Spanish homeowners face tricky times

By Gavin Stamp
Business reporter, BBC News

Will homeowners get their fingers burnt as the property market dips?

For people looking to find a place in the Spanish sun, the past few days have been far from glorious.

Fears of a crash in the Spanish housing market, prompted by a sell-off in property shares, have made life uncomfortable for thousands of Brits who own homes or are looking to take the plunge and buy abroad.

But these worries have not deterred one would-be buyer.

"There are a lot of negatives around and I have no doubt that property values will go down in the short term," says Richard Leigh, from Wiltshire, who is buying a flat near Estepona, a town at the western end of the Costa del Sol.

"In the long term, I think prices will come back quite quickly. For those who hold their nerve and hang on, I don't think there will be a problem in a couple of years time."

Property glut

Such optimism has been in rare supply recently, with much of the talk about the Spanish market focusing on how severe a slowdown could be rather than if it will happen.

The main problem afflicting the market, experts say, is the glut of properties available after the furious building spree of recent years.

There are too many places being put up Ron Sillett, retired teacher and Spanish property owner

According to industry figures, more than 800,000 new homes were built in 2006, four times the number in the UK.

The growth has been fuelled by the low interest rates of recent years, the dramatic growth in the Spanish economy and seemingly unstoppable demand for new properties among Spaniards, migrants and tourists.

This, in turn, has led to handsome investment returns with many people buying properties off plan and then selling them on at completion at a significant profit.

But that rosy picture has steadily begun to cloud over in the past year.

Housing has reached saturation point in many of the most popular resort areas, resulting in properties going unsold and prices stagnating.

"The market is virtually dead," says Dr Ron Sillett, a retired teacher who is trying to sell his property near Malaga, bought more than 20 years ago.

The Spanish way of life is appealing to many Brits

He blames the current situation on rampant over-development in southern Spain.

"There are too many places being put up. On every single patch of land, there are apartments blocks going up."

In extreme cases, Brits have even reported making a loss on their investment, something which would have been unheard of just a few years ago.

Economic uncertainty

Uncertainty about the Spanish economy - which has consistently enjoyed growth of more than 3% in recent years - has exacerbated these concerns.

With interest rates rising across the eurozone, there are concerns that people who may have overstretched themselves to buy properties in recent years may suffer.

Spanish households currently have some of the region's highest levels of debt.

Rising borrowing costs will also hit companies, including property developers - many of which have large debts.

I think we are underestimating the sensitivity of the Spanish consumer to a downturn in real estate Philip Lawler, Nomura

One analyst says that a "hard landing" for the property market cannot be ruled out.

"I think we are underestimating the sensitivity of the Spanish consumer to a downturn in real estate," says Philip Lawler, from investment bank Nomura.

But there are those who warn against a knee-jerk reaction, saying that while the boom times in the property market may be over, talk of a crash is premature.

"Investment in the Spanish construction sector and consumption will slow," says Astrid Schilo, chief European economist at HSBC.

"But I don't think there will be a collapse in the Spanish economy."

Setting aside the wider economic considerations, the fact that Britons have always had a love affair with Spain is enough for many people wanting to buy property there.

As far as Richard Leigh - who is looking to rent out his property to tourists - is concerned, there is little chance of an costly Eldorado-style flop.

"People will always want to go to Spain because it is a nice, sunny place," he says.

"The golf courses are great and it has great shopping for those who don't want to play."