The roller-coaster ride that is the Spanish property market has still not finished dropping as prices are set to plunge another 10%, says a leading investment bank.
Property analysts at investment bank Goldman Sachs are warning that property prices are still overvalued and that the country’s property crash is not yet over.
They say that residential property prices will have to fall by another 10%, on average, before the market can be considered to have bottomed out.
The news is unlikely to be welcomed by those who invested in property and have seen prices crash by more than 30% in the last five years.
The analysts point to a range of factors, not including the on-going Eurozone crisis, which have left the Spanish economy as a disaster area.
Negative equity
Unemployment is currently at a record high with more than six million people out of work – which is around 27.2% of the working population.
The economy is set to shrink still further, around three times the rate forecast by the government, which means the country is facing two more years of austerity measures.
The original estimate of a 0.5% contraction in the economy is now looking more than optimistic by the government’s recent announcement that GDP could shrink by 1.3% this year.
In addition, there is still a massive oversupply of properties which are helping to force prices down.
The drab picture is worsened by a lack of demand from buyers and increasing numbers of homeowners in negative equity. More than 500,000 homeowners currently owe more money to the bank than their home is worth.
The warning from the Goldman Sachs highlights that yet more homeowners could be at risk from negative equity.
Banks must call in loans
Andrew Benito, an economist with the bank, said that an analysis showed that the relationship between real borrowing costs and rental yields highlighted the fact that property prices are over-valued and will fall by another 10% to reach an ‘implied equilibrium’.
He said the banks are largely to blame for the current situation – and for the likely fall in prices – which is also affecting the country’s economic recovery.
Mr Benito explained: “The banks are ‘evergreening’ loans to borrowers who are unviable.
“There is now too much credit extended to poorly sectors, like construction, which have poor growth prospects and not enough credit is helping growth-friendly entrepreneurial sectors and businesses which are export-oriented sectors.
He says the Spanish banks need to be more willing to call in loans from unprofitable businesses and improve credit to businesses with better prospects for growth.
