The Spanish property market is finally starting to recover
The consensus is that demand is now growing, and that prices have fallen far enough, but that the market is still difficult and very different to what it was -- a fact that the road show planners seem to have missed.
The road show hopes to appeal to the mass-market, low end buyers, but these buyers relied on the loose lending that fuelled recklessness and over-development in the market, and also on the surge of confidence that came from house prices rising rapidly in their home countries.
So, now we have a Spain that is still over developed and over supplied, and where lending is hard to come by, but where prices are up to 70 per cent below peak 2007 prices. And it is that last fact that has the buyers coming back.
News that government measures to cool China’s sizzling property market were beginning to work have no doubt been a relief to many investors in the country.
Property, afterall, is particularly important in China, with property construction alone accounting for 15 per cent of China’s gross domestic product. But a report in Monday’s FTfm says it is not time to stop worrying yet.
Edward Chancellor, a member of the asset allocation team at investment manager GMO, looks at the parallels between the Spanish housing market bubble and the bubbles he thinks are still inflating in the China, Hong Kong and Singapore property markets.
The three respective authorities have all instituted measures to cool their property markets. Beijing has gone furthest. Over the past couple of years, the People’s Bank of China has raised bank reserve requirements nine times.
Chinese banks have been ordered to restrict lending to real estate developers. Households face a limit on the number of properties they can acquire. Beijing also plans to provide some 36m affordable homes over the next five years.
The trouble is that none of these measures will work, according to Chancellor. He points out that during Spain’s housing boom there was relatively low loan-to-values on mortgages. Spanish banks also kept mortgages on their balance sheets and there was no subprime.
Nothing the government did stopped the great Iberian housing bubble from inflating. Spanish home prices more than doubled between 2001 and 2006. Housing construction soared. The lending boom actually increased in intensity after the introduction of counter-cyclical capital rules.
"The lack of property finance available and changes to mortgage taxation have led to an overall slowdown in Spanish property sales in the first half of 2011 but the luxury property market has shown more resilience than other sectors of the market, a new report suggests.
International buyers are acquiring luxury properties in Barcelona, the Costa Brava and Ibiza without mortgage financing, according to an analysis of the Spanish luxury real estate markets by Lucas Fox International.
Its report on the first two quarters of 2011 also shows that there is a growth in property investment in Spain from Russian, Dutch, and Swiss buyers and investors. And tourism growth in Barcelona, the Costa Brava and Ibiza in 2011 has had a positive effect on demand for short term rental properties."
Hong Kong, Brazil or France are in the top list for real estate investment
Even as the value of residential real estate around the developed world continued its multi-year plunge in the second quarter, some countries bucked the trend. In seven national markets, housing valuesrose by more than 5 per cent in the second quarter compared to the second quarter of 2010. In two countries, prices rose nearly 20 per cent.
Data from the Global Property Guide for second quarter real estate values around the world reveals values in the U.S. dropped by 9.05 per cent in the period. Predictably, Greece, Spain, Ireland, and Portugal are the other nations with deep housing value problems. In Greece, property values fell 9.9 per cent in the second quarter of this year from the second quarter of 2010. That drop was 15 per cent in Ireland. Each of these European nations has deep deficit problems and has instituted austerity packages, which have tended to hurt growth and employment. Also, each is in the process of being financially bailed out by other nations in the EU.
Among the top countries to invest are: Hong Kong, Brazil, Thailand, Taiwan, Norway, Singapore, France or Switzerland.
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