First, let’s review 2007. As we all know, statistics can be dreadfully misleading but we can at least gather an overall picture of the state of the market by comparing various surveys and putting this information together with our own experience on the ground.
Last year, we predicted property prices would increase in Catalonia in 2007 - but at a slower rate than 2006. Our estimate was that property prices would go up in the region of 6 - 7 % during 2007 and in fact, according to a major study on new build properties, Catalonia experienced the highest increase in Spain: 8.3% compared to a national average of 5.1%. But what happened in the second semester of 2007 throws more light on the current situation: prices in Catalonia increased by only 2% in the last six months of the year (compared to 1.1% for the nation).
In terms of the resale market, a second survey conducted by one of Europe’s leading business schools showed that prices for second hand properties actually diminished in the whole of Spain during 2007. Catalonia was one of only six Spanish regions in which prices went up instead of down for resale properties.
Some professionals are saying that property is overvalued by as much as 20% and everyone without exception has testified to a large drop in volume of business – as much as 40% in some areas with price reductions of up to 10%. Business seemed to come to a halt in the 4th quarter of 2007, as though some kind of nuclear war had wiped out all potential buyers overnight.
The most important buyer in Catalonia is local – predominantly Catalan but also from Spain. Spain has the highest owner occupier rate in Europe and Spaniards are passionate about owning the home in which they live. They see property as the most important part of their investment portfolio and whenever times are good this is where their money tends to be directed.
The sharp increase in interest rates dampened local desire to purchase. While Spanish banks have not been affected by the sub-prime debacle in the US (in fact Spanish banks, yet again, announced large increases in profits in 2007), they are being extremely cautious and have more or less turned off the taps for mortgages on second homes. Lack of liquidity in the local market leads almost instantly to a downturn in property sales, and this was clearly manifested in the final quarter of 2007.
With the national and international media talking incessantly about property values being too high and the “R” word potentially hovering in the background, it is obvious people are going to take a “wait and see” approach, even if they have the money to buy.
Catalonia is a large, varied region with equally diverse local dynamics, so here is an overview of what’s happening in specific areas:
The Costas
The rugged coastline of the Costa Brava has kept it relatively free of speculative development. It is considered to be a microcosm which has consistently defied property recessions over time. It is a mature market and very stable because the offer is not abundant. The Costa Brava is the traditional focus for national buyers who have large sums to spend as well as for a good mix of affluent international buyers.
However, like everywhere, there are pockets even in the best areas where during these boom years irresponsible speculation was both irresistible and openly welcomed by local authorities. These areas now exhibit signs of over-supply: for example Lloret de Mar, Roses, Palamos, Platja d’Aro and Tossa de Mar, where the demand from traditional and Eastern European (above all Russian) markets was at frenzy only a few months ago. Mediocre apartments could be sold for unrealistic prices but now they will simply stick around until their price drops considerably or the next boom occurs.
The northern part of the Costa Daurada did not escape speculation either. With few exceptions, the entire coastline from Torredembarra to Miami Platja is covered in apartments and second rate bungalows. Localities like Salou and Torredembarra will take years to absorb the excess in offer. Again, what’s not selling is the typical, boring 2 bedroomed apartment in a large block or the little terraced house with handkerchief-sized garden stuck at the back of an unfinished urbanisation. Not something we would be looking at for clients of The Property Finders anyway.
An exception is the demand created by Port Aventura, which is a major draw for visitors and provides a very healthy demand for hotels and short term apartment rentals nearby. So a new, two bed apartment, with good views in Salou is not necessarily a bad investment if you want to generate some rental income and now would be an excellent time to purchase one of these.
Fortunately, the southern part of the Costa Daurada has been off the beaten track until recently and, while there is a lot of low-rise development under construction – especially near the Ebro Delta - I don’t think this part of the coast will suffer the same fate as further north, even though current over supply is estimated to be approximately 30%. Development has been much more controlled, prices are considerably cheaper than the Costa Brava, the winters are warmer and the infrastructure is improving in leaps and bounds. I think the over supply here is more a reflection of the national “wait and see” mood and will not take long to absorb once confidence returns. In the meantime, some genuine bargains can be negotiated direct with developers
The Garraf and The Maresme have, for a long time now, been predominately expensive commuter belt for those working in the greater Barcelona area. Properties are designed and built as primary residences. These areas are much more affected by the local economy than by foreigners wanting to buy a holiday home. Most of my comment on the cities will apply to the property market in these areas.
Inland Catalonia
The largest increases in property values have been seen in provincial villages and towns of under 50.000 inhabitants. There is a genuine exodus from the big cities to the provinces where the buyer can get more for his money and experience a higher quality of life. People wanting to move out of Barcelona have beautiful areas on all sides to choose from. In Madrid, people are heading out to the cities of Guadalajara and Toledo, only 45 minutes away but where you can buy for 50% of the price in Madrid.
