Confidence in Spanish property market evaporates

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by Gill Montia

The long-predicted crash of the Spanish property market seems close at hand, with the Index of Market Sentiment having fallen from 2.2 in March, to one in May.

The bi-monthly index is published by Property Investment Management Spain and extends between four and zero.

While property transactions are down across the country, prices are being supported by government action, which includes tax concessions aimed at the lettings market.

In addition, developers have drawn up schemes that allow properties to be let with an option to buy at a future date, at a price that is fixed at the beginning of the tenancy.

Some developers are even prepared to sell a property at a discount that equates to the purchaser’s down payment (within limits).

However, Spain’s estate agents are reporting house price falls on the Costa del Sol of up to 30% and many of the hundreds of thousands of Britons who have moved to Spain will be facing a loss.

Much of the country’s economy is based on Spain’s ten-year long property boom and the market showed evidence of overheating long before the credit crisis exacerbated the situation.

Experts agree that the Spanish economy urgently needs to diversify. Unemployment is now rising and is predicted to reach at least 10% by the end of 2008.