Market confidence in the Spanish economy will come back only when a clearing price for property and property loans is established, with the market already anticipating this price will be lower than official current valuations, Barry Norris, partner at Argonaut capital partners and manager of the Ignis Argonaut European Alpha Fund, said in a recent outlook on the Spanish economy.
“If Spanish banks will be able to sell real estate loans to third party investors this would give the market greater confidence in the system as a whole and free up capital for new lending. This is process can only be accelerated by a banking sector sufficiently capitalised to realise losses,” he Norris.
According to industry estimates, there is an unsold inventory of between 800k to 1m housing units in the Spanish market, which is likely to take a number of years to clear if solely dependent on domestic demand.
But once prices will have fallen, fresh external demand will come from Northern Europeans, with a reinvigorating effect for coastal economies.
“Spain may be an economic and stock-market laggard in Europe but it still has one significant natural advantage: it’s sunnier in Malaga than Munich,” Norris added.
Spain is known as ‘the Florida of Europe’ and its sunny climate has already attracted Northern European looking for a retirement home.
“Like Florida, Spain has historically experienced boom and bust real estate cycles, most recently in 2007. Between 1998 and 2007, the Spanish population increased from 40 to 50 million. New housing starts increased from 300k to 750k per annum, average house prices doubled and Spain created half of all jobs in the EU, with its unemployment rate falling from 18% to 8%,” the fund manager said.
The Spanish economy fell into recession again in April and is likely to post the most negative growth for 2012 exlusing IMF programme countries (Greece, Portugal, Ireland).
The unemployment rate of the country is the highest in the eurozone, currently at 24.4%.