According to Bankinter’s analysts, there will be a moderate increase in housing prices (around 3-5 % between 2016 and 2017), and it will only happen in certain places. So Spain’s property prices will not return to the pre-crisis record highs, but will reach levels similar to that in 2004.
For the time being, there is no factor indicating a change in this trend. In the first place, the rise in demand is real, but an increase of less than 10% in sales doesn’t mean a substantial growth in prices. And in second place, properties passed on by the banks to Spain’s ‘bad bank’ Sareb are still being sold off. At the end of the first half of 2015, Sareb held 98,726 real estate assets, of which 49% were transferred at a discount of 54%. Their sale will allow transactions to be closed at a moderate price.
Nevertheless, there are still positive winds of change for housing prices. Bankinter flags the normalisation of affordability rates.
“The number of years of available income that a family uses to pay for a house in Spain continues to be higher than in other countries. Nevertheless, the affordability rate has fallen to 32.5% of gross annual income. This is well below the 49% recorded in 2008 and even the 36.7% reached in 2013, after tax incentives for buying houses were eliminated.
In addition, the reduction in stock and the lack of supply will help boost prices. The lack of activity in the housing market over the last two years has meant that the stock of homes has fallen to 500,000.
And in the big city centres, which are totally consolidated, there is a shortage of new supply and prices increase.
Bankinter also highlights the first rises in land prices.
“The price of land for construction grew 9.7% year-on-year in Q3’15, accumulating four consecutive quarters of growth. There has been an adjustment of -50.4% since the maximum prices reached in Q4’07. This change in trend could start to affect the final prices of houses.”
Finally, experts are talking about the recovery in prices in the big cities and prime tourist areas due to foreign demand. Average house prices in Madrid and Barcelona have accumulated four consecutive quarters of growth (4% and 4.9% annually respectively). This bullish trend is being transferred to other cities and can be clearly seen in coastal towns with a limited supply thanks to the strength of foreign demand. This grew 14% in 2015.
The European economic recovery, low financing costs and the security Spain offers compared with other tourist destinations like North Africa, are all elements that can fuel a rise in prices.
