It’s a lyric in the musical My Fair Lady, and the words are “The rain in Spain stays mainly in the plain.” From 1997 to 2004, property prices in Spain rose around 173%. It was a sunny time for property investors, building trades, and the economy as a whole. But, today’s picture is very different. It’s raining, and the rain isn’t staying put “in the plain.” Real estate is depressed just about everywhere in the country, and the effects ripple through the economy.
Talking recently to Radio Nacional de Espana, Joaquín Almunia, the EU Commissioner for Economic and Monetary Affairs stated that he believes the 3.5% growth of the U.S. economy signals the beginning of the end of the crisis there. But, the recession in Spain is linked closely to the collapse of the real estate market, and thus will be a lot slower to improve. Celestino Corbacho, the Minister for Employment, is not upbeat at all, saying that unemployment in Spain is burdened with the “dead weight” of the construction industry Radio Spain.
Salon Inmobiliario de Madrid, held Oct 22 through Oct 25, is the biggest European exhibition in the property sector, and one of the largest in the world. Exhibitor profiles include new and second hand homes, holiday homes, commercial real estate, mortgages, public developments, professional and consumer services. One source put the attendance at more than 43,000. These are primarily real estate professionals, investors and construction interests, and there were reportedly a large number of property sales during the event. However, others say that the discounts being offered to generate business weren’t as substantial as they should have been to help the struggling real estate market.
Reports of falling tourism and a 13% decline in foreign residents in Spain aren’t helping to improve the short term outlook. The Bank of Spain recently announced that it will require a doubling of the provisions banks make against bad debts resulting from real estate foreclosures. The new requirement will be increased from 10% to 20%. If a song lyric points out the tough situation, maybe another couple of old sayings will help to cheer up those involved in real estate in Spain. “The darkest hour is just before the dawn,” and “Every cloud has a silver lining” could apply as well. Spain’s real estate markets are certainly looking for a break in the weather.