Buyers Market in Spanish Real Estate Sector

The property sector is like all other none regulated sectors influenced by many external and internal economic factors which will influence the demand and supply in the market.
A buyers market is defined by a situation where there is an oversupply of properties in the market (both new and second hand homes) and this can either happen because the demand for properties decrease, the supply of properties increase (there are build an excess of new properties or there is an increase number of current owners that wish to sell) or a combination of both.

When there is an oversupply in a market the potential buyers will have more properties to choose from and will in general be in a better position to negotiate price and general terms and conditions of the sale, which is the reason why such a situation is called Buyers Market.
On the opposite if there is a higher demand of properties compared to what is on offer (more people looking to buy a property compared to what is on sale) the seller will have more power and this is called a sellers market.
It is also possible to have a market which is not clearly dominated buy neither the seller nor the buyer which would be defined as a market in equilibrium.

If the situation of a buyers or a sellers market goes on for a while it will eventually affect the property prices. The normal tendency in a sellers market with an over demand of properties would be that properties prices are increasing (as there are not enough properties on the market the sellers will be able to increase the price). The opposite is the case with an over supply (buyers market) where the prices will normally fall (if this situation continues for a while) as there are to many properties on the market and the seller has to lower the price to be able to sell.

Below we have listed a number of facts explaining the current situation regarding to the supply and demand in the real estate sector in Spain.

Supply of Properties
- First of all there have been built +600,000 new properties per year during the last decade and as the population size has maintained itself and there has not been the same number of demolitions these new properties has mainly been build to people looking for a second hand home, investors and foreigners looking for a property in Spain.

Demand for Properties
- The economic situation with the increasing interest rates has let to a lower demand for properties especially from Spanish people that are looking for a second home (as many foreigners buy in cash the increasing interest rates has not in the same degree influenced the numbers foreigners interested in buying property in Spain). The historic low European interest rate (reaching 2.1% in June 2005) lead to many people deciding to buy a second hand home but with over 2 years of constant increases in the interest rate many potential buyers have got cold feet.

- The demand has also been influenced by the fact that professional investors have left the Spanish property sector and moved towards the stock market (the stock market in Spain has during the last 3 years outperformed the increases in property prices).

- Another indicator of the decrease in demand is the fact that the average time for selling a property in Spain has during the last years increased and is today 120 days on average which is 34 days more than in 2005 (according to Spanish real estate agent Don Piso).

The combination of the above facts with a decreasing domestic demand for properties and a huge supply of properties leads to the conclusion that the situation today in the Spanish property sector can be defined as a Buyers Market.

For the last 15 years (1990-2005) the market in Spain has been clearly dominated by the seller with severe increase in property prices (increasing on average +15% per year) and a very high demand for properties in Spain.
Buyers of properties during this period where in a very bad position to negotiate price or terms of the sale and had to decide very quickly if they wanted to buy a property as there were always another buyer ready in the background.

Today with the buyers market this situation has changed completely especially if you are looking to buy a new property where the biggest oversupply comes from.

If you are an investor and are looking for a quick return on investment the current situation is of course not very favourable as it will be both more difficult to sell your property quickly and the prices does not increase at the same level as beforehand.

On the other hand people that are looking to buy a property as a long term investment will in most cases be better off in a buyers market.
First of all there are more properties on the market which means that it will be easier for the buyer to find the right property. Buyers are as well in a much better position to negotiate both price and terms of the sale and promoters and real estate agents are becoming more and more creative with the extra services and bonuses offered to ensure a sale. The overall quality of new promotions is also improved as the days where any type of property could be sold are over.
You can on this site find examples of the quality of new property in Spain.

It is of course impossible to predict what will happen in the future but there are ome indications we can take into consideration.

The situation with an oversupply of properties in Spain is not very severe and is expected to be adjusted within a few years. The main reason for this is that the oversupply mainly comes from the building of new properties (not because there is an oversupply of second hand homes) and professional promoters are better able to adjust to the market situation. In fact promoters have already started constructing less new properties and it is expected to keep decreasing over the next years.

What about the Crash? First of all there has not been a Crash in the Spanish property market and prices are on average still increasing although at a much lower rate than previously (this year properties in Spain are expected to increase about 3-4%).
Nearly all experts agree that in the near future there will not be a crash at most an adjustment in prices of new promotions and mainly in areas with a clear oversupply of new properties.
In the long run it is still expected that property prices in Spain will increase mainly because the average property prices are still significantly lower than in north Europe and as the Spanish economy in general is improving faster eventually the living standard in Spain (including wages, property price, etc.) will get closer to the standards of northern Europe.

As a long term investment it is therefore a very good time within the next year or so to buy a property in Spain especially if you are looking for a property in new promotion.