UBS: Rock-Bottom Prices to Stagnate For Next 14 Years

18/09/2014 – El Confidencial

Swiss bank UBS, together with its army of economists and alike, as well as political and social scientists, has come to a conclusion that Spanish citizens should take the news about property market recovery with a solid pinch of salt.

In their recently released report titled Spain: Real Estate Market. Little at sight with sluggish and uneven recovery (transl. Aura), the authors portend persisting stagnation of bottom-low housing prices which may overrun by 14 years, a similar situation observed in Germany between 1995 and 2009.

UBS claims the slump in home values marking 45% since the 2007 peaks is going to stabilize on the 2002 levels in nominal and on the 1998 levels in real terms. The entity gives five arguments proving its predictions are pertinent. Firstly, weak upturn in employment without any increase in wages. Secondly, very slow housing stock absorption. Thirdly, demographic fall. Furthermore, rise in interest rates and finally, an upsurge in cheap properties fueled by millions of square feet seeking a purchaser.

The Swiss entity forecasts that even if the real estate market hits the bottom this or the next year, the factors that traditionally pick the demand up are not occuring and they probably will not.

From the point of view of demography, when foreigners return to their mother countries and the young go into exile, the population ages rapidly and if a sharp decline in birth rate added, the number of people falls at a speed of 200.000 inhabitants per year. Such a phenomena is especially harmful for the working-age part of the popuation (and at the same time the home-buying part) which loses 300.000 employees each year. Unsurprisingly, this jeopardizes the potential economic growth of a country. UBS predicts the growth will not cross 1.5% in Spain.

In fact, natural demand (households, holidays and sales to foreign investