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If there is one thing European property experts agree on, it’s that housing data out of Spain is fairly worthless.
For example, the most recent report from the National Institute of Statistics (INE) shows the market bottoming out, down only 7 percent in the last year. Catalonia and Madrid saw drops of more than 11 percent, but the rate of declines is slowing, the data shows.
“But it is always worth pointing out that the official index is so detached from reality it is close to meaningless,” Spanish Property Insight’s Mark Stucklin reports. He cites numbers suggesting Murcia prices dropped only 1 percent in the last year. “That is farfetched, to put it mildly,” Stucklin said. .
Stucklin is hardly alone in his opinion. Most of the official numbers are “unreliable and, therefore, are meaningless,” Barbara Wood of Property Finders recently told Property Wire. Official Ministry of Housing figures, which are based on registered transaction prices, are “distorted by under declarations of the sale price in the past,” she notes. “Only once we have had several years of full price declaration will this distortion be washed out of the system, while the oft-quoted TINSA stats are based on subjective market appraisals.”
But there is still a compendium of data coming out of Spain, which offer clues to what is really going on in the market.
For example, despite the “bottoming out” report from the INE, property consultants Aguirre Newman recently predicted prices could drop another 27 percent in 2010. The firm sites one variable continually comes up in any discussion of the market: the hundreds of thousand of units still owned by banks.
“Current home price estimates do not reflect true market values,” said Aguirre Newman director of analysis and investigation Javier Garcia-Mateo. “Banks and real estate companies that own or have financed unsold new homes will have to accept price cuts.”
At this point, banks may be artificially inflating prices, Stucklin notes. “It appears that these guys are only reducing prices to the extent that they can afford to write off losses without damaging their capital ratios,” Stucklin recently wrote.“That also helps explain why transactions are so depressed; if prices were lower, there would be more sales.”
Investment bank Morgan Stanley says prices are still 10 percent over-valued and that prices should fall by 58 percent from the peak, Stucklin notes. After analyzing the ratio of property prices to rents, Morgan Stanley concluded property prices “should fall much more than in the US or the UK to return to adequate levels.”
Along those lines, Spanish bank BBVA warned of another 20 percent drop in prices over the next two years. Prices won’t stabilize until 2012, the bank forecasts.
But the news isn’t all bad. A recent report from Caixa Catalunya suggested that prices may be, in fact, bottoming out in many areas. However, the firm also noted that there are between 660,000 and 1.04 million homes on the market, most in popular tourist destinations, a glut that could take years to absorb.
In a similar mixed report, estate agent Engel & Völkers also point to signs of a bottom, with activity picking up on the Balearic Island and Costa Blanca, in particular. But Engel & Völkers says prices have dropped 15 to 30 percent in many areas, far more than the declines suggested by the official numbers.
Meanwhile, Idealista.com reports only eight of 328 municipalities in Spain showed any growth in asking prices in 2009. Barcelona, Madrid and Valencia—thriving urban centers considered relatively immune to the disasters of the golf course resort markets—saw asking prices drop 10 to 17 percent since 2007, according to the property site.
Idealistia’s data has its quirks. The numbers track asking prices for existing properties, a typically optimistic gauge which doesn’t necessarily reflect anything close to actual sale prices (if the property sells). And idealista excludes asking prices it deems “clearly and disproportionately outside the market,” a hint to the difficulties in finding relevant data in asking prices.
But the idealista numbers still serve as an interesting barometer of the market trends, including movements in price-per-square-meter offerings in specific neighborhoods. If nothing else, the latest report points to the uncertainty of the market.
Of the big cities, idealistia reports, Barcelona prices dropped 6.1 percent in 2009 alone, although there was some stabilization in the final quarter. Valencia suffered the worst in 2009, with asking prices falling 11.1 percent, a 17.1 percent drop since the market peak in 2007.
But no one really knows what to make of those numbers—or any of the other numbers..
“There is only way to get good information about what prices are doing in 2010 and that is to talk to someone who is actively involved in putting deals together right now,” Wood told Property Wire.
Comments
First of all, for closed transactions, most buyers transfer sellers a portion of the purchase price "under the table" in order to lower the transfer tax and notary fees. These fees are based on a percentage of the reported sale price. Also, the sellers have an incentive to report a lower price in order to minimize gains for income income tax purposes.
Second, there are no Multiple Listing Services to speak of in Spain. No one ever sees market data on completed transactions until officially reported for registration of ownership purposes. Listings are found in a very fragmented website environment. And these are just asking prices.
These are just two reasons why the true values of residential real estate in Spain is very difficult to find.
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