Spanish Property Sales Bouncing at Bottom as Government Denial Starts to Crumble

According to Spain's National Institute of Statistics, sales of Spanish property were 48% lower last year, than in 2007, at just 372.000 sales excluding social housing. This represented a year on year decline of 27%.

That said, according to their data, month-on-month transaction numbers have been hovering around the 30,000 mark since November 2008, which is less than half the sales recorded month-on-month at the beginning of 2007.

The INE data also showed that sales of new developments outstripped resales throughout much of 2009 but have more recently started to reach similar levels. This is likely because of the high prevalence (well dominance is a more apt word) of lifestyle buyers during the last year, and the increasing number of investment buyers now looking to snap up bargains.

The Spanish property market and economy have their own set of problems, not least because the economy was built solely on the strength of the property boom, as Spain saw more construction starts than Germany, Italy and France put together.

Spain seems to have remained in denial far longer than most; and rather than admitting the problems so that the populous can learn to deal with the tough measures necessary to fix it, the Spanish government has continued to parade around price indexes that show only slight decreases in prices, and other positives, without any negatives.

According to the government Spanish house price decline has yet to reach double digits over a year, and even the index ran by Tinsa, regarded as most accurate put the price decline at just 5.5% in the year ending January 2009. In reality developers and agents have only been selling at a discount of 25% or more. The 1.8% increase in mortgage approvals recorded by the INE in November is another example; 1.8% of very little is not a great deal.

This has now changed, analysts believe it is down to the Greece debt debacle, and in just the last 2 weeks, the government has started to come to grips with the economy's problems. It has announced some serious plans to tackle public spending, like cutting pensions over the medium term and cutting short term deficits by reducing infrastructure and civil service expenses.

The next steps needed are things like educational reforms to give Spain more strings to its economic bow than tourism and construction, as well as taking steps to eliminate the harmful split between permanent and temporary workers, which destroys any incentive for professional development.

Spain is in the fortunate position of being able to finance these reforms relatively easily, unlike Italy where the reforms needed to return to growth will cause substantial problems for the population and therefore the government. Spain has among the lowest levels of public debt in Europe, and Moody's just reaffirmed its triple AAA investment rating.