19/08/2014 – Expansion
After seven years like seven plagues, the housing market is approaching its turning point at cruising speed. Levelling out is no longer a mere ambition, like the smooth landing which politicians, property developers and others of the sector had prophesised in the heights of the property depression, but a genuine reality – a fragmented and bumpy one, yes, but brighter and awaiting just around the corner. The problem is that this low-point is so low that from so far down it is difficult for the residential market to make a strong comeback.
Just as it is difficult to say when an era or even a financial crisis starts and ends, the improvement of the residential market always requires qualitative criteria rather than numerical ones. Does the property crisis end when sales go up and when prices grow? Is improving pitiful figures something positive or simply “less bad”? Do we have banking credit again? And, above all, has the time to buy come?
That is the million dollar question, or the saint and saviour of recovery. As almost always is the case in this sector, there is no categorical yes or no answer, but at least the response is optimistic now: it is time to purchase a home for more and more people. Said in another way, rather than a good time, it is an “appropriate” time. That is the key word. After the ominous seven years of the property market, this is quite some statement, because it is the most reliable sign that the end of the financial crisis is near. “The sector may level out in 2014”, as José García Montalvo, Professor of Economy at Pompeu Fabra University, points out.
It may be a good time to invest, but for who? And where? Experts not only agree on posing these two questions, but generally on the response as well. In the large cities and for a solvent buyer, yes. “For the buyer that can get a loan it is the right time to buy. They would need to have a large amount saved up, since they have to pay 30% of the value of the home up front – unless the property belongs to the bank – and would also have to add on 11% in costs,” points out Carlos Smerdou, Chief Executive of Foro Consultores Inmobiliarios. “In recent months a large demand for buyers like that has arisen and been sustained,” he adds.
It is a point of view shared by José Antonio Pérez, director of the Property Faculty of the Institute of Business Practice (Instituto de Práctica Empresarial, or IPE): “It is the ideal time if you want to choose prime location, views, surroundings, services, etc., as long as the buyer has money saved up to pay the seller around 30%.” Pérez goes further and believes that the financial crisis of high-end flats has already reached its lowest point.
Together with solvency, the key is the area, agree all of the analysts consulted. Ángel Serrano, Managing Director of Business at the consultancy firm Aguirre Newman, explains: “We see an asymmetric distribution of the market. There are already areas where the supply has fallen a lot and the price has already begun to fall in line, above all in the central hubs of Madrid and Barcelona. Now is the best time to buy in these markets, knowing that very attractive transactions have occurred and it is even difficult to find a quality product in the centre of the large cities.
Pérez adds that “it is the ideal time to buy in well-linked coastal areas, with views, in a developed surrounding and with services. It is a winning horse with prices that will go up and in which transactions are happening.” In the rest, above all in the badly situated stock of the banks, “it is best to wait, because their prices will go down” even further, he advises.
In these circumstances, house buying can be approached like buying a long-life asset, or like an investment which provides a set profitability. For this reason, Julio Gil, partner and director of the consultancy firm Horizone, recommends “analysing the market in which you want to buy very well, because in some places the levelling off of prices will come soon and in others it will take rather a long time.” It is also important to take into account “personal circumstances, the specific location of the home” and, above all, “to take advantage of opportunities to buy below market prices, of which there are currently a lot,” underlines Julio Gil. In other words, the bargains.
Profitability through letting
Area and profitability. These are the two magic words – as well as financing – because not only are these variables fundamental on their own, but finally they are beginning to occur together in many submarkets, since as the housing market’s EEG chart is showing more peaks, the curve of the fall of prices is beginning to flatten out at the same time. Therefore, while there is a downward trend in the majority of property supply niches, in the large urban centres and in areas without much stock, the chain of bargains will come to an end sooner rather than later for investors not informed. “It is the time to invest hoping for prices in the area not to drop much more and for renting to be more profitable than the deposits and debt,” spells out Carlos Smerdou.
Profitability through letting is key to making decisions. Currently the average Spanish home (80 square metres at an average cost of 1,459 euros per metre and 542 euros rent per month) provides a net annual performance above 4% (to a greater or lesser extent, depending on the costs). That is well above what Spanish sovereign debt offers over 30 years – as long-lasting as a mortgage – in the secondary bond market (3.32%).
Another reason, this one historical, which indicates that the sector is approaching a change of direction is that of past experience: the market usually begins its crisis when prices fall on the Costa del Sol and in Madrid and begins a recovery when both areas come out of the red (above all Marbella and the area of Salamanca in the capital). “It has been like that, at least, since 1981, and now it is happening; we see an improvement,” points out Smerdou and Serrano agrees with him.
One last reason to dare to buy or to invest in housing is that the banks are beginning to open the mortgage tap little by little. Although the live balance of financing continues to fall, new credit is finally going up.
“In some banks the issuing of new mortgage loans is rising fast,” points out García Montalvo. “In other words, there is more demand”, he deduces. And so much so that there is more: sales of residential homes rose 48.4% in the first half of the year.
There are still not many, but the figure is improving. Everyone is aware that, at least in the very long-term, the property sector will not be what it was… eppur si mouve.
Original article: Expansión (by Juanma Lamet)
Translation: AURA REE