16/10/2014 – Expansion
It is expected that the end of the year will see rush on the property market. The tax amendment to enter into force in 2015, the necessity of banks to meet their annual targets and the ‘to-2013 comparison effect’, all may contribute to increased activity in the sector at the end of 2014. What are the chances of the recovery being real?
What we know for sure is that the latest official statistics can make one believe that the long-awaited improvement has come. The first rise in housing prices in six years, five consecutive months of bumper property sales (although according to the INE in August they fell again, meanwhile the Notaries maintained they soared up 14%), big-name investors starring in new transactions, sold housing developments and the arrival of foreign investors, all speak in favor of the recovery.
Beyond these figures, there appear several nuances which may undermine their flawlessness. Firstly, most of the comparisons are of the year-on-year sort and it happened that the previous year has been simply extraordinarily bad. Therefore, if the analysis are done on the basis of the 2013 figures, the result must be positive.
To get a more reliable vision of the market, one should consider other factors as well. Firstly, home values presently equal to 2003-2004 levels and so do the sales but the information should be fitted into a context. For instance, the July figures (28.583 units sold) outperform the 2013 score (25.819) by 10%. However, it still cannot catch up with the 2010 and 2011 figures (37.669 and 43.561 properties respectively).
On the other hand, the buyer profile – investors and/or people with some money saved – remains strictly determined. In fact, two thirds of the transactions are sealed in cash, without need of financing.
In spite of these factors, experts expect to see better numbers at the end of the year. To begin with, due to changes in the taxation system that could speed some sales up. Namely, from 1st January 2015 on, amortization coefficients applied to capital gains proceeding from sales of properties acquired before 1994 will be cancelled. In other words, an amendment in the means of calculation and the end of discounts for houses bought before the year mentioned above.
This way, people who sell an over-20 year old property after 1st January 2015 will have to pay up to 55% more in taxes.
‘The odds are high that when the vendors realize what the real meaning of the taxation law change is, they will rush to sell their dwellings still before the Christmas time. (…) We may be taken aback by the sudden increase in the real estate transactions’, sources from portal Idealista.com indicate. The website’s Research head Fernando Encinar adds that better sales at the end of the year will not be the clear sign of recovery and the year 2015 will not necessarily hit the ground running.
Also, it seems that banks start to change their minds in terms of lending. ‘Throughout 2014, we have been witnessing rise in confidence thanks to good economic outlook for Spain and stabilization on the job market’, adds Jorge Ripoll, Research director for Tinsa.
In opinion of Carlos Smerdou, CEO at Foro Consultores Inmobiliarios, the craving of the entites’ salesmen to meet the yearly objectives may give an impulse to the mortgage approvals during the last months of 2014.
Jose Garcia Montalvo, Economics professor at the Pampeu Fabra University and investigator at the IVIE (Instituto Valanciano de Investigaciones Economicas), takes a more cautious approach and says that even if a certain taxation effect occurs, hope for lower prices may hold on property purchase.
Tinsa’s executive Jorge Ripoll estimates ‘a rise of 15% – 20% in property sales at the end of 2014 in regard to the previous year, taking into consideration that 2013 concluded with an extremely poor performance (300.000 units sold). The figures will not be particularly impressive, though’.
Speaking of the prices, Mr. Ripoll foresees ‘slowdown in value drop-off which may reach zero when the year closes. In average terms, floor prices might be established. The fact does not rule out the possibility of further deep adjustments in some areas of Spain, while in others the values may go up. If eventually the recovery does not live up to the expectations, prices may dip-down even more’.
To conclude, Carlos Smerdou claims that 2015 may at the utmost see stabilization, but no sharp rebounds.
Original article: Expansión (by M. G. Mayo)
Translation: AURA REE