Unsold Spanish property paradox

I recently had a discussion with a buyer who after reading from a variety of sources, which I am happy to say included my blog, thought that property prices along the Costa del Sol would be vastly lower than the reality due to the 1 million unsold newly built properties. Unfortunately all this talk of huge number of unsold properties has hidden certain important realities that few seem to be talking about.

To keep things as simple as possible, let us save some time and say there are exactly 1,000,000 newly built properties on the market waiting for a buyer. Not 900,000, nor 1,500,000. Such semantics do not make much of a difference when talking about such large numbers, nor will it affect this article.

So we have 1,000,000 unsold units on the market in Spain. Standard market rules show that if supply outstrips demand, then prices have to drop. Lower prices will stimulate demand. This seems to be the standard logic whenever people are discussing property on the internet. Problem with a property is the fact that it is an unmovable object. So regardless of the price of the property, if the demand is not for that area, then the property will have a hard time selling.

Next we have to think about why these properties were built. Except in a minority of cases, most of these properties were built catering to a market fuelled on speculation and cheap credit. Many properties were built in previously uninhabited areas where the land was cheaper. So not the prime locations in town centres or near the beaches that many people search for when looking at buying a property on the Costa del Sol.
And in the few cases where they are in prime locations, it is reflected in a higher selling price.

Now with planning approvals at a 20 year low in Spain, far fewer newly built properties are coming onto the market. Many developers neither have the funds nor the inclination to further stretch themselves when they are still have unsold stock and most of Europe is still only just coming out of the most the latest recession.

But the danger here is that for those who have bought in less than desirable locations will have trouble selling until the surplus stock in the area is sold. Which in the worst of cases could take several years. And the danger for buyers who want to own a property in a prime location is that if promoters do not start adding properties in areas where there is demand, prices will rise (remember supply and demand) and many may be priced outside of the market.

So regardless of how many properties are supposedly selling, what matters is how many properties of the type you want in the area you want are for sale.

Andrew Belles

Page copy protected against web site content infringement by Copyscape

One Response to “Unsold Spanish property paradox”

  1. Platinum says:

    Just like they seem to say – “Location, Location, Location”!

    Hopefully this is the case and development does slow down or come to a halt – this is the best case scenario for all property owners throughout Spain.

Leave a Reply