Probably the question that I have heard most from my clients in the last times is: Is it a good time for buying a property in Spain?
Actually I am not an economist and anyway I believe that an good economist neither knows the answer to this millon dollar question. However, I am going to try to expose the current situation of the Spanish real estate market and the facts to be considered before buying a property in Spain.
I am not pretending to encourage anyone to buy properties in Spain, but I do believe that buying an appartment or a house is something that should be considered well, not noly from the economical point of view but also other issues should be considered. For example living in a comfortable area creates an added value which has to be considered before purchasing a property.
In this post I am going to focus only in the current Spains real estate market.
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Facts to consider when buying a property:
1. The evolution of housing prices:
I could mention several different market studies, but I am going to focus in a study made by the Spanish Central Bank, because it compares the evolution of the economy in the last financial crisis during the 1990s; concretely, once the economy starts growing, the housing prices continue decreasing one or even two years more (I would say that the prices grow after 5 year of the maximun price).
In Spain the maximum price of the housing was in 2007. Since then the prices of the second hand house have decreased almost 30%; at the moment the evolution of the real estate market is behaving the same way as in the previous economical crisis, hence we could make an estimation over it saying that in the end of 2012 the prices will increase again.
2. The taxation for 2012
The last quarter of 2011 the Spanish Government approved a new regulation which lowered the VAT rate from 8% to 4% in order to encourage the buying of new properties (new buildings). The rate 4% will be applied also for the purchases of new housing during the entire 2012.
For second hand houses the Transfer Tax of generally 7% will be applied, however this tax is controlled by the different autonomous communities such as Andalucia, Cataluña, ect., so it may differ depending the autonomous community.
3. The financing of the purchase
The current situation of the banking in Spain is quite critical, most of the Spanish banks are involved in real estate investments realized before the crisis, so they paid a higher price as currently. Therefore it is easy to understand that the Spanish financial entities have cash flow problems. If the banks have less cash, it means that they require more guaranties for lending a mortgage loan for the purchase of a property. Let’s say that if we want to get a mortgate loan for a Spanish bank we will have to provide more guaranties, to have more savings, a stable income and they will force us to hire insurances too.
Other way which is very used for Finns for financing the purchase of a property is to get the mortgate loan from a Finnish bank mortgaging their own Finnish properties. I really believe that this option might be very clever one, however it is always good to make a comparation with the banking loans offered by Spanish banks. (This topic might be interesting for my future posts).
- Spanish economy
The estimation about the evolution of the Spanish economy expects that the unemploment in Spain increases untill 21% of unenployed of the active population in 2012. So the future previsions are not promising very good expectations for this year.
So, when do I purchase a property?
Well, the answer depends on your needs, the economical situation and the area of Spain you want to buy a house or an appartment.
I mentioned about your needs because purchasing a property is a decision that is not always taken by economical facts. Because perhaps the buyer wants to buy a property in a special area that meets with the things he/she is whishing for, also because the person really wants to have a property in Spain as soon as possible so he can enjoy it.
I belive it is a good time to purchase a property for those who are in a stable and solvent economical situation, because they may negociate the price of the apartment and also the terms of the mortgage loan.
Although during the next 6 months the average prices are expected to decrease, it does not mean that all the housing will decrease the prices. There are many areas in Spain in wich the prices are stabilizing.
A fact to consider, it is that the bank entities in Spain have to offer the huge amount of property assets, because sooner or later they have to get free of them.
As a conclusion I will say that the prices of the properties in Spain are going to decrease at least in the next becoming year, however if you are economically estable it is a very good time to negociate the price of the property and to take advantage of the tax reductios in VAT applied by the Spanish goverment.
Hyvää alkavaa viikkoa!
Next post I will get into “Where to search” and “What to buy” in Spain.
