Assetz® News - Spanish land costs rise dramatically

Spanish land costs rise dramatically

5th September 2005 |

Research commissioned by Spanish trade union Comisiones Obreras has shown that land prices have shot up dramatically and now represent 24 per cent of Spanish investment property prices.

The research, based on figures provided by the Association of Developers and Builders of Spain (APCE) showed that the cost of construction is the next largest component, at 35 per cent, followed by developer's margins, at between ten to 15 per cent of final cost.

The average property investment prices are based solely on property value and do not include taxes, conveyancing and legal property investment costs. Land prices have increased both in relative and absolute terms.

The report has pointed out that the massive rises in land costs through the period 1999 to 2004 have coincided with the introduction of legislation aimed at liberalising some of Spain's more archaic property investment building rules.

The rationalising has liberalised the markets for land sales and attempted to increase supply, with the intention of cooling costs. The union has blamed "rampant speculation" and restrictions in supply for the price increases.

Alternative statistics drawn from the Spanish Association of Architects (CSCAE) and quoted in the report showed land costs increasing from 7.7 per cent in 1996 to 22.7 per cent in 2004. The same report showed investment property developers net profit margins rising from 8.8 per cent to 26.6 per cent over the period.

Investment property construction costs fell from 65.1 per cent to 37.4 per cent through 1996 to 2004.

In the figures provided by CSCAE the average Spanish property was 120 metres squared and cost 91,350 Euros in 1996. Of this price, 7,000 Euros went on the cost of land (7.7 per cent) and 8,000 Euros (8.7 per cent) went to the developer as net margin.

Construction costs of 59,500 Euros represented the biggest component of the sales price, at 65.1 per cent

By 2004 the same property cost 220,300 Euros, a 141 per cent increase, with 50,000 Euros going on land costs, or 22.7 per cent, and 58,700 Euros going to developers' net profit margins before tax, or 26.6 per cent of the sales price, and an increase of 634 per cent.

Figures indicate that property investment currently represents somewhere in the region of 40 per cent of all capital investment in Spain, with a sizable proportion of all Spanish economic growth attributed to the property boom that began in the mid nineties.

Last year Spain saw more new houses built than Germany, France and Italy combined and 54,000 people moved to the country, representing 15 per cent of the total number of people (360,000) who moved abroad overall. An estimated 70,000 Brits currently own a holiday home in Spain.