UN warns of ?inevitable? real estate crisis in Spain
Spain is facing an ?inevitable? real estate crisis that will affect a large segment of the population who are struggling under mortgages they can barely afford, the United Nations top housing policy official has warned.
Miloon Kothari, the independent special rapporteur on adequate housing of the UN Commission on Human Rights, urged the Spanish government to start ?openly? warning citizens and investors about the risks of a fall in house prices, something he indicated is all but certain to occur.
?The Spanish government is working in the right direction, but it should intervene more in the market and clearly inform [the public] that a severe real estate crisis will occur in a few years that will affect a large part of the population,? Kothari said.
The recommendation is included in a report on Spain?s real estate sector due to be presented to the UN Commission on Human Rights later this year. Kothari drafted it based on a two-week visit to Spain in November 2009.
150 percent in eight years
House prices in Spain have risen 150 percent in the last eight years, pricing many people, particularly the young, out of the property market and forcing others to take on large mortgages that they are struggling to repay.
Kothari warned that the current situation ?cannot continue in the long term? as rising interest rates will put Spanish families under excessive financial strain.
In June, the European Central Bank raised interest rates to four percent, the highest level in six years and the eighth straight increase since December 2008. Several Spanish banks have recently said they are noticing a slight rise in people not paying their mortgages or paying them late. Demand for short-term consumer loans has also risen ? an indication that many Spaniards are struggling to make ends meet.
No summer vacations for many
A recent poll by the Deloitte consultancy found that almost half of Spaniards with mortgages will be cutting their summer vacations short or not taking tome off at all this year in order to make their monthly payments.
Kothari said the Spanish government needs to take ?immediate action? to cushion the blow from the impending crisis. He urged officials to create more public housing and open up the rental market, noting that only 12 percent of property in Spain is rented, far below the European average, while millions of second homes and investment properties sit empty
Spanish house prices to fall 5% in 2011
Spanish house prices could fall by 5 percent or more next year as the country?s 10-year real estate boom ends, research by investment bank Morgan Stanley suggests.
A 5 percent fall, followed by a period of stabilization in the real estate sector, is viewed as the most likely scenario out of three possibilities foreseen by Morgan Stanley analysts, all of which point to either the Spanish property bubble deflating or, in the worst-case scenario, bursting.
In the most pessimistic prediction, the investment bank foresees real estate prices plunging by at least 5 percent per year, every year between 2011 and 2013, causing construction activity in Spain to plummet by 70 percent. With construction accounting for 17 percent of GDP, such a sharp downturn in the industry would all but certainly cause a recession in Spain, further reducing demand for homes.
Following Germany’s lead
The ?hard landing? scenario suggests that Spain would follow in the footsteps of Germany, where house prices have been falling following the real estate boom sparked by reunification. In Spain?s case, the Morgan Stanley analysts predict the real estate sector could take at least a decade to recover.
In the most optimistic scenario, house prices will remain flat over the coming years, although construction activity will decline slightly until the current surplus of housing units are taken off the market.
Property prices in Spain increased by 7.2 percent in the first quarter of this year, the lowest rate of growth registered since the start of the current boom in 1998.
