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Spain’s Residential Sector: A Fleeting Boom Or A Genuine Bubble?

3 October 2017 – El Confidencial

A fleeting real estate boom or another bubble in the making? Although many in the real estate sector – property developers, banks, experts… –, deny that Spain is committing the errors of the past and are instead convinced that we are witnessing the creation of a new real estate boom, the truth is that some indicators have started to trigger the first alarm bells, in particular, those relating to the evolution of house prices. The increases in house prices are not only generalised, in certain markets, they are very striking.

Such is the case of large cities, like Madrid and Barcelona, where the increases – in new build and second-hand prices – are now well into the double digits. According to data from the appraisal company Tinsa, in just twelve months, house prices have risen by 20.6% in Barcelona and by 15.5% in Madrid. This means that during the summer months, there has been a real boom in prices since, during the second quarter of the year, the YoY rise amounted to just 1.8% and 2.7%, respectively.

“A sustainable increase in prices would range between 4% and 5%. The double-digit figures in certain areas, where there is limited supply or a tourist boom, such as Las Palmas and Ibiza, are sustainable over the long term”, explained Jesús Amador, Real Estate Analyst at Bankinter, speaking recently to El Confidencial.

Both cities are still well below their maximums of 2007 (Barcelona is 28.3% below and Madrid is 37.4%), nevertheless, since their minimums, prices have now appreciated by 44.4% and 24.9%, respectively (…).

Prices in Palma de Mallorca have returned to the peaks of 2007

The most notable finding in the second-hand market is the rise in house prices in Palma de Mallorca, which increased by 7.3% over the summer, making it the country’s first capital city to exceed the price levels of 2007, followed by Lleida (5.3%), according to data from Idealista. Increases in Málaga (5.2%), Girona (4.9%) and Pamplona (3.9%) are also noteworthy (…).

Five indicators of the health of the Spanish real estate market 

1.- Average sales period (liquidity)

In Spain, it takes 9.1 months on average to sell a home. The cities of Madrid and Barcelona are the most liquid markets, with average sales periods of 3.2 and 3.4 months, respectively. Of the five largest capital cities, Valencia and Sevilla have the longest periods, where it takes 8.7 and 6.4 months, respectively, to sell a home.

2.- Financial effort

On average, Spaniards spend 16.6% of their gross household income to pay the first year of a mortgage. The autonomous regions where below-average financial effort is required are La Rioja (13.2%), Murcia (13.3%) and Castilla y León (14.2%).

At the opposite end of the spectrum (…), a much higher percentage of the household income is required to buy a home with financing in the Balearic Islands (21.2), Andalucía (17.6%) and Cataluña (16.7%) (…).

3.- Average mortgage and monthly repayment

The average mortgage in Spain amounted to €113,130 during the second quarter of the year (the most recent data available), compared to €148,037 in 2007, according to data from Spain’s National Institute of Statistics (INE). The average monthly mortgage repayment amounted to €528 in Q2, almost 40% lower than ten years ago (…).

4.- Sales and purchases

The provinces of Málaga, Alicante and the Balearic Islands, which all have a clear tourist component, are those with the highest number of house sales in the last four quarters with respect to the size of their respective housing stocks: 33.3 homes for every 1,000 properties in the province of Málaga; 29.4 in Alicante and 28.8 in the Balearic Islands.

By contrast, the least active markets include Ourense, with barely 6.6 house sales for every 1,000 properties; and the provinces of Zamora and Teruel, with 9.4 and 9.5 homes sold, respectively, for every 1,000 properties.

5.- Permits for new builds

In terms of property developer activity, the provinces of Madrid, Navarra and Vizcaya are still the ones where the highest number of new build permits were registered over the last four quarters, in proportion to the size of the housing stock.

In the Community of Madrid, 5.4 permits were granted in the last year for every 1,000 homes already in existence, whereby exceeding the number granted in Navarra (4.4 permits) and Vizcaya (4.3 permits). The least active areas in this regard include the provinces of Tarragona and Lugo (0.7 permits for every thousand homes in both cases), followed by Valencia, Pontevedra and Zamora, where 1 permit was issued for every 1,000 homes.

Original story: El Confidencial (by E. Sanz)

Translation: Carmel Drake