Over the last decade, a number of factors have turned Spain into a very attractive market to other European countries. There has been a great increase in the Gross Domestic Product (GDP) since the end of 1990s until present day. In general, the quality of life of the Spanish citizens has improved in a significant way and their purchasing power has increased. The deep social changes have also contributed to the country’s prosperity. Spain has proven worldwide its ability to organise large international events such as the Olympic Games in Barcelona in 1992, the Universal Exposition in Seville also in 1992, or the forthcoming America’s Cup in Valencia in 2007. Other key factors such as our favourable climate must be taken into account as well. Spain has got more sunny days per year than any other European country and over 3,500 kilometres of beautiful coastline to enjoy. As a result, Spain is an ideal country for foreign and national investors, with property investment becoming one of the most successful ventures.

A strong demand for real estate over the last years has been backed by the continuous drop in interest rates. Such demand was initially led by the buyers from other European countries who invested in the Spanish coastal resorts. Later, the strong immigration wave coming from South America, Africa, Easter Europe and Asia activated the second-hand housing market, which has allowed the native population to purchase new property. Therefore, we have witnessed over the last ten years an amazing rise of the property and construction market all over the country. But what has changed today and what are the future prospects? A key factor has certainly been the progressive increase in interest rates within the euro zone during 2006, as we can see in the chart below. Such increase has had a cooling effect on the demand, with sales slowing down in the property sector.

The purchasing power of the population has been reduced. During the recent years we have seen how the housing prices in Spain have increased by some 15 per cent per year, but in 2007 we anticipate a reduction in property prices increase to 8-10 per cent. Although some predict a more drastic drop, at APEI we do not believe this will be the case. The reason is that the decrease in the housing demand during the second term of 2006 has not led to a drop in land prices so far.

The price of land is actually still increasing, which makes us believe that property prices will not drop in Spain. High prices of land mean that property developers have purchased it at high prices and therefore the final cost of the construction is high as well. The assessment by our Association, which gathers professionals from all over the country, indicates that land is still in a very strong demand in Spain and this factor will keep the upward trend of property prices. However, we do predict a slowdown in prices, which in fact has already started.

The slowdown process is in turn leading to properties staying on the market for a longer period of time. The average Spanish purchaser tends to focus on smaller property and lower price, or larger property located far from towns and Spanish main cities.

Moreover, APEI can also confirm that the slowdown in demand affects both the primary and secondary market on the coast as well as inland. This is due to banks being more cautious and demanding when granting mortgages. In short, we can say that the euphoria of the recent years is over now and the situation on the housing market is returning to normal.

The above-indicated imbalance between property supply and demand may change in 2008. We must take into account the intervention of the Spanish government when it comes to construction permits - granting of these has become more controlled now. In the near future, therefore, it may not be possible to find a plot to build on in any location we want or at any price we want.

Furthermore, these restrictions will be stronger on the Spanish coast. The costal areas have suffered an uncontrolled over development during the last decade, which has led to some important changes in legislation at the end of 2006. That is why keeping the property, for those who already have it, might be a good idea in the medium term.

The year-round sunshine in Spain, its beautiful beaches, cosmopolitan cities which offer a wide range of cultural and gastronomic choices to the visitor, along with the charm of Spanish people and the way they enjoy life, still make Spain an excellent investment destination, despite the current property market slowdown. The only thing different is that now we should think of property investment in the medium to long term rather than speculating about quick and easy money.

Biography

Óscar Martínez is Chairman of Asociación Profesional Expertos Inmobiliarios (APEI) - Professional Association of Real Estate Agents.

APEI was founded in 1990 by a group of professionals engaged in the real estate business, in order to create a solid, nonprofit association that could safeguard the interests of this sector. APEI groups together over 1,200 professionals and business owners in the real estate field from all regions of Spain. We are members of FIABCI, which means that we have a co-operation agreement with our international counter-parts concerning all aspects of the real estate sector. For more information please call: +34 93 434 21 98 or visit www.inmoexpertos.com