Spanish property prices must go lower, says Goldman Sachs

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The Spanish property markets seem to be lurching from promising recovery to taking two steps back and now Goldman Sachs has warned that prices and values should fall by a further 10% to stimulate growth.

This comes in the face of the decrease of 30% since peak levels, and will not be the kind of news many hard pressed sellers want to hear, as it could mean investors holding back even more.

The announcement comes in the wake of the deficit reduction plan being abandoned and the global investment bank thinks there is a need for a full scale restructuring of the country's lenders.

The Spanish banks are currently in the midst of trying to offload their portfolios of ‘bad’ property assets, with the large volumes of repossessed properties continuing to loom large over any hopes of a recovery in the market.

Indeed, the government has recently passed a law to prevent banks from repossessing more homes, but this isn’t something that Goldman Sachs favours.

Economists Andrew Benito and Sebastian Graves, who work for the company, explained: "Our preferred model values housing based on the relationship between rental yields and real borrowing costs. The current level is consistent with house prices falling by a further ten per cent to reach an implied equilibrium."

This ‘balance sheet’ approach is sure to worry potential investors who have been looking to take an interest in property in the country in the belief that the market has bottomed out. Potential falls of another 10% will surely deter many from taking the plunge at this time.

Benito and Sebastian Graves added that offering loans to risky borrowers is holding back recovery, because "unhealthy sectors" are still in receipt of too much funding.

If you are considering moving money to Spain, a big factor in how good value any deal can be is the exchange rate. The best way to send money abroad is to check rates offered by currency exchange specialists as these are often better than those accessed through banks.

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Spanish property prices must go lower, says Goldman Sachs

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