The report from BBVA estimates that by 2012 overall property prices will have fallen by 30% since their peak. It also points out that despite the Spanish government spending 2% of GDP on stimulus packages for the real estate industry it is still no where near recovery.
This gloomy outlook is backed up by another report from US bank Citigroup which says that it is only a matter of time before prices falls of 20 to 30% hit Spain. Its analysts predict that the property slump will last five to six years.
One of the main problems is that banks are not lending. Despite falling interest rates and inflation which means households should have more disposable income, the Spanish are not able to get mortgages and foreign buyers, especially from the UK, have all but deserted the market.
The president of the Spanish banking association, Miguel Martin, said recently that banks will start lending again when 'the fear of a property price collapse' has passed.
But some in the industry believe that more can be done to aid recovery. According to Jose Manuel Galindo, president of the APCE developers' association banks should stop offering better mortgage terms for those buying from the banks.
Nick Stuart, managing director of Spanish Hot Properties, said that the local property market has stalled and needs help to get moving again. He too blames the banks' lending policies.
'Spanish banks used to lend 70% of purchase price but in some cases that could be up to 100% of purchase price but that policy has now changed to a maximum of 70% of purchase price and when you add the costs involved in buying in Spain at being around 10%,' he explained.
He believes that the government should come up with a scheme to help banks lend and that could take the form of an insurance guarantee scheme. 'For me the solution is pretty simple – a loan guarantee scheme where the banks lend up to 90% of purchase price but the first 20% is guaranteed by the government. The banks would still underwrite the mortgage case on its own merit but the government would protect them against the first 20% of any loss,' he said.
