Spain wakes up to property threats

Despite numerous surveys and reports suggesting that eastern Europe is the hot destination for the buy to let market, many Spanish property developers have not been listening – until now.

The threat from countries such as Bulgaria and the Czech Republic had been dismissed for a long time by property developers in Spain, especially while the property price boom continued and prices remained high. But as property price inflation has cooled during recent months, Spanish daily El Mundo has revealed that property professionals are now getting a little worried by the new competition.

While the buy to let market has seen a major increase in countries in eastern Europe, the traditional haunts of British investors have felt something of a squeeze, which is now beginning to bite in Spain. However, the new competition could prove to be of value to property investors, as Spanish developers realise that they no longer have the monopoly on foreign investment and will have to work hard to ensure prices remain low.

Otherwise, there is a threat that people will start to look elsewhere, in a move that would be very damaging for the Spanish market and economy as a whole. Therefore the Spanish government will also be looking to reduce the cost of new buildings in the country as a way to deliver fresh impetus to the market and attract more investors back to the region.

Examples of the Spanish government's moves to improve matters have already been seen, with the recent efforts to reorganise the way property and land is priced. Now that the companies involved in property development are beginning to realise that there is no longer a crest of a property wave to ride, they are more likely to look into developing cheaper alternatives to bring more investment to the country.

Alarm bells may not be ringing quite yet – the country remains the most popular destination for the majority of Brits looking to retire to a second home and is also still a major site of property investment for buy to let homes. However, there is certainly a growing realisation that this situation may not last forever and companies are going to have to reduce their costs if they are to deliver a sustainable future that can compete with the emerging markets in the east.

Another approach that may be taken by developers is to create more high-end luxury accommodation, so that Spain can attract a different kind of investor. Such a move has already been seen to a certain extent with the increasing demand for properties incorporated into golf courses. These do not come cheap, but there is plenty of demand for them and investors can make large returns on such developments.

Therefore, the property market in Spain could go in one of two directions over the next few years. On the one hand, it may try to drive down costs and compete for the cheap property market. Or it may take on a new position in the global investment market by offering more expensive luxury profits.