Spain Housing Market Experiences Difficulty with Drawing Investors

As Spain attempts to rebound from its own economic problems, the country is facing a new set of hurdles. Namely, analysts are reportedly having a difficult time determining how much the properties are actually worth. As a result of all of the confusions, investors are unwilling to make the purchases that are necessary to help the banks clear out the backlog of homes that are currently sitting empty.

The method used to calculate home price data in Spain is one of the primary causes of the discrepancy. Rather than gathering the data based on actual sale prices, the formula utilizes the appraisals that have been made by private companies. In a slow market, appraisals are heavily dependent upon asking prices, which results in a great deal of variety in estimated home values.

According to the Ministry of Public Works, the price per square meter on the homes currently for sale dropped by 11% since its peak in 2007. On the other hand, Tinsa, which is a large Spanish appraisal firm, has shown an 18% drop during this same time period. Numerous other firms have placed the drop at somewhere between 20% and 30%.

“We don’t have an accurate measure, that’s the bottom line,” said Jose Garcia Montalvo, who is the chairman of economics and business at the Universitat Pompeu Fabra in Barcelona.

The discrepancies between these figures are a matter of concern for investors, particularly after the bailout in Greece and the anticipated rescue of Ireland both failed to produce results. As such, investors are concerned about the possibility of the crisis spreading to other countries throughout Europe. While Portugal is the country that has garnered the most concern, investors are worried about Spain as well.

According to a study conducted by Luis Garicano, who is a professor at the London School of Economics, the housing boom that took place in Spain pushed housing prices up by more than 100%. In fact, two-thirds of the housing units built in Europe between 1999 and 2007 were built in Spain. As housing prices start to decline, it has been difficulty for experts to truly gauge where the value of these homes currently stands. This also means that banks are unable to determine the amount of potential losses they are looking at on their balance sheets.

“It could mean that banks will suffer high loan-loss provisions for many quarters yet,” said Andrew Lim, who is a European banking analyst with Matrix Corporate Capital in London.

About the Author: Brian Kinkade is a broker and team lead with Brokers Guild – Cherry Creek Ltd, one of Denver’s fastest growing full service Denver real estate firm. Brian’s team of Internet savvy agents service the Denver Metro area while specializing in Denver luxury homes, Colorado equestrain property and International real estate.