Spanish Real Estate Crisis: A Perspective from the Inside

José María Sanchez de la Peña was a man with a problem when he came to address our Lunch on 15th March 2012. It was a lovely early Spring day, with Hyde Park looking full of promise, but his message did not match this backdrop – by some distance. Apart from a few favoured locations in Madrid and Barcelona, all parts of the Spanish market are in retreat. Despite falling by around 30%, housing is still not affordable, and, with a weakening economy, demand from business occupiers remains feeble. Banks have become effective owners of large swathes of property, but have really not yet ‘bitten the bullet’ of changed circumstances. There are many examples of their selling buildings with 100% mortgages; the triumph of hope over reality! With very few exceptions, whilst land might have a price attached to it, it has no value. In response to a question, to emphasise the darkness of his message, José María doubted whether this represented a good ‘buying’ opportunity.

To make his message bleaker, the prospects for recovery seemed remote. He saw values falling for a further 12 or 18 months. Beyond that, the future was not really in Spanish control. If the Euro and Europe could be stabilised, then a base from which growth could start would be found, but bringing about that (relatively) happy state was not in Spain’s gift; the big issues lay elsewhere. Whilst José María emphasised that he did not want to make political points, the recent change of Government had, perhaps, removed one of the sources of trouble, but it was far from clear that the new lot could find the way out.

This description of such a dark picture left your scribe wondering how Spanish Society was coping with it; José María drew attention to the foundation of National Socialism in Germany in dire economic circumstances. However, there are two counteracting forces. First, there is a very extensive ‘black economy’ – ‘black’ in the sense of being below the radar of official statistics rather than illegal. The second is the strength of the ‘family’ in Spanish tradition; most people live in a supportive social context that mitigates, and spreads out misfortune.

I found José María’s words academically interesting (an insight into how it feels when economic distress reaches a tipping point), but socially deeply disturbing. I felt there to be a degree of desperation in that there seems to be no view of an exit from the present turmoil. The message was a gloomy one, and your Scribe may have over-emphasised its blackness; José María was clear that there are opportunities; you just need clear eyes and brain to judge them. However, in response to another question, he did not seem to think that there was a deal to be done in that Spain has a million houses to spare and Britain has a million people wanting homes.

Michael Mallinson