Spanish stockpile: unsold homes

Mallorca and Spanish property prices are set to fall for at least two years if one takes into account the growing stockpile of unsold new build properties and poor demand due resulting from lack of available finance...

Estimates for the number of unsold completed new properties vary between 600,000 and 900,000 and although it appears that the supply tap is now under much greater control new properties coming to the market in 2008 will be around 325,000, with a further 300,000 in 2009, compared to around 750,000 in 2007, while the over hang in supply remains price weakness will be the order of the day.

This situation is likely to put further pressure on the sector with more bankruptcies expected in the months ahead. As developers desperately seek to cover interest payments on unsold properties it is likely that an increasing number will offer properties for rent, or rentals with an option to purchase.

At the same time developers will look to diversify their activities into more resilient sectors of the market such as homes for retired and commercial property, although the latter could start to suffer its own problems as the financial crisis starts to undermine the "real" economy in the months ahead.

Although supply problems in Mallorca are not as severe as many other coastal regions of mainland Spain, it is probable that prices on the Island will weaken significantly, all be it less than in some of the worst effected regions of Spain.

Falls from peak to trough of around 30 per cent can be expected with one of the main problems facing buyers the fact that price adjustments are not occurring evenly across the market.

The new build sector has responded much quickly with prices already significantly reduced while many second properties are being marketed at values unchanged from the peak in 2006 2007.

This offers a real challenge for prospective buyers who will need to assess the values and price movements of each individual investment opportunity to see in which cases the realities of the market have been factored in, or where further very significant adjustments are required. Never has the term "buyer beware" been more apt.

Source: European Property.com