Segmentation in the Spanish Real Estate Market

Reports about the death of the Spanish property market are premature. The market is slowly beginning to recover after two years of falling prices and the apparent lack of credit from banks. As banks are now loosening their lending for anyone with some money to set aside as a deposit, especially in their own salvaged shares, they want to finance 100% where possible to take the liability off the books.

However, the recovery is not everywhere and not all property types are recovering and I certainly don’t expect to see price increases any time soon. With that in mind, I’ll give you a few examples where I don’t see drops going down currently, and then I’ll tell you what a core property is. This market segmentation is a very important concept to understand because without it all properties are treated in the same way and this is not how the Spanish real estate market looks, it is not a monolithic whole.

For a property to be considered “primary”, it must have an intrinsic value that can be easily measured. The “subprime” property does not have this same intrinsic value. Subprime mortgages are much more prone to market confidence and demand. There is little or no demand for subprime properties outside of the big cities and their periphery. A good example would be a series of properties built on a farm where everything is similar inland and away from the beach with few facilities around and where everyone must use a car for all trips. (It is impossible to segment the properties in this state, they all fall into the same subprime category.) Transportation costs are likely to rise gradually over the next few decades and these properties will become less and less desirable as a result. The converse is also true, of course, which means that prime properties with short commuting distances in the conurbations and with good facilities become more desirable. This will mean that their prices go up while the subprime group goes down, increasing the price gap between prime and subprime.

Spanish coastal properties will be another sector that will suffer if they do not have quick access to the coast. The description “coastal property” has been abused to include properties even a couple of miles or more from said coast and therefore it is easier to segment in this area. My own opinion is that if you can’t comfortably walk to the beach with all your things for a day by the sea in hand, then you don’t have what can be called coastal property. Front line properties with uninterrupted sea views and even second and third line properties with good sea views will hold their value quite well because they obviously have a prime position and are in limited supply. Anything further back can no longer be considered prime and the segmentation is evident in the disparate prices.

What type of property will hold its value? Large city centers are good bets, as people increasingly move to larger cities and towns to look for work. These areas hold their value as the demand curve exceeds the supply curve in almost all cases. A city center flat is a city center flat and nothing can create more space in those cities, which means there are limited numbers available due to planning constraints and the replacement of new with old. . The center of a city, therefore, is a segment. Spanish cities no longer have developable land in the center, so there is very little chance that supply will exceed demand if people keep moving to the city, something that continues to be the trend throughout Spain.

Other properties that will hold their value are those that have something special, spectacular views, fantastic and timeless design, integrated and discreet security features, shopping and leisure facilities and more. When you wrap all of these things together in one property, then you have the perfect real estate investment that is bound to hold its value over the long term and you also get a pretty nice place to live. It is the perfect segment.

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