We are reading daily about the slow down in the Spanish property sector. There are numerous articles stating that the property market will crash in the near future and that it is not safe to buy property in Spain at the moment.  On the other hand, Spanish real estate agents are, by contrast, claiming that now is the best time to buy a property in Spain. But what are the facts and background of these statements? What is really happening to the property market in Spain? What is a Buyers/Sellers Market and What are the Consequences?  The property sector, like all other none regulated sectors is influenced by many external and internal economic factors which will dictate the demand and supply in the market. A buyers market is defined by the situation where there is an oversupply of properties of both new and second hand homes. This can either happen because the demand for properties decreases, the supply of properties increases or a combination of both.

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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.

It is also possible to have a market which is not clearly dominated by either the seller or the buyer which would be defined as a market in equilibrium.

If the situation of a buyers or a sellers market persists for any length of time 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 increase (as there are not enough properties on the market the sellers will be able to raise the price).

The opposite is true with an over supply (buyers market) where the prices will normally fall as there are too many properties on the market and the seller has to lower the price to be able to sell.

Facts about the Spanish Property Sector 
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, over 600,000 new properties have been built per year during the last decade. The population size has remained stable and there has not been the same number of demolitions. These new properties were mainly built to attract people looking for a second home, investors and foreigners looking for a property in Spain.

Demand for Properties
The economic situation with the rising interest rates has led to a lower demand for properties especially from Spanish people that are looking for a second home. The increase in interest rates has not had such an effect on foreign buyers who tend to be cash buyers. 

The downward trend for demand has also been influenced by the fact that the stock market in Spain has during the last 3 years outperformed the increases in property prices.  This has tempted the professional investors away from the Spanish property sector in the direction of the stock market.

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

The combination of the above factors along 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. 

What does a Buyers Market Mean for People Looking to Buy Property in Spain? 
For the last 15 years (1990-2005) the market in Spain has been clearly dominated by the seller with sharp increases in property prices (on average 15% per year) and a very high demand for properties in Spain.

Buyers of properties during this period where in a disadvantageous  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 is evident.

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 also 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 incentives 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.
 

What will happen in the future? 
It is of course impossible to predict what will happen in the future but there are some 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 but 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 predicted that property prices in Spain will increase mainly because the average property prices are still significantly lower than in north Europe and the Spanish economy in general is improving faster. It is believed that eventually the standard of living 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. 

You can on this site find examples of the quality of new property in Spain.