Spain home market: prices up for 10 quarters; demand for 550.000 units in 2018

Spain home marketSpanish home market

Home prices in Spain rose 4.4% year-on-year in Q2’17, according to the Price Index for Repeated Home Sales published by the Property Registers College. This organisation looks at homes which have been sold at least twice since 1995. The methodology used is similar to that used in the Case-Shiller index in the US. Housing prices have now been increasing for 10 consecutive quarters, although there was a slowdown in Q2’17 compared to the 7.7% rise registered in Q1’17. This slowdown fits in with the outlook for a moderate rise in housing prices (4% year-on-year in 2017 and 2018), according to Bankinter analysts.

Bankinter’s latest report on the housing market flags that there will be demand for nearly 550.000 homes in 2018, fuelled by an improvement in the jobs market and favourable financing conditions.

But 2017 is still a better year to buy than 2018. Greater demand, limited supply and the boom in lets will continue to put upwards pressure on prices. “We are forecasting moderate rises (up 4%), once premium locations have reached pre-crisis highs and the ratios corresponding to the financial effort involved in buying a home become demanding once again.”

Whatsmore, development activity has started again. The reduction in stock, the growth in construction permits and new developers’ investment plans will lead to an accleration in new production in 2018.

As far as the commercial segment goes, there is still significant potential in the office market and there will be consistent growth in the letting market in Madrid and Barcelona, both in (CBD) and in new districts.

Levels of investment should slow in 2018 from the highs of H1’17, once yields move close to their lows and the differential with fixed income returns starts to fall.

Amongst the listed companies, Merlin Properties remains our favourite investment bet (a revaluation of 23% since we recommended a Buy in February 2016). The extent and diversification of its portfolio of assets, the visibility of its results and its margins, as well as a dividend yield of over 3.5%, are clear strong points. In addition, Neinor Homes offers the best perspectives amongst those companies focused on residential development.