Loan Sweet Loan
Today we finally became the proud owners of a new apartment in the center of Madrid, after struggling through a bureaucratic jungle that makes Kafka look like the Teletubbies. We should be out celebrating, but reading the predictions in an
Economist survey on the future of property prices suggest that a Chinese takeaway is probably the closest we’ll be getting to it. In the year to March, house prices in Spain rose 17.3%, lagging behind only Australia and New Zealand. The
Sydney Morning Herald (June 9, 2004) summarizes parts of the
Economist survey: “Australian prices were at record levels as a proportion of average wages and rents, and would have to fall 20 per cent to come back to their long-term trend, the UK-based magazine said…. Measuring over a seven-year period, Australia came fourth out of 16 countries surveyed… prices rose 113 per cent compared to 174 per cent in Ireland, 121 per cent in Spain and 116 per cent in Britain.” “Euroland interest rates,” says Lombard Street Research Global Leading Indicators (April 30, 2004), ”if not coming down are likely to stay where they are for now. This is storing up trouble for Spain, where the house-price to earnings ratio has risen to 7.5 in 2003, well above the average of 5 over the past sixteen years."
And let the
Economist itself (May 29, 2004) have the encouraging last word:
“Over the past few years, house prices have been booming almost everywhere except Germany and Japan. Since the mid-1990s, house prices in Australia, Britain, Ireland, the Netherlands, Spain and Sweden have all risen by more than 50% in real terms. American house prices are up a more modest 30%, but that is still the biggest real gain over any such period in recorded history… This survey will conclude that the latest housing boom has inflated bubbles in several countries, notably America, Australia, Britain, Ireland, the Netherlands and Spain.”
Average house prices in some countries, apparently, could fall by 30% in the next four years.
And to top it all, the cost of buying a house here – taxes, lawyers - is about 12% of the purchase price. In the UK, it’s about 4%, which shows that it doesn’t actually
have to be 12%.
So that's Euroland. Is the situation any better
here?