In June 2012, Tinsa’s IMIE general house price index plunged by 10.8% from the same period last year. House prices in Spain have fallen by about 30.4% from the peak levels seen in December 2007. By region:
- Capitals and Major Cities recorded the sharpest drop of 13.5% year-on-year in June 2012
- On the Mediterranean Coast, house prices plunged 13.3% over the same period
- In Metropolitan Areas, house prices fell by 11.6% year-on-year in June 2012
- In the Balearic and Canary Islands, house prices dropped 6.8% year-on-year in June 2012
- In Other Municipalities, house prices fell by 7.3% year-on-year
This is in line with the data released by the country’s Ministry of Public Works, which showed that property prices in the country fell by 8.3% year-on-year in Q2 2012.
Quarterly figures offer no relief. The nationwide house price index dropped 2.5% q-o-q in Q2 2012.
In Q2 2012, the average house price was €1,606.4 (US$1,967.5) per square metre (sq. m.).
Land prices are also falling. The average land price in Spain dropped 16.4% to €177.6 per sq. m. year-on-year in Q1 2012. The highest land price was registered in Madrid at €377.5 per sq. m., followed by Pais Vasco (€277.2 per sq. m.). The cheapest land was in Castile and Leon, at €73.3 per sq. m..
Property demand is currently very weak, as consumer and investor confidence fell amidst the struggling economy. The total number of properties sold dropped 29% to 349,118 units in 2011 from the previous year. In the first quarter of 2012, the total number of property sales was 70,228, according to the Ministry of Public Works. Of these about 91.2% were in the free maret housing sector and the remaining 8.8% were subsidized housing.
Likewise, the total number of land transactions dropped 19.2% to 3,598 in the first quarter of 2012 from the same period last year. Over the same period, the total area of land transactions plunged by 15.2% to 4.63 million sq. m. while the total value fell by 32.9% to €582.86 million.
Spanish banks have been giving very generous discounts just to sell their toxic property assets.
- Santander, Spain’s largest bank, has reportedly dropped its property prices by around 35% to 45%.
- BBVA, Spain’s second biggest bank, which has €8.7 billion of real properties on its books, is ready to drop prices as necessary to speed up sales.
- The Sabadell Bank has recently been selling off new properties at a 38% discount.
The average amount of mortgage contracts in the country fell from about €151,000 during the peak levels of late 2007 to slightly above €105,000 in the first quarter of 2012, according to the valuers Tinsa.
Spanish house prices are expected to fall by another 10% before reaching bottom, according to local property market experts.
Transaction costs on second-hand properties are moderate in Spain and there are no restrictions on foreigners buying property in the country.
In 2011, the Spanish economy recorded a meagre GDP growth of 0.7%, after experiencing annual declines of 3.7% in 2009 and 0.07% in 2010, according to the IMF. The economy is expected to shrink by 1.5% in 2012 and by another 0.5% in 2013, according to the Spanish government.
Analysis of Spain Residential Property Market »
The centre of Madrid fetches the highest rents per sq. m. Apartments here cost around EUR 12 to EUR to EUR 14 per sq. m. to rent per month or the equivalent monthly rental income of around EUR 900 for a 75-sq. m. apartment, to around EUR 2,400 for a 200 –sq. m. apartment.
In Barcelona, rents per sq. m. per month range from around EUR 11 to EUR 14 or the equivalent monthly rental income of around EUR 700 for a 75-sq. m. apartment, to around EUR 2,100 for a 200-sq.m. apartment.
Apartments in the suburbs of Madrid cost around EUR 8 to EUR 10 per sq. m. to rent per month or the equivalent monthly rental income of around EUR 800 for a 75-sq.m. apartment to around EUR 1,800 for a 225-sq. m. apartment.
The gross rental yield for apartments in Barcelona ranges from 2.84% to 4.20%, whereas in the centre of Madrid, rental yields are better, ranging from 3.57% to 4.77%. In Madrid-suburbs, rental yields range from 3.39% to 4.14%.
Property and Wealth: A special annual 3% tax is levied on the cadastral value of real estate owned by nonresidents.
Capital Gains:As of 01 For 2012 and 2013, capital gains tax is levied at progressive rates, from 21% to 27%.
Inheritance: Each beneficiary’s inheritance is taxed at progressive rates, from 7.65% to 34%, after certain tax-free amounts have been deducted.
Residents: Resident individuals are liable to tax on their worldwide income and assets at progressive rates, from 24.75% to 52% for 2012 and 2013.
For new properties, VAT is imposed instead of transfer tax. VAT for vacant land is 16%, while VAT is 7% for new houses, plus stamp duty. It is advisable to buy land with a house under construction or finished to minimize tax liability.
Rent Control: The landlord and tenant have the contractual freedom to fix the rent and state the due date of payment. However, rent increases are tied to the Consumer Price Index and limited to once a year.
Tenant Security: The 1994 Urban Tenancy Act aimed to restore balance between the interest of landlords and tenants. It failed. Tenants are guaranteed tenure for five years. Courts are painfully slow in resolving cases of tenant eviction and compensation for rental arrears and damages.
The Spanish economy grew by an average of 3.8% from 1997 to 2007. The decade-long economic boom was fuelled by the property boom, supported by cheap mortgage credit and the surge in residential construction. At the height of the housing boom, the total investment in housing was 7.5% of GDP in 2007, significantly above the OECD average.
However, the economy plunged into recession in late 2008 when the real estate bubble burst. It managed to escape an 18-month long recession in early-2010, but has failed to record any significant growth since then.
In 2011, the economy recorded a meager growth of 0.7%, after experiencing annual declines of 3.7% in 2009 and 0.07% in 2010, according to the IMF.
The Spanish economy is now officially in recession again. In the second quarter of 2012, the economy contracted 0.4% from the previous quarter, after registering quarterly declines of 0.3% in both Q1 2012 and Q4 2011, based on figures released by the country’s National Statistics Institute.
In an annual basis, the economy contracted by 1% in Q2 2012 from the same period last year, mainly due to a slump in domestic demand. The economy is expected to shrink by 1.5% in 2012 and by another 0.5% in 2013, according to the Spanish government.
Investors are now leaving the country. From January to May 2012, about €163 billion (which is equivalent to around 16% of GDP) left the country, as the government’s rescue of one of its biggest banks (Bankia) hit the already fragile investor confidence in the country.
In June 2012, the government requested help from European Union to recapitalize its cash-starved banks, in a bid to avoid costly full national bailout. Then a month later, European finance ministers agree to lend up to €123 billion.
The construction industry is a key employer of low-skilled workers in the country. The increase in construction activity in the past helped pull unemployment down to 8.3% in 2007 from 24% in 1994. With the situation now reversed, the unemployment rate now skyrocketed nearly 25%, among the highest levels in the OECD.
Since the 1980s, the Spanish government annually runs a deficit. It only broke into surplus in 2005, 2006 and 2007, with the biggest surplus of 2.7% of GDP. However, the global recession pushed the economy into deficit once more; at 3.8% of GDP in 2008. Spain’s deficit rose to 9.24% of GDP in 2010, then fell slightly to 8.9% of GDP in 2011 but still way beyond the EU limit of 3% of GDP.
To deflate the country’s high deficit, the government has passed some of the deepest budget cuts in decades. Also, the government implements tax hikes, including a 3% increase in value-added tax (VAT).