New housing policies to favor rented and subsidised housing

The Ministry for Housing looking at ways of helping divorced and separated couples

The Ministry for Housing has announced that it will look at ways of expanding public assistance for young people as well as divorced or separated couples in the new State Plan 2009-2012.

The Ministry of Housing also confirmed that it expected property prices to ‘moderate’ further, although it insisted that it preferred any drop in prices to keep in line with inflation.

According to the latest figures published by the Housing Department, directed by Beatriz Corredor, the price of housing rose by 4% in the first 3 months of this year which is slightly lower than the inflation rate of 4.5% recorded for March.
Nevertheless, sources close to the Ministry of Housing have ruled out a sharp fall in property prices and have assured that the housing sector will recover in 2010, when the demand and supply of housing will readjust itself.

Although property promoters have presented numerous proposals to the government to try and revive the demand for properties and the housing sector the Ministry for Housing has confirmed that its priority is to help those who have difficulties finding a property to live and to help these people gain access to housing through state subsidised housing, known as VPO (Vivienda Protegida Oficial). In this respect it hopes to work together with local town halls and regional governments.

In the short term the Ministry of Housing is aiming to design a new housing plan, dominated by VPO’s and the rental market. The government also denied that its subsidy of 210 euros for young people renting property was not affecting the price of renting and that there are several measures to ensure that rental prices do not rise excessively.

Property developers in Spain confirm drop in sale of homes

The president of the Association of Spanish Constructors and Promoters (APCE), Guillermo Chicote, yesterday confirmed that the sale of flats went down by up to 60% between September and April and that there is now a surplus of around 500,000 unsold properties. Gerardo Díaz Ferrán, from the CEOE also warned that if the government did not adopt ‘brave and aggressive’ measures to alleviate the economic slowdown in Spain there would be half a million more unemployed by the end of the year.
According to Chicote, the situation will get worse in 2009 and that instead of 300,000 unemployed workers in the construction sector this number would rise to 500,000.

The APCE announced that if more properties were not sold then the ‘Treasury would not have money coming in and that it would have to pay out more money in subsidies to the unemployed’. Chicote also suggested some ways of increasing the demand for housing by creating a new category that fell between subsidised state housing and private housing with a fixed price.

Promoters have also asked the government to take a number of financial steps within the space of 3 years one of which would be to update the tax rebate for buying a property set in 1998 at 9,015 euros.

With respect to prices, APCE predicts that prices will continue to increase slightly below the rate of inflation. According to the latest official figures published by the Housing Ministry the price of flats went up only by 4% in this last quarter compared to an inflation rate of 4.5%.

Fall in Spanish house prices

House prices fall in Spain for the first time in 10 years

The fall in property prices in Spain is now official. House prices have fallen for the first time in 10 years according to figures published today by the Housing Ministry which show that prices have risen by 4% since April 2007 which is 0.5% less than the rate of inflation for this period. During the last property crisis, which occurred in the 90’s, prices continued to drop for 7 years.

Figures for the last quarter show that property prices have only risen by 0.8% and although during some quarters in 2007 prices rose below the rate of inflation this is the first time in a decade that property prices have dropped in real terms over the last 12 months. Another record is that the average price of a square metre in Spain is now calculated to be 2,100 euros.

Beatriz Corredoris, Spain's new Minister for Housing, faces an immediate challenge in her post given that she has arrived just at the moment that house prices are rising less than the rate of inflation. Moreover, some analysts predict a sharp fall in the property sector.

However, property developers refuse to admit that the drop in prices affects new housing. However, statistics published today only talk about prices and sales. Neither of which show a positive panorama. It is estimated that the sale of used housing has dropped by 23% whereas sales of new housing have dropped by only 0.9%. Nevertheless, these statistics are a lot more positive than those of the Spanish National Institute for Statistics which estimates that the sale of used housing has dropped by 36% and new housing by 15% in 2007.

The last stronghold for the property market in Spain which now appears to be in free fall is subsidised housing. According to official figures this sector of the market has evolved well. Figures show that around 200 families buy a house or flat in this sector each day which totals 73,000 properties a year. This translates as a 20% rise compared to 2006. These figures are significant not only for construction companies that don’t know what to do with surplus stock but also the government which has made a commitment to increase the number of subsidised houses and flats to 150,000 a year.

The evolution of the property sector is one of the reasons why predictions for economic growth are gloomy. Funcas (the Foundation of Building Societies) has estimated economic growth in Spain at 2% for 2008 and the figure for 2009 is even worse at just 0.9%.

Overpriced property in Spain

The IMF calculates that property is overvalued by 20 percent in Spain

The International Monetary Fund (IMF) warned yesterday that a drop in the price of properties and investment in the residential property sector in particular could lead to recession. Although this is not the case in Spain yet the IMF has indicated that it believes properties to be overvalued in Spain by around 20%, a situation which is unsustainable. It also warned that Spain’s economy is one of the most vulnerable if there is a further weakening in the property sector.

A chief economist for the IMF, Simon Johnson, believes that innovation in the financial sector that has helped many people to purchase their own home over the last two decades has also contributed to making advanced economies vulnerable to weaknesses in the property sector.

Ireland, the United Kingdom, Holland and France are also in a vulnerable position due to weaknesses in their property markets at present. Spain is also included in this group. Firstly residential investment is the second highest among advanced economies and constitutes 9% of GDP in Spain although at present this figure appears to be stable according to the IMF.

Ireland is the only other country with a higher figure than Spain’s with 12% of its GDP dependent on investment in the residential property sector. The second factor is the importance of the construction sector in the Spanish economy. Thirdly, the soaring price of properties in Spain over recent years is also another significant factor. According to Roberto Cardarelli, an economist for the IMF, prices in Spain are overvalued by between 15 to 20% which is twice as much as in the US. He also said that a weakening in this sector would have serious repercussions for the Spanish economy because it was much more vulnerable than any other advanced economy.

In the report due to be presented in Washington later this month the IMF also indicated that a weakening in the property sector would affect any economy that was experiencing a period of economic slowdown and that the effects would take anywhere between two to six months before they became apparent.

Monetary policy could help lessen the negative effects mentioned above which is why the IMF believes that central banks must pay more attention to developments in the property market and respond in an ‘energetic’ way to fluctuations in prices in this sector.

Next week the IMF will present its report on the risks to the financial sector and on Wednesday it will outline its forecast on economic growth. Yesterday Johnson spoke about ‘stagnantion in the US economy and ‘slow growth in Europe’. He also said that the price of property should be considered as one of the many key factors that influence economic prospects.