Spain’s Housing Sector is Heading for Another Golden Cycle

6 February 2018 – Cinco Días

Ten years ago, the largest real estate bubble of the democracy was about to burst, and although it was not the first, it was by far the most spectacular:  not only were residential property prices extremely high, everything relating to property was excessive: the volume of homes built, the amount of credit granted and the number of sales recorded. And although there were those who warned that the bubble would burst and the consequences would be dire, no one guessed how dramatic they would actually be.

Now, a decade later and four years after the recovery began, the consensus amongst analysts is that we are starting a new golden cycle that shares almost no similarities with the one that burst in 2008. The most optimistic observers even forecast five years of stable and sustained increases in house prices, as well as an increase in house sales and in the construction of new properties boosted by the global economic recovery.

In terms of prices, the forecasts for 2018 range between a conservative 3% increase and an average of 6% for the whole country. Nevertheless, regardless of the figure projected for the country as a whole, all of the studies agree that house prices will rise at different speeds this year. Madrid, Barcelona (but not the rest of Cataluña) and the Balearic Islands will clearly perform better than the rest, with price increases in the double-digits. And although they will record their fifth consecutive year of rises, prices will still be around 27% below their former peaks, on average, according to Eduard Mendiluce, CEO of Anticipa Real Estate.

The forecasts for this year are not surprising if we take into account the latest figures for 2017, relating to the third quarter, which show an annual increase in house prices of 6.7% YoY (…).

In terms of the areas that will see the most activity, Victor Pérez Arias, Managing Director of the international real estate fund manager ASG Iberia, says that the Mediterranean Arc will continue to account for a great deal of activity, spurred on by the pull of overseas demand (..).

According to the CEO of Servihabitat, Julián Cabanillas, given that more than 470,000 homes were sold in 2017, the psychological barrier of 500,000 is going to be exceeded again this year, something that has not been seen since the fateful year of 2008.

One of the determining factors in the return of house purchases to positive rates was the reopening of the credit tap. Nevertheless, access to financing is still a long way from the free bar decreed at the beginning of the 2000s. The granting of a mortgage now requires certain solvency criteria, which forces future borrowers to have savings – and that requirement was avoided in the past on too many occasions. This prudence on the part of the banks is one of the keys that, according to the experts, differentiates this cycle from the previous one and distances the ghost of a new bubble.

In fact, the CEO of Sociedad de Tasación, Juan Fernández-Aceytuno, says that whilst the volume of mortgages granted is considerably below the volume of purchases, the market will be healthy and that is what happened in 2017. With the official figures yet to be published, all indications are that around 470,000 house purchases were recorded in 2017, whilst the banks granted no more than 320,000 mortgages (…).

The previous crisis also hit property developers hard, given that demand was stopped in its tracks from 2008 onwards, following the outbreak of the global economic crisis, whereas just two years earlier, the number of new housing permits had set a new record, with more than 800,0000. Numerous companies had started projects without any presales, convinced that they would sell all of the units quickly. Given that it takes between 18 and 24 months to build a housing development, many buildings were finished only to spend years unoccupied. In this way, construction was suspended, above all, from 2009 onwards and even today, just 10% of the record volumes reached twelve years ago are being built.

Nevertheless, given that in the large cities and certain areas along the Mediterranean Coast, the absorption of stock has evolved at a good pace in recent times, for the experts, it seems that the time has come to increase the rate of construction once more. That is what the National Director of Residential and Land at CBRE, Samuel Población, thinks. He expects the supply of new homes to start to increase from the end of this year, although its impact will be greater in the second half of 2019. That consultancy firm is sure that despite this rise in supply, prices will not increase by less than 5-6%, with Madrid, Barcelona and a large part of the coast as the most dynamic markets (…).

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake