Assetz® News - Are local hotspots the key to Spanish property investment?

Are local hotspots the key to Spanish property investment?

23rd October 2007 |

The last year has been one of mixed reviews for the Spanish property market, to say the very least. The slowdown that has followed five boom years has drawn a variety of reactions, varying from the "crisis, what crisis?" view to the suggestion that the approaching hoofbeats of a crash were becoming audible.

Somewhere in between, the truth may lie. The market has indeed cooled down, just as in Britain and, as in our own country, that is enough for some to predict doom and gloom. Others suggest that the picture will be more complicated, with location being a key issue in whether the prospects for price or availability of properties in any given area are good or bad.

One negative view was taken by Standard and Poor, which suggested this week that Spain, Britain and Ireland would see "varying degrees" of slowdown, Thompson Financial reports. It concluded that Britain would fare better than the other two.

Yet there clearly isn't as much pessimism around as some would suggest a forthcoming crash would justify. For example, the first Spanish property auction site in Britain is being launched this week, called Spanish Home Auction. That such a thing is happening hardly amounts to a vote of no confidence in the market.

Other experts also differ. Expatica.com reported that the Economist Magazine felt Spain was more vulnerable to a crash than America, which has seen a recent downturn, since it had seen prices rise by 189 per cent in the past five years compared with 103 per cent in the US. In contrast, Deutsche Bank believes that the future is bright, producing a report entitled Spain 2020 - the success story continues, which states: "The need for a correction is much smaller than often assumed."

Deutsche Bank bases its view on the belief that Spain's overall economic strength means it is not overstretching itself. Instead, it suggests, the country will enjoy a higher Gross Domestic Product than Germany or Italy by 2020.

What is more notable in Expatica's report, however, is that there are indeed, as in Britain, significant variations in property prospects between locations. For instance, it notes, property appraisal company Sociedad de Tasacion believes prices may start falling on the outskirts of major cities, but not in the centres - it may even rise in such places. Similarly, figures from real estate agents Expofincas record falls in resale prices in the Madrid, Aragon and Navarre regions in the first half of 2007, in contrast with the country as a whole where prices rose by 4.3 per cent.

Such figures may match a trend seen in Britain, in which London, Scotland and Northern Ireland have experienced the highest growth for various reasons, while older trends, such as the closing of the gap between the northern and southern halves of England, have gone into reverse. Expatica.com notes that if the Deutsche Bank optimism is correct, now is a good time to invest in Spain in anticipation of a sustainably bright future.

If, on the other hand, the picture is a distinctly mixed one from location to location, the key for prospective investors will be to research where the hotspots are in a market whose overall situation, as in Britain, may mask considerable variation between locations.