Thanks to Iza Kaminska for pointing me to the video below of row after row of incomplete homes in Spanish host towns, las ciudades fantasmas. Spain has the same problem of overbuilding that the U.S. had during its bubble days. Now that things have gone pear-shaped in the residential property markets, you see these ghost towns popping up as a monument to the bust. I have a few questions though:
- With the Spanish banks now being stress tested, what kind of credit writedowns in residential and commercial property are they being stress tested for. Indications are that these properties have not been written down more enough.
- If Jean-Claude Trichet intends to hike rates to ward off inflation, what will that do to the property markets in Spain (and Ireland).
- China has some ghost towns of its own, although they look a lot better than Spain’s (or Detroit’s). Is there any likelihood these could end up like Spain’s or will they eventually be filled?
- What happens to these properties? Do they get bulldozed like Detroit’s or does the government step in and help finance their completion? One could see crime becoming a problem if not.
A good article on the ghost town issue was in the Guardian on Monday reporting that these ghost towns "are a kind of tourist anti-attraction" for foreigners – a sick (but fascinating) tourist attraction, of course. What about the people who live there:
Valdeluz was meant to be a dormitory town, with 9,500 houses for nearly 30,000 residents. But the lead developer hit the rocks a couple of years ago, with only around 1,500 units completed and 700 people moved in.
Joaquín Ormazábal is one of those Valdeluz residents. Forty-four years old and separated from his partner, he bought a three-bed flat in the development four years ago for €240,000 (£211,000). Four years later, it’s now worth less than €140,000.
His black Mazda is the only car on the road up to Valdeluz. As we go, he points out the sights we should be seeing but that were never completed.
That side, a parking lot for 2,000 cars (nothing). Over there, a shopping mall (less than a storey completed). A school (with 300 pupils rather than the intended 1,700). Every so often a couple of residents walk by, but the development is so empty they look more like middle-aged squatters.
"We thought the Spanish property market was one giant party, in which prices would always go up and up and up," Ormazábal says. Parking on a hill, we look down at a giant plot of land that is only a quarter built. It’s a vast rut from which for the foreseeable future homeowners will not be able to move without losing 40% or 50% of their equity. "Some mornings I feel like such an idiot." As a joke, he mimes sticking a knife into his chest.