Spain : Growing glut of properties likely to slow market further

 

A glut of new properties in Spain shows that the real estate industry is unlikely to recover quickly as over supply still clogs the market.

The most recent figures from The Ministry of Development show that 387,000 new homes were finished last year despite a property market crash already into its second year. This compare with 220,600 new home sales recorded by the National Institute of Statistics for 2009.

‘This means there is an oversupply of around 166,500 new homes that joined the glut of new homes already languishing on the market in search of a buyer. It illustrates the severity of Spain's construction boom and bust,' said Mark Stucklin of Spanish Property Insight.

‘What is worse, there is no quick solution as much of the trouble is stored up in a new homes glut that will take years for the market to digest,' he added.

When the figures are added together it means the market is now facing a glut of 1.2 million new homes. The Spanish developers' association and the Ministry of Housing are more optimistic in their figures and estimate there is somewhere between 700,000 and 750,000 new homes on the market but even at that level it will take years for the market to absorb the over supply.

Stucklin says the industry has consistently built too many properties over many year and ignored falling demand. ‘Last year, there were around 225,500 new households formed in Spain, down from 300,000 plus per annum in the boom years. New household formation surged as immigrants flooded into the country and changing demographics and life-style choice, for example and increasing divorce rate, pushed up the demand for housing. But even at the boom level of 300,000 new households a year, it is now clear that Spain was building way too many new homes,' he explained.

‘In 2006, for example, there were 865,500 planning approvals, though not all of them went on to become housing starts. And in 2007 there were a record 641,500 housing completions. Now even if you assume that demand for second homes was a generous 200,000 per year, Spain was still building something like 200,000 or more excess homes per year. Now they are idling on the market, tying up capital, and dragging down the Spanish economy's productive potential,' he added.

Although supply now seems to be adjusting to demand there is still a huge glut in the market. But this doesn't help the economy as a collapse in new building is just as bad for the economy as too much building, Stucklin reckons.