Is time right to buy in Spain?

There’s no doubt that Spain’s property market has endured a difficult few years and residential prices in the country tumbled in the wake of the economic downturn. 

But now Knight Frank’s representative office in Spain, says buyer confidence in the market is starting to return

Barcelona based agent Lucas Fox notes that the fall in prime residental prices in Spain is begining to slow and as a result investors are sensing a potential turnaround in the market.

Data released by the agent suggests that prices in some of Spain’s most desirable areas have fallen up to 50% since the property crash of 2006/7. However, sales have begun to rise more recently as British and Scandinavian buyers return to the market.

• In Barcelona, the Costa Brava and Marbella, prices have fallen between 20% and 50%. In some areas, they may have reached the bottom.

• Property sales in Barcelona are up 13.5% from January to May 2013 compared to the same period last year

• Lucas Fox has seen the strongest two quarters of trading since the start of the property crash of 2006/7

• The luxury property market is doing particularly well, primarily in Barcelona, the Costa Brava, Ibiza and Mallorca where the average sales price of properties sold by Lucas Fox in the first six months was over a million Euros. In these key areas the property markets are still being driven by international clients

• Mallorca was the most popular tourist destination in Spain in the first half of 2013, with many British and Scandinavians returning to the market

• On Ibiza, prices remain buoyant and the demographics of buyers is changing with more young European buyers in the 30 to 40 year age group

Alexander Vaughan, co-founder of Lucas Fox, said: “The first six months of 2013 saw further encouraging developments in the property market in prime areas of Spain. In all regions we cover, the numbers of offers and sales completed were significantly up on the same period in 2012.

“It remains a buyer’s market with even the best properties transacting at 20% to 30% below their peak prices and sellers increasingly open to negotiation on asking prices. Our advice to potential buyers is to focus on location and quality.

“There are some great deals to be had and we think that in most areas, particularly Barcelona, the Costa Brava and Marbella, prices are at, or very close to, the bottom. We expect the trend of sellers lowering asking prices in line with buyer expectations to continue for at least the rest of 2013 and quite possibly the next couple of years.”

Record levels of Brits interested in buying abroad

Interest among future pensioners in buying a holiday home in an overseas idyll for their retirement has reached higher levels than before the financial crisis, HSBC has said.

The economic slump has not deterred millions of upcoming retirees in considering purchasing abroad to either live in during their twilight years, or have as a base for holiday visits.

Spain is still the most desired location, accounting for more than a quarter of 45 to 64-year-olds surveyed by HSBC who are planning a property purchase, followed by France and Italy.

And while many have struggled to put aside decent sums of money during the slump of the last five years, HSBC thinks that asset-rich baby boomers on better pension plans are in an ideal position to take advantage of property prices lower than pre-2007.

On average, 45 to 64-year-olds would spend on average just under £117,000 on a property abroad, with the majority saying they would buy the property outright rather than take out a mortgage.

HSBC's James Yerkess said: 'The economic downturn has had an impact on the income and savings of many but it has also helped lower the price of property in numerous overseas locations.

'Many of the baby-boom generation, who are now approaching retirement, are fortunate enough to remain relatively asset-rich despite recent economic frailties and this has opened up opportunities to take advantage of lower property prices abroad.

 'That said, the weakness in many overseas property markets has created some caution among those considering purchasing a property abroad with many saying they would now look to buy smaller properties or homes in less expensive locations.'

In spite of the tempting prospect of spending retirement in warmer climes - the last few weeks of blazing British sunshine notwithstanding - four out of five don't see themselves moving abroad permanently even if they do buy a property.

Two-thirds said they would spend between three and six months there, while a fifth would use it for no more than three months.

Spain is still the destination of choice for Britons, in spite of recent anti-tax evasion law that affects British expats being brought in recently.

Euro nation house prices could fall 7%

House prices in the euro-area could fall by around seven per cent in the next three and a half years if interest rates rise to swiftly, Goldman Sachs warns. 

The bank assumed a growth rate of one per cent for both disposable income and rental prices, and a rise of real bond yields and short-term interest rates to three per cent and 1.5 per cent respectively.

