May 1, 2006
Predictions For The Costa Del Sol Property Market 2006 Onwards
Current economic analysis would suggest that the Costa del Sol is in state of oversupply, with many of the units started two to three years ago completing in 2006. This has led to a glut of properties for rental and/or resale in certain sectors of the market. This situation looks set to continue due to the backlog of properties being finished off over the next few years.
Over supply, lowering rental returns, slower growth forecasts for capital appreciation set to a background of looming increases in the rate of inflation has led to a psychological tipping point in the price expectations of today’s typical purchaser and seller, subsequently this has negatively affected demand and the price or property.
What will happen next is the question that everyone wants answered.
The impacts of inflation
The predicted rise in inflation rates will obviously have a mixed bag of effects on the local property market. Inflation will have a direct impact on increasing interest rates, which will have the following impacts:
Inflation also has a double effect that leads to people investing and holding tangible assets such as property. Property provides a natural protection against the ‘purchase power erosion’ as (in the long run) house prices rise in line with inflation rates. This may lead to stagnation in some sectors of the market as potential vendors hold off from selling until inflation has leveled off.
Increasing rental demand
Without the same level of access to finance demand more people will be forced to continue to rent. Planned improvements in the regulation of the rental market and eventual decreasing supply will eventually mean that rental prices will increase again in a period of two to three years.New build will decline
The off-plan market will dramatically reduce in size through increased regulation, decreased demand and through inflation affecting the costs of building. Eventually the market for resale property will overtake the off-plan market.The impact on the property market
Property does not crash in the same way as the stock market. House prices tend to stick, as property reflects the single greatest investment most people make in their lives. Based on this fact people tend to work a lot harder to prevent the loss of this asset than a smaller investment in stocks or shares, accordingly property prices tend to stagger downwards as vendors attempt to hold out for a better outcome.With increasing inflation rates the pinch will be felt hardest by those who have over extended. Speculators in Spain will feel more inclined to try and get rid holiday home investment rather than their principal residence.
Cheaper housing, particularly two bedroom apartments will be most susceptible to this negative trend. Cheaper housing tends to attract clientele with smaller surplus budget who require greater levels of finance and who are then ultimately more susceptible to increases in the mortgage rates. In our opinion this will have the greatest impact on the price of property in the Costa del Sol’s 2 bedroom apartment market in areas such as Duquesa, Manilva, Rivierra, Fuengirola, Mijas Costa and Calahonda.
There will be increasing divergence in prices of property in the resale market. Prices will reflect value for money, quality and location, with good properties holding their value and following inflation and poor quality property significantly dropping in price.
Summary
In summary we predict that the market on the coast will move in the following pattern over the short to mid term period (next 5 years).
Category: The Costa del Sol Property Market.