1997: Availability - 400,000
properties. Tourist Arrivals - 47 million. Demand - 21 weeks per property
2007: Availability -
1,200,000 properties. Tourist Arrivals - 59 million. Demand
- 4.4 weeks per
175 million arrivals are
required to fill the currently available properties for 21
weeks and this equals the combined arrivals for France,
Spain and USA - the World's Top 3 Destinations!
Obviously this creates a
serious problem for property owners who rely on rental
income to pay costs or mortgage repayments.
Where such reliance exists the best advice is to try to find
a long let, if the rental resolves the situation, or to sell
as quickly as possible and, if necessary, take a loss.
In the medium term interest rates will rise and the rental
decline will continue.
Since entry into the
European Single Currency System the Spanish government has
followed a policy of encouraging home ownership and
currently the percentage of Spanish home owners is now the
highest in Europe. Many (Spanish and foreign) buyers
invested in 2nd and even 3rd homes.
This was a fatal mistake
because the demand for new property and availability of
cheap financing fuelled the boom and there are now an
estimated 3 million unoccupied properties in Spain and may
borrowers have commitments that exceed 50% of their income.
Additionally, the inevitable increase in interest rates plus
the winding down of the construction and tourist industries
(which will increase unemployment) is expected worsen the
How serious Spanish Property Problem?
The United Nations
dispatched a special envoy on adequate housing to report.
Financial Times: The Spanish Property and other Bubbles.
The article suggests that devaluation would provide a quick
solution to the crisis that is facing the whole Spanish
economy but that is not possible within the Euro. They have
to do it the hard way.
How will the Spanish Government resolve the Housing
There are lots of
remedies being discussed. This article is only concerned
about tourist renting but looking at solutions generally -
- Increasing taxes on non-rented properties and easing
those for renters. The Tax Authority already seems to be
moving on this as the 2006 declaration now requires the
catastral reference of the tax-payers abode.
for Low Price Housing - Refining the VPO system.
Governing "Abusive" Property Speculation - A difficult
Corruption in the Real Estate Sector - This is already
underway, members of the Marbella Administration are in
prison awaiting trial for real estate kickbacks and a
"Special Prosecutor" has been appointed to combat
Accommodation for Immigrants - In real terms there are
not so many immigrants to house but every little helps.
Support for the
Tourist Industry - Training, subsidies, quality
control and promoting Spain as a tourist destination. My
view is that this will be the main short-term effort.
Another 10 million tourist will quickly fill a lot of
properties, reduce the property surplus and help the
economy with their tourism spending.
They quickly boosted tourism after the crash of the 90's
and could easily do it again.
The self-catering sector has equal recognition with the
Tourism - People from developing economies in eastern
Europe can now afford to travel. During the 90's we had
Russians and Czechoslovakians arriving in coach-loads to
stay at cheap apartments.
Controlling the Self-catering Sector - Any remedies
are sure to cost taxpayers money, they would want to make
sure that taxes are collected (especially IVA) and that
only taxpayers received the benefit. See my article
Watch you back! How the
Spanish authorities could react to the problem.
How long will it take?
That is very difficult
to calculate. They have to first stop the slide and
stabilise rents and real estate prices at the lower levels.
The Ministry of Tourism
moved quickly before, so I would guess that we will start to
see an improvement as early as 2008. The problem has so many
facets that it is likely to be a long and difficult task.
Josť Maria Aznar's right-wing government worked quickly in
the 90's to improve the economy, reduce unemployment and
take Spain into the Euro system.
Now we have a Socialist
Perhaps we won't see any real improvement until
the next election - in 2008.
My best guess is that it
will take at least 5 years to fully resolve the situation.
The next article in the series:
the best of it - advice for property owners who rent!
© Mike King July 2007