News / Real Estate

Spain approved as good location for investments

In October last year, I reported on the devaluation of Spain by rating agencies and referred to the deepest financial crisis in the history of the Iberian Peninsula. Further I explained, why the real estate market on the Balearic Islands reacts less impetuously on the fluctuation in the national market and especially the peak of the market of second domiciles remained comparatively stable. However, meanwhile the prospects for Spain improved a lot.

How could it come to this sudden change?
The board of government of Mariano Rajoy realized many unpopular sanctions and doing so has been the target for critics and mistrust. Nevertheless, it seems to move in the right direction. Spain is creditworthy again and all fears of a possible return of the Peseta are erased. In autumn 2012 the president gave his first interview to the Spanish television, hardly after one year of term in office and succeeded to explain the situation of the general government and his recipe to mend it in clear and simple words: He compared Spain with a family with a monthly income of 1.000 € whilst spending continuously 1.500 each month, and now has burned up all the savings they made when times were better. Now the family is on the ropes and nobody would lend her any money, as there is no confidence to get back. So, primary, the family has to approve to get along with less than 1.000 € and/or is able to earn more money.

Adopting the example, Spain experienced a strong decline of tax revenues since 2007, whereas the expenses have risen. The Zapatero government tried to compensate the increasing rate of unemployed people in the wounded real estate sector by promoting public works and hoped for a quick recuperation of the state of economy. Hope dies last and maybe Zapatero keeps burying his head in the sand. 2011, when the government changed, the national debt had been four times higher than the national product, with upward drifting deficit.

The difficult task for the new government was to provide cash on short notice to pay the bills, to improve the national income and to lower the expenses. All these are measures to reduce the shortfall. At the beginning of the 90s, simply Pesetas have been printed and devaluated a 30 %, national economy and the export boomed. The Spanish people were slightly poorer, but the unemployment rate was low and the economic growth strong. Within the Euro-zone, this option does not exist, so other solutions had to be found. Taxes as on wages and goods have increased, new kinds of taxes have been invented or others re-established. Social contributions have been reduced, the pensions frozen, public offices closed or downsized – even a more economic and efficient form of government at the expense of the “Comunidades Autónomas” have been considered. All these measures have led to a high rate of unemployment and social problems, but every beginning is hard and the Spanish people more patient than expected.

Rajoy has commenced his way, which is not very much appreciated in his country at the moment, nevertheless internationally succeeded in avoiding the necessity of the euro rescue fund and confidence got back. The risk rate is smaller and Spain is able to fund itself on the market. The next step is the recapitalization of the banks by founding the “Bad Bank” which takes over all real estates out of stocks both from stable and non-performing project promoters to provide the banks with cash to encourage the economy. The real estate sector, in order to avoid a new unhealthy “bubble”, however, will not be boosted. The purpose is to lower the number of unemployment – the biggest challenge for Spain.

Kai Dost
Tel: (+34) 971 60 99 89
Email: kai.dost@dost-co.com

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