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Beware Property Statistics - is the market worse than it appears?

24/11/08

Comment on the recent statistic provided by Asociación de Constructores y Promotores de Málaga that only 2,500 residential tourism properties had been sold in Malaga province so far this year, equating to the situation in 1983.

The market here has been going downhill for at least a couple of years so for the Costa del Sol the shock has not been quite so sudden as in many other parts of Spain. Also bear in mind who is issuing the report, as it is to the developer's advantage to make the crisis seem worse in the hope of obtaining government assistance or at least fiscal sympathy. The situation in fact could be even worse with a negative eventual acquisition, depending upon when the acquisition figures are taken. On Friday I was talking with a developer who completed 400 units, which were all sold off plan. Due to a delay of one and a half years in obtaining the final occupation certificates, caused by one of the local authority scandals and not a fault in the development, the majority of the buyers have been able to pull out. If the statistics are taken when the private contracts are signed and not at the notary signings, these will have shown as 400 sales, but the collapse of the sales will not show. Thus he now has a completed development, which he cannot sell. Even worse, on the basis of the 'sale' of the first 400 units, he proceeded to raise funds and constructed another 400. These are just about completed now and there are few buyers. The company, which produced a good product, now appears to be on the point of collapse as it cannot carry the continued construction costs without any sales.

On the banking side, he stated that one development had already been taken back by the bank. However, the bank had 'bought' the development from the developer for the price of the mortgage. Thus they had converted a non-performing mortgage into a property asset. However, the bank is now the owner of a development it cannot sell and is unlikely to for a number of years and has a debt of its own in the purchase price 'paid'. The banks are not experienced developers/property marketers and thus are building up problems for themselves, which must come to light at sometime, depending upon accounting practices. Alternatively, there is the potential that they are then bundling these discounted properties on to friends or holding property companies with notional loans and interest being rolled up until the property is sold.

2009 it could be a truly terrible year for Spain.

On the other side, there are a significant number of buyers, with many being occupiers and not just investors, who are waiting or have rented property until they determine that prices have reached a low, when they will buy, assuming that there is finance available and many are cash buyers. Thus, it is likely that there will be a considerable bounce when the market is seen to have bottomed. As stated in the report, all here have confidence in the Costa del Sol in the long-term.

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Campbell D Ferguson
F.R.I.C.S. Chartered Surveyor
Survey Spain
00 34 952 923 520

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