Spanish Housing Prices overvalued by 20%

House prices in Spain are still overvalued by 20%, according to report.

The average Spanish property value carries an overvaluation of 20%, concludes a study by the Instituto Juan de Mariana. The report shows the relationship between the sale price of real estate (2558 euros per square metre in December 2009) and rental price (95.6 euros per square metres per year).

This ratio fell from 32.2 in 2007 to 28.9 in 2008 and 23.6 in 2009, but the report concludes that the price of housing still need to be reduced by 20% for the PER is equal the historical average (19.5).

However, in the last two years the overvaluation has begun to be corrected, the institution considers that the final adjustment will not be reached until the end of 2011.

The report also finds that the historical average of PER in Spain is the highest of all Western European countries, together with the surplus of unsold homes and the lack of credit available.

However, it insists that in 2011 house prices in Spain could be brought back into line with those before the housing bubble. The authors of the report do not consider it appropriate to halt the correction of house prices through political means, nor aggravate the need for adjustment of prices by, the construction of new subsidized housing.

The report does call for greater transparency and the streamlining of bankruptcy proceedings, so that the assets of bankrupt companies are settled quickly, while suggesting to the autonomous communities they should eliminate Transfer Tax to boost the market for the sale of old housing stock.