Spanish house prices nosedived at the sharpest pace since current records began in the first three months of this year, data has found.
The sharp slump in the property market spells further bad news for the country’s ailing banks who have huge exposure to the flagging housing market.
Property values dropped by a huge 12.6 per cent compared to last year, national statistics institute INE reported in its House Price Index.
Broken dream?: Thousands of expats are struggling as property prices crash in Spain, especially in coastal areasThis is the biggest fall since it began recording property prices in 2007, before the global economy suffered badly.
The biggest fall since then was in April to June 2009 – but even then the fall was 7.7 per cent, much lower than the falls seen in 2012.
Prices in major regions, such as the capital Madrid and Catalonia – which is made up largely by Barcelona – have suffered particularly badly, with prices in the Madrid region down 14.2 per cent and Catalonia 14.9 per cent.
The drastic fall in house prices is having a detrimental impact on expats who have bought property in the country, especially those who are retired. A huge speculative building boom along Spain’s coast saw prices driven up and then come crashing down far further that the average reported falls.
Last month, our sister title Money Mail revealed how thousands of desperate British people are fleeing the Spanish dream as the property market turns sour [read full story].
In some coastal resorts, popular with those who have retired for a life in the sun, an eye-watering 70 per cent has been shaved off house prices in the last five years as people struggle to sell their properties.
Money Mail revealed how one couple had their Spanish property on the market for three years before it finally sold and took a massive hit on the property. And it is a story that is becoming a familiar tale in what is now being labelled ‘Costa Catastrophe’.
Burt, from Lancaster, in the reader comments section of the story, said: ‘I have met so many people trying to sell a property in Spain who refused to reduce the asking price on the principle that the property is ‘worth’ what they are asking, only to let it go years later for a fraction of what they were first offered. Property, like everything else, is only worth what someone is willing to pay for it.’
Spanish struggle: The graph shows how drastically house prices have fallen in each region of SpainIt’s a further worrying sign for Spain, with banks saddled with billions of euros in bad debts related to the property sector while extremely high unemployment rates has resulted in a sharp uplift of loan defaults.
Last month, 15 Spanish banks, and Santander UK, had their credit rating downgraded by agency Moody’s. Bankia, Spain’s fourth largest bank, became 45 per cent owned by the Spanish government.
As much as €170billion (?138billion) in property debt looks unlikely to be paid, and huge chunks of this look set to come from mortgages that expats have simply given up on. If Greece leaves the eurozone, the problems could get even worse.
The Spanish government said last weekend banks will borrow up to €100billion from Europe in an attempt to help, but many experts think this will not be enough to prevent a full bailout.
As a result of the Spanish bank uncertainty, mortgage deals for those who are looking to buy a new property are declining fast. According to reports, mortgage lending suffered its largest fall in over six years earlier in the year.
Spanish house prices could fall by up to 20 per cent this year according to the International Monetary Fund (IMF) – but if the INE report is anything to go by, the falls could be even harder and faster than predicted.
The news of further house price crashes in Spain comes as search portals have seen an increase in traffic looking for cheap European property, as reported by This is Money editor Andrew Oxlade a few weeks ago.
But there are warnings that supposedly bargain Spanish homes may not be that cheap, yet.
According to a report in April’s edition of the Economist magazine, which evaluates all major property markets every three months based on historical average prices versus rents, which combines with another credible gauge – house prices vs wages – house prices in Spain are 27 per cent overvalued.
Read the full table of the world’s most expensive property markets, based on rents and income.
According to latest figures from Nationwide Building Society in its house price index, house prices in Britain are 0.7 per cent lower than they were a year ago. At the height of Britain’s property slump in February 2009, prices were down 17.6 per cent.