One negative would be residency requirements. You can’t go to Spain and stay for more than 90 days without a visa, which requires private health insurance, proof of financial independence, police clearance and the usual web of capricious approvals. Until now.
Within weeks, maybe days, the government of Mariano Rajoy is expected to pass a law granting permanent Spanish residency to anyone who buys that snappy white three-bedroom townhouse on Playa Flamenca, or one like it. It’s a dramatic move, matching those already taken by countries like Ireland, Greece and Latvia where a real estate crash has helped gut the local economy.
Spain currently has between 700,000 and a million empty houses for sale plus a banking system that was bailed out a few months ago resulting in a serious credit crunch and too damn few buyers. The housing meltdown has helped forge a 25.8% unemployment rate, which tops even that of Greece.
The country’s real estate crash is now in its fifth year, and prices are falling at the fastest rate since 2008. More than 20% of all mortgages are underwater and almost 400,000 families have been evicted in the last four years. Prices last month were falling at an annual rate of 12.5%, and the cumulative average national drop is now 33.2% since the financial crisis struck. That approximates the collapse in the US (32%), and like in the States, in some areas perfectly appealing houses have lost 65% of their value.
Of course, Spain (like us) had a great housing boom that spawned inflated values and rampant construction. Like Vancouver, prices soared to the point when most locals couldn’t afford to buy. Like Toronto, over-building of multiple-unit projects swelled to be a major part of the local economy. But when the party ended in 2008, the entire country flamed out. Values plunged, jobs vanished, government budgets imploded and Madrid had to beg this past summer for $130 billion to resuscitate the wheezing banking sector, as rates on government bonds soared to the 7% range – making borrowing impossible.
Just days ago Rajoy was humiliated into a two-year moratorium on more evictions after 53-year-old Amaia Egana jumped to her death from her fourth-floor flat as bailiffs tried to seize the property. The suicide prompted street protests, and allegations it’s the poor who suffer disproportionately when banks need bailouts. Like that’s a surprise.
Anyway, there ya go. Spend at least $200,000 on a bargain in a semi-tropical country beside an azure ocean and laws melt before you. It’s a massive deal compared to the extending of residency with property purchase in Ireland ($500,000) or Greece ($640,000).
Beyond that, another cautionary tale for Canadians. Like the American middle class, once-affluent Spaniards thought nothing of borrowing big and shoveling the bulk of their net worth into homes which nobody imagined could ever stop rising, let alone decline. Unknown to most was the fact real estate had come to represent such a huge portion of the GDP, or that the entire market could deflate so quickly, setting the dominoes toppling. Shock does not begin to describe how people felt.
Spain, by the way, has a mature economy almost the same size as ours, and a population of fifteen million more.
So is a Spanish-style crash possible in Canada? Of course not. We’re special, like snowflakes, with a superior climate and culture. But it does make you wonder. Sell on Lake Ontario. Buy on the Med and veg. Who are the fool