There remains the concern that the US experience might presage steep housing downturns in other countries that have also experienced a rapid rise in house prices, with associated risks for output growth,” said the IMF.

However, Spain is viewed as being particularly at risk from a downturn. Like Britain, property prices have soared, doubling between 2001 and the end of 2006 and rising by nearly 60 percent in the past two years alone, according to Halifax figures.

But while the UK has barely expanded its housing stock during the past decade, Spain has gone on a construction spree, recently building around 800,000 new homes a year. Analysts believe that there is only demand for around 500,000 of those, leading to a glut of supply in many areas.

That boom has slowed to a crawl, hurting the all-important construction sector. Spanish construction companies began 140,000 new homes between April and July, a 15 percent drop compared with same period the year before. In view of the construction slowdown and tighter worldwide credit environment, the IMF also cut Spain’s growth outlook for 2008 from 3.5 percent to 2.7 percent.

The Spanish Government yesterday played down fears of a crash and insisted its economy remains solid. The governmenment’s housing director said the figures showed that Spain was experiencing a “gradual and gentle landing for house prices. You cannot speak of a sudden drop or a crisis,” he said.

Spain’s debt-laden households are feeling the pinch of rising interbank interest rates, particularly accute because the overwhelming majority have variable-rate mortages.

Thomas , how about giving us a more balanced picture of how property prices are moving. I note there is no mention of for example the Malaga Province which covers a big chunk of the Costa del sol where there has been prolific British investment. JB

John Robert, Wimborne, Dorset UK

I don't know from where you get your facts and figures but I doubt that any property in Spain has risen by 60% in the last two years. I have had an interest in the market in and around Girona for a few years and would say that prices have dropped slightly or perhaps stayed even in the last two years but 60% please!

john, girona, spain

For tax-reasons it has been common practise in Spain for over decades now, to put a much lower price in the escritura (title deed) than has actually been paid for an estate (written down in the semi official personal contract). Our family has been living in Spain for over 5 years (till last year) and I have been working at a 100 % Spanish owned real estate company. We have noticed a significant slow done of the real estate market that is going on for already two and a half years now. However, due to the above written, it was not reflected in the official valoration of properties yet. (And clearly it is not in the interest of the market to spread negative news.) So I think that the acutal losses for house owners might be significantly higher then stated in official reports. C.R. The Netherlands

celine Rosier- van Gent, Arnhem, Holland