Spanish Property Prices Set to Fall

Anyone considering buying property in Spain should be wary about the possibility of a house price crash.

Spain has seen seven interest rate increases since December 2005 and interest rates are now at 3.75 percent. This year an estimated 800,000 properties are to be built in Spain. The demand for new properties is estimated at to be only 600,000 properties. Share prices of Spanish property companies and banks fell dramatically yesterday amid property market worries.

Earlier this year the OECD warned that house prices in Spain might be overvalued by as much as 30 percent.

Two major building companies, Inmobiliaria Colonial and Grupo Inmocaral, saw their share prices plunge on the Madrid stock market yesterday. Colonial shares closed down 12.6 percent and Inmocaral closed down 11.3 percent.

Despite market concerns, the chairman of Astroc, one of the Spanish property firms at the heart of the market wobbles, has said the fears are unfounded.

House price concerns hit shares in Spanish banks because of fears customers will be unable to pay back their mortgages. Over 90 percent of mortgages in Spain are on variable interest rates rather than fixed rates, so interest rate changes can have an immediate effect on the housing market.

Spain is the most popular place for British people to own a second home. About 70,000 people in the UK own a property there. Spanish house prices averaged £165,000 according to the latest figures from kyero.com. Last year British demand for Spanish properties fell by 10 percent.

Further Reading:
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/04/25/nspain25.xml
http://news.bbc.co.uk/1/hi/business/6592203.stm