Spain vs England in real estate investment

4 December, 2009 No Comments

The “real estate crisis” has affected several countries. We can make a comparison between Spain and the UK to see the evolution in each of these housing markets.

Referring to the residential housing market:

In the UK, prices have fallen more quickly than in Spain, as sellers have assumed that without this prices decrease, the sale would not expedite. In addition, must take into account that the actual price drop by the devaluation of the pound, prompted investors to find properties with a discount of up to 50%. It has made that the real estate market in England is now already beginning to recover.
In Spain the price reduction has been much lower and in the segment of luxury homes, this reduction has barely noticed. It is anticipated that the recovery in Spain will start between 12 and 18 months.
Unlike the office market (see below), in the housing market there is a glut and excess debt; the worst is behind us yet. Even so, as discussed in the article of 26/11/09 La Vanguardia, in Barcelona and Madrid real estate begins to pick up.

About office market:

In Spain, the real estate market is about to bottom out, as it has been noticed some cuts in prices for office, sometimes exceeding 40%. But this is clearly a market that has always had a shortage of supply.
The office market in Spain has suffered the fall in rents, which has been linked to changes in the economy. When the rents are lowering, there is more risk for investors. If the economy recovers, rising consumption and improved incomes. Potential investors must be, therefore, very attentive to the evolution of the Spanish economy.
Rental contracts in Spain are normally 3 to 5 years, unlike England, where contracts are much longer.
Spain remains an attractive country for investment. A German investor particularly like to invest in Spain.

The Spanish financial entities, and we talk about banking in general, seems unwilling or unable to dispose of their property, at least at current prices. The big question would be: Why should I sell now if within 8 months I get a 15% – 20% more? The answer is given: If these entities sell now, will always be at a price lower than that recorded in its books and, therefore, prefer to wait until the market recovers a bit.