Between 1995 and 2001 there were over three million residencies built in Spain. Half of these were located on the coast. Both Spanish and other Europeans are always searching for sun and beaches whether it be spend their holidays or their retirement.

However the uncertainty caused after the events of September 11th has made potential property investors think hard before buying property in Spain.

The tourist zones in the Canary Islands depend on two important groups of clients: Fundamentally the Germans and the English. Germany is now suffering an economic recession, or in other words a negative growth rate, which has had an impact on German tourism in the Canary Islands. However England continues with its march of economic progress and statistics do not show that there are less English tourists. Some also believe that the economy will begin to improve after the first few months of this year.

This year it is being questioned whether the property sector and more importantly the tourism investment market will continue to behave in the same way as previous years. Let us analyse various questions:

1. The economy is interrelated therefore what is happening in Germany and England will have an effect on the Canary Islands.

2. The tourist industry will continue to grow, however the economic repercussions of countries such as Germany which sends so many tourists could mean that the quality of tourism drops with the prices which is bad for the image of the Canary Islands.

3. Tour Operators are aiming to lower prices at the moment which in turn means a reduction in profits.

4. Last minute bookings are becoming increasingly more popular which makes planning difficult.

5. In Spain and the Canary Islands there is an important property market for German, English clients and other countries of the European Union, who are looking to purchase second homes.

It is predicted that in 2002 there will be a slump in the property market of people purchasing second homes for the following reasons:

The national demand has peaked
Prices are too high
A slowing down of the European economy that is going to postpone until 2003 many of the forecasted investments and decisions to buy a summer holiday home.

However, there does seem to be a tendency to choose houses as opposed to hotels. This was seen to be true last year in areas of Spain such as the Costa del Sol, where the number of people staying in houses was higher than those who preferred hotels.

The Euro will allow Central Europeans to compare our house prices to the prices in their own countries, therefore they will be able to see that Spain continues to be a cheap country with regard to value for money. If we compare prices in Tuscany or the Cote d’Azur with those of Spanish coast it is easy to see that prices are cheaper here.

We should also take into consideration that the Spanish property market has perked up because apart from the period of economic prosperity that we have had and continue to enjoy, the type of interest that we are paying now is very different to the kind we were paying ten years ago, when the property market was only for the members of higher social classes.

Prices of new houses rose in Spain between June 1999 and June 2000 (according to the Property Consultancy TINSA) an average of 14%, thus making the average house price 164.300 pesetas (987 Euros) per square metre. This variation was very important in the Canary Islands where the average price rose by 22%

Another of the reasons for the increase in house prices in the Canary Islands has been the shortage of building land, mainly in the tourist areas, which has been slowed down due the tourist moratorium (the Canarian Government wants to stop further expansion in the tourist industry, more beds etc). In the Canary Island there is another important factor contributing to the rise in prices, what is know as the RIC (Investment reserve for Canary Islands or reinvestment of company profits in the Canaries with very low tax rates). The RIC has meant that many business people have built properties that are aimed specifically at the tourist market, in order to reinvest their profits which otherwise they would have to pay 35% tax on.

In short, during 2002 and especially the first half of the year, it will be wise to act prudently with regard to the property market as it is not really clear how things are going to turn out. Perhaps half way through the year many investors in property will find it difficult to pay their mortgages, giving rise to opportunities for good purchases, however no one really knows what is going to happen but it remains clear that the economy rises and falls.