With regard to the countryside, certain types of property are always in short supply, such as the generous Catalan masia with land. Basically, this only exists in the provinces of Barcelona and Girona and Girona is where everyone wants to be. Even in this buyer’s market where properties are selling more slowly, finding a great country property is not easy and it’s expensive. Prices for restored country masias with land will start at 1.5 million euros. Finding one of these properties to restore is even more difficult and with planning regulations (rightly) stricter every year, is not for the faint-hearted.
In Tarragona, country properties are being advertised all the time for as little as 50.000 euros and buyers are often conned into thinking they will be given permission to build a small dwelling in the middle of the olive groves or enlarge an existing tiny ruin or almacen (small storehouse). This is simply not allowed and I urge anyone considering purchasing one of these properties to speak with The Property Finders or an independent lawyer who can put you in the picture before you part with your money. You will never be able to sell the property on if it cannot be used for residential occupancy and unfortunately, many innocent people have been caught in this trap in Tarragona. I expect these small holdings to tumble in price.
 The province of Lleida is Catalonia’s most unpopulated province with only 33 people per square kilometre and prices in 2007 increased at roughly the national average. But Lleida is overflowing with natural beauty: more than 500 lakes and 13 ski resorts. It has a high standard of living and much lower costs than the rest of Catalonia. The new regional airport will open this year and it will be interesting to see which carriers jump in. Statistics show that the advent of a low-cost carrier increases property values by an average of 33%. The airport will be perfectly placed for the best ski resorts in the Pyrenees as well as the fabulous countryside that is on offer. Lleida is also on the TGV line to Madrid and Barcelona, so I expect prices in the province to show steeper increases on average than the rest of the region.
Important changes in infrastructure are bringing better accessibility to every part of Catalonia with new motorways, the AVE (or TGV) and expansion of regional airports. It cannot be overstated how much all four of the provinces in Catalonia are going to benefit from the improvements in infrastructure currently under way. We are preparing a detailed report on these projects which we will post on the website very soon.
Barcelona and Madrid
Both of Spain’s capital cities are working hard to keep their unique positions in Europe as desirable locations for investment, new technology, culture and tourism. As of 20th February 2008, the two capital cities are finally linked by TGV with a journey time of only 2 hours 38 minutes between the city centres.
Barcelona, for the third consecutive year, topped the Cushman Wakefield European City Monitor for quality of life and is becoming an important world destination for major conventions. Catalonia created a fifth of all new jobs in Spain during 2007 – more than any other region.
Madrid is going ahead with its bid for the 2016 Olympics, continuing on all the infrastructural improvements which were programmed into the city’s bid for the 2012 Olympics.
In both cities, the smaller, less expensive properties still sell well because of continued competition at this level. Even though the number of potential buyers is decreasing, there are just hundreds of investors hovering around waiting for gangas, or bargains. So the competition, in our opinion, will still be tough at the bottom end of the market and inside knowledge will be the key to finding and purchasing the right property at this level.
Over 500,000 € things change. Even though new build properties are on average 30% more expensive than resale, the local market is very focused on new build. In the current competition for the buyer, developers are now offering excellent incentives, so re-sale properties are beginning to stick around and there is now a large supply of mid-range properties in both cities. In my opinion, the best buy is an older property in need of renovation, preferably in the historic centre. Barcelona is more expensive than Madrid but good opportunities can be found in both cities.
What’s going to happen?
Speaking with property professionals throughout the region, it is clear 2008 will be the year when buyers will take charge - especially on the coast where a large number of projects are still being finished off. Fully 57% of new build in Catalonia is destined for the second home market and we don’t see the over supply being absorbed for quite some time – my own guess would be not before the end of 2009. Vendors of second hand property are in a poor position to compete if they don’t have something unique to offer. Properties in blue chip locations – even in need of major renovations – are still attracting many suitors and selling quickly. But at least, vendors are now getting the message that 2007 asking prices are not realistic in today’s market and are prepared to negotiate. 
Some areas will continue to go up in value in spite of market conditions elsewhere. This is largely to do with improvements in accessibility. As mentioned earlier, there is a very clear shift in the local market to seek the quality of life which large cities cannot offer. Every town and village with good access to motorways, airports and high speed rail links will continue to be a good investment.
Parts of Tarragona, for instance, were simply not on the radar until a year or so ago. Since the arrival of the AVE, the Tarragona countryside has become extremely attractive for Spaniards and Euro-commuters alike. The first full year of high speed service between Madrid and Camp de Tarragona has shown more than 50% increase in passenger numbers with a total of 500.000 passengers in the first 12 months and average train occupancy rates of 80%.
Property in Catalonia has increased by an average of 12.5% in value year on year since 1985. With the advent of the TGV, the expansion of regional airports, the excellent mix of country, beach and city which most parts of Catalonia offer and the general lack of foreign ghettos: to any observer it is clear that the region is a very good long term investment.
The key is to buy quality property in the best location. Being focused is extremely important if you want to relocate or purchase a second home. Be disciplined and get good, impartial advice. The Property Finders is here to help buyers understand regional dynamics prior to purchase.
To find property in
Catalonia please contact:
Rita Fryer
catalunya@thepropertyfinders.com
Tel: +34 972 624557
Fax: +34 972 624007
or if you would like us to contact you:
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