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Talk of property investment slowdown premature says Bank of Spain

30th September 2005 | back to article listings BACK    print this article PRINT

Both the Spanish ministry of housing and the Bank of Spain have denied that there is any overall slowdown in the Spanish property market, pointing to the housing ministry's second quarter of 2005 report showing that house prices increased by four per cent over the quarter.

Projected over the year, this suggests an annual rate of house price inflation of 13.9 per cent – only a marginal decrease from the 15.7 per cent shown through the first three months of 2005. In its latest report, the Bank of Spain argues that it is premature to project an overall long term trend property investment prediction from such a small change.

"Given the recent introduction of the new series of price statistics now being used by the Ministry of Housing - in principle more volatile than the old series - it is still too early to talk of a definite change in price trends," the Bank of Spain said, reports Spanish Property Insight.

Despite its assessment, the Bank said that it remained concerned about the potential impact of high levels of household debt, which increased by 20 per cent through the first three months of 2005, on the Spanish property investment market. This has been largely due to rising mortgage borrowing, says the Bank, which rose 24 per cent in the period January – April.

The Bank said that household borrowing and inflated property prices remain the largest threats to household spending in the country.

Others have portrayed a more down beat view of Spanish property investment, with estate agents in the coastal regions reporting flat or falling markets as the current sluggishness in the UK property investment market, and the German economic uncertainty, produces a noticeable reduction in overseas jet to let investors.

On the UK side this is likely to pick up somewhat come 2006 as potential investors take advantage of the Sipps property investment changes – doubly so in light of the Spanish governments courting of UK investment with assurances that Spanish law will be compatible with the new UK tax exemption rules.

A recent survey of UK homeowners found that a third of respondents said they were seriously contemplating a holiday home purchase, with Spain remaining one of the most popular choices. Areas less dependant on foreign demand, such as Catalonia and the Spanish interior, are least affected and continue to post healthy price rises.

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