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Spain's real estate boom and bust

Source: Reuters - Sat 19th Nov 2011

Spain's likely new centre-right government is studying steps to jump-start a real estate market that has dragged on the economy ever since a decade-long bubble burst almost five years ago.

The People's Party, expected to win Sunday's general election by a generous margin, is proposing more tax breaks for home buyers and measures to stimulate the rental market. But experts say a policy on banks' worrying exposure to troubled property assets is also needed.

Following are some facts about Spain's property sector:

* Spanish housing prices rose 155 percent between 1995 and 2007, at an annual growth rate of 8%.

* Prices have fallen 24% in real terms since their peak in 2007 and are expected to decline between 35 and 40% over a 10-year period.

* Economists expect demand to continue falling due to high unemployment, low population growth and a decline in immigration.

* More than half of the 3 million jobs that have been destroyed during the economic crisis are linked to the housing market. The construction sector currently employs 1.4 million people, or 7.8% of the working population, versus 2.8 million, or 13.5% of the working population, in 2007.

* Spain's banking sector had 176 billion euros of potentially troubled exposure to construction and commercial real estate at the end of June. The amount is over half of banks' total exposure to real estate development and equivalent to around 18% of Spain's GDP.

* Residential construction accounted for 4.7 percent of Spain's gross domestic product in 2010 versus 9.3% in 2006. Analysts believe housing market-related activities accounted for as much as 20% of GDP in peak years.

* Economists expect investment in residential construction to decline nearly 50% between 2007 and 2013.

* Sector experts estimate excess housing stock at 1.5 million-2 million units, representing six years of demand, versus 687,000 estimated by the Public Works Ministry.

* Home sales are seen at 350,000 in 2011 versus 1 million in 2006.

* 15,200 Spanish homes were purchased by non-residents in 2010 versus over 37,000 in 2003.

* New mortgages have dropped to 0.8 million loans in 2011 from 1.9 million in 2006

* Home prices are around 6.4 times median household incomes in Spain compared to 4.4 times in the Britain and 2.9 times in the United States.

* About 85% of Spaniards are homeowners, while only about 15% rent.

* Economists do not expect Spain's housing market to pick up before 2013.

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