Leading bank warns Spanish property still overvalued

Published:  1 Jul at 6 PM
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A leading investment bank is warning that the Spanish property price crash has yet to bottom out, with further falls in the pipeline.

Goldman Sachs property sector analysts are predicting another 10 per cent fall in the Spanish property market. Investors and expat residents alike, already struggling with a 30 per cent decrease in prices since 2008, are unlikely to welcome the news.

Goldman Sachs points to the state of the Spanish economy as the cause, noting that the Eurozone crisis is still impacting the country. Already a disaster zone, the economy is expected to contract still further, resulting in austerity measures being left in place for at least two more years.

Unemployment is at an all-time high of over 27 per cent of the population, meaning that over six million Spaniards have no jobs, and the government has recently released figures projecting a 1.3 per cent decrease in GDP for the current year. According to Goldman Sachs, another reason for the fall in property prices is the vast oversupply of homes for sale.

Buyers are remaining cautious, and negative equity is rising, with over half a million householders now owing the banks more than their homes would fetch on the open market. The Goldman Sachs analysis suggests many more homeowners could fall into the negative equity trap over the next two years.

According to Goldman Sachs economist Andrew Benito, the contrast between rental yields and the cost of mortgages and loans indicates overvaluation, with falls of around 10 per cent needed. Benito blames the banks, accusing them of loaning housing finance to unviable borrowers including construction companies.

Benito also points out that credit is not being extended to the export and entrepreneurial sectors, creating an imbalance in the economy. Spanish banks, he believes, should call in unproductive loads and concentrate on businesses with growth prospects.
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