Properties purchased as investments are saturating the real estate market

Almudena Nogués / SUR in English
Speculators are anxious to sell quickly,given that prices are not likely to continue rising

They warn that excess supply is beginning to slow sales, which are now taking three times longer to finalise

Some talk of a slow meltdown. Others refer to it as a sharp drop in prices. And most simply cross their fingers and hope it will go away soon. They are all talking about falling property prices, or to be more accurate, a slow-down in the rate of rising property prices. But however one looks at it, the prices of houses and apartments in Malaga and the Costa del Sol have ceased to rise at the rate we have become accustomed to over recent years, and many home owners, private investors and property companies are worried. The great Costa del Sol property bubble may not burst, but it is leaking air. The era of fast profits in property would seem to be over, at least for the moment.

Although the property market is still in a fairly healthy state, in spite of continually rising interest rates approved by the European Central Bank in recent months, the experts warn that in certain parts of the Mediterranean coastline and Andalucía – including the Costa del Sol – owners can no longer expect to get the high prices they have previously expected. In other words, it is beginning to become a buyers market.

Investment

Many people in Malaga invested in property some years ago as a means of earning a relatively fast profit with a short-term investment. They saw the speculators scrambling over each other to get their hands on properties everywhere, and quite naturally, they wanted in. The spectre of even higher prices for houses and apartments encouraged many to extend themselves too far, financially speaking, and many of them now find themselves with properties they cannot afford on their hands and little chance of unloading them on the open market.

An additional problem, felt more keenly in the area to the west of Malaga city, is the high rate of construction over many years. This has inevitably led to an excess of supply, in turn acting as a brake on both demand and sales. Experts in the sector speak of ‘anguish sales’, in reference to the need for speculators, many of whom bought off-plan, to sell quickly at what they believe to be below true market price. If property speculation was once a ticket to sudden wealth on the Costa del Sol, it is certainly no longer so.

Slow sales

Real-estate agents point out that it takes three times longer to sell a property now than it did just a few years ago, the average time now being more than two and half years for a coastline house or apartment to sell. José Antonio Pérez, property professor and director of research in the Business Practices Institute, tells us that prices of residential properties reach their ceiling at 300,000 euros, and from there on sales have more or less stopped. He talks of fear in the property investment market. “Many investors are beginning to get very nervous right now, afraid they will not be able to sell. So they end up selling at below market value and looking towards other parts of the country, such as the south-eastern coastline of Spain,” he says.

The president of the College of Real-estate Agents, Cayetano Rengel, prefers to speak of nervousness rather than fear. “The problem is getting quite serious,” he warns us. “Just a few years ago, the buyer would purchase a few properties at a time with the intention of selling them on a short time later and doubling his initial investment. The panorama has now changed considerably. The property market is in a process of self-regulation and equilibrium.”

The response by the speculators is to sell fast, however much they believe they might be losing in the process. Mortgages rates are rising, and nobody wants to be caught in the middle. “We have been receiving many requests for sales in recent years. One can see just how nervous people are, many of them desperate to sell. Even the promoters are asking for our help,” says Rengel.

Not easy to sell

Juan Carlos Cuevas, owner of the Tecnocasa property agency in Malaga city, agrees with this assessment of the current market. He confirms the high level of saturation in the market at this time, adding that it takes a lot of effort to sell right now. “Even the small residential developments are having difficulties,” he adds. Long gone are the times when the buyer would walk into the office and choose a property off the architect’s drawing. “If we took up to 90 days to push the sale through in the past, it is now taking a great deal longer, up to nine months in may cases. Also, many owners are obliged to drop the asking price drastically, because they have no choice.”

Crisis

In spite of this situation, the Association of Builders and Promoters of Malaga refuse to talk of a crisis. “We do not believe that there is any real cause for alarm,” says the secretary of the association, Juan Moreno. “What we have is no more than a slow-down. Malaga is too attractive for a real crisis to come about.” In the face of this ‘slow-down,’ nevertheless, the University of Barcelona recommends that speculators change their focus. They should look more towards the office sector in the future, we are told by these experts.

Facts & figures

Speculation

Before: Five years ago, the stock market crisis encouraged many people in Malaga to invest in houses and apartments, many of them on the Costa del Sol. The result was a sharp price-rise, and speculators doubled their money over a period of a few years.

Now: Excess supply and high prices have slowed sales. The pattern of continuously rising property prices has levelled off, cutting profits in the short term for the speculators.

Prices and sales

Price-rise: Last year, prices rose for the first time below two digits since 2001.

Sales: At the moment, apartments on the Costa del Sol take an average of two and a half years to sell.

November 13, 2006 | Category: Real Estate and Investment