Can Property in Spain Continue to Boom?

Can Property in Spain Continue to Boom?Property in Spain as a sector of the Spanish economy is enjoying one of its longest runs of positive price movements on record and the government of Spain are set to positively revise their projected GDP figures for 2006 as a result.

The GDP growth revision is backed by the significant growth and development that both the housing and construction industries have enjoyed this year…but the affordability gap in Spain is widening and an increasing number of economic analysts are asking ‘can property in Spain continue to boom?’

Of all the major European nations Spain is currently doing very well economically speaking; the euro-zone interest rates are allowing Spain to afford its high account deficit, GDP growth remains impressive and exports are up…but all of these factors are masking the one significant fact that could destabilize Spain’s economic position and that is that the nation is actually becoming less competitive across the board.

Yes GDP is up, yes exports are up but imports are also up, the cost of housing in Spain has forced the local Spanish people to increase the percentage of their salary they now commit to their mortgage by three percent in just one year, and furthermore the amount of household debt in Spain is now twenty percent higher than the EU average. 

The erosion of the affordability ratio in terms of housing is rapid in Spain and it is leading to economists predicting a pending negative correction in the housing market and general economic depression in Spain that could see house prices drop by up to ten percent over the coming years. 

And yet…and yet…overseas interest in Spanish property is not abating and it is not diminishing – rather, intense interest in Spanish property from overseas buyers and investors led to an increase in investment in the residential real estate construction industry of almost seven and a half percent year on year to March 2006 which outstrips the 2005 six percent figure substantially.

If overseas investor interest remains as intense can property in Spain continue to boom and will this stave off a negative price correction? 

No one seems able to predict accurately what may happen…the only thing that economists are generally in agreement about is that the longer the positive feeling in the market continues, the longer house prices continue to rise and the wider the gap between house prices and what consumers can afford grows the sharper, more dramatic and painful any subsequent readjustment will likely be. 

Property investors and speculators take note, beware of a booming property market, ensure it has room for continued and sustainable growth…

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