"Under our more pessimistic scenario, our model suggests that nominal house prices in the euro-area could fall by around seven per cent over the next three-and-a-half years," says Goldman Sachs. 

"This forecast is driven by two factors: first, the negative momentum that is caused by the faster rise in interest rates and, second, the reduction in equilibrium house prices that such a rise in interest rates leads to."

This warning is in contrast to the UK where signs of a recovery in the housing market are becoming stronger, as shown by yesterday's Land Registry report.

Spain and France at risk

The bank's analysis looked at pre-crisis gains and the level of post-2008 price adjustments to calculate which countries are most at risk if house prices see further declines, and used a model to calculate fair values by using government bond yields and rental yields and made predictions for house price growth in the monetary area.

The two most at risk economies were marked out as Spain and France, where the bigger leverage in the private sector make these economies vulnerable to declines in house prices.

"The link between the housing market and economic growth is not straightforward and depends on, amongst other things, the extent to which the private sector is leveraged to house price changes," Goldman Sachs says.

The post-crisis adjustment in house prices is still incomplete in Spain, Italy and France and poses risks to the recovery of these economies, although the bank noted that due to the relatively low leverage in the Italian housing sector the economy is less at risk than it two other peers.

House prices grew at an annual average rate of 12 per cent between 1999 and 2008, the largest pre-crisis nominal gains in Europe, but the sector has only seen a 28 per cent decline in the post-crisis adjustment period. This compares with 11 per cent pre-crisis gains in Ireland and subsequent declines of more than 50 per cent in the country's housing market.

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Global house prices rise 6.6%

House prices across the globe rose 6.6% in the year to March, the highest rate of growth since Q2 2010. 

Key points:

• The Knight Frank Global House Price Index rose by 2.0% in the first quarter of 2013 and by 6.6% over a 12 month period

• Hong Kong recorded the largest rise on an annual basis (up by 28%) while prices in China rose the most on a quarterly basis (up by 10.7%)

• Greece recorded the largest annual fall in mainstream prices for the third consecutive quarter, declining by 11.8%

• The US saw prices rise by 10.2%, its highest rate of annual growth since 2006

• Europe is the weakest-performing region, mainstream prices fell by 0.3% on average during the last 12 months

Thirty five of the 55 housing markets (63%) tracked by Knight Frank’s Global House Price Index recorded an increase in mainstream property prices in the year to March.

The index now stands 14.7% above its recessional low in Q1 2009.

Property prices in all world regions, except Europe, increased in the year to March (figure 3) with the Middle East performing best, rising by 10.6% on average.

Mainstream property prices in Hong Kong and China look to be flouting the efforts of policymakers to cool their property markets; both recorded price rises in the first quarter despite a raft of measures to kerb escalating prices.

Prices in Hong Kong are, on average, 28% higher than they were a year ago and in mainland China* prices are up by 23.8% in the last 12 months (and by 10.7% in the first quarter alone).

Greece, Hungary and the Netherlands occupy the bottom three rankings this quarter having seen prices fall by 11.8%, 9% and 8.3% respectively. But Europe’s difficulties don’t end there – aside from Japan and South Korea all the countries that recorded negative growth in the 12 months to March were based in Europe.

The Dutch market, which proved resilient in the aftermath of the financial crisis, is now starting to flag. Prices fell by 8.3% in the year to March driven by rising household debt and growing unemployment.

That said, there is some good news in Europe. Ireland has rid itself of double-digit price falls. Prices fell by 3% in the year to March, compared to a 16% decline a year earlier.

The UK’s property market is also improving. Here, prices rose by 0.2% in the year to March and stand 8.9% above their low in Q1 2009.

Beyond Europe’s shores, the South Africa and the US are performing strongly. Prices rose by 11.3% and 10.2% respectively in the year to March, up from -3.2% and -1.9% a year ago.

South Africa’s momentum is linked to an increasingly wealthy middle class who are tapping into the rising confidence of the wider African continent, keen to get on the property ladder.

In the US, prices have now risen for 12 consecutive months boosting consumer confidence which hit a five year high in