Is there a property bubble in the big city centres in Spain?

madrid property bubble 1

Ratings agency Fitch has warned that a property bubble is evident in the centres of Spain’s large cities. But it makes it clear that it does not anticipate any generalised bubble in housing prices in the country in the short-term. This is due to the high level of stock which still has to be absorbed and the restrictions on buying a home.

The above comes from an analysis of Spain’s housing sector published by Fitch on Tuesday, where it explains that bubbles can already be seen in this kind of very localised assets: strong demand and the limited supply of homes in the main Spanish cities are fuelling an extreme rise in prices which look increasingly “unsustainable”.

The report flags that in the central neighbourhoods of Madrid and Barcelona alone prices have accumulated a yearly revaluation of between 15% and 35%. Fitch believes this demand is influenced by quantitative flexibility, purchases made by foreigners and investment decisions. Investors are looking to benefit from these assets’ appreciation, as well as from the yields on rentals. That said, it predicts that all these “ingredients” are not influencing the property market in general in the short-term. Similarly, the ratings agency claims it is “very unlikely” that there is a correlation between the property market’s problems and the economic recovery in general. It estimates that the average home sale discounts will remain very high and stable over the coming years. This situation will remain while the banking sector still has an excess stock of houses and buyers insist on there being a huge discount on the purchase of embargado properties, Fitch notes.

According to data supplied by Fitch, the discount on the sale of embargoed flats remains “high”, up to an average 60% in relation to the initial valuation, while they are in range of between 50% and 75%.  In this sense, the dispersal of the discounts on the sale of embargoed properties is declining. In fact, the gap between the discounts at one extreme and the other fell to 25 percentage points at end-2016 from the 35 percentage points existing between 2010 and 2011. Fitch points out, however, that this correction is not generalised.


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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.