The economic crisis, unemployment and mortgage loan restrictions mean that recovery is unlikely soon with the lack of financing being the biggest obstacle to recovery, according to a report from CB Richard Ellis.
New property developments have dropped rapidly. Approvals from January to November 2008 were down 60% from the same period in 2007, the report says.
Although a slowdown in the number of new properties being built will help the sales market this is likely to be extremely limited as excess supply remains a major problem.
The report estimates that the number of unsold units in Spain to be around 825,000 and that does not include supply acquired by investors. It will take over three years to absorb this excess, analysts say in the report.
An increase in rental stock, much from property owners who can't sell, is leading to an over supply in this sector and the result is rental prices stagnating and even falling in some locations.
Banks and building societies are accumulating large numbers of properties by exchanging outstanding developer's debts and are becoming as a result one of the main suppliers of new property in Spain.
The report also points out that re-possessions are rising in Spain, up 146% in the third quarter of 2008 compared with the same period in the previous year.
The number of residential mortgages being approved has fallen 45.8%. 'This is due, both to lower credit demand and the toughening of conditions for mortgage concessions, which continues to be one of the main obstacles for the recovery of the residential market,' the report says.
Properties that are selling are doing so at around 20% under the asking price although there are regional variations. CB Richard Ellis expects this downward trend to continue in 2009.
Overall prices are down an average of 30% on maximum prices achieved in early 2008 which means that they are at the same level as they were five years ago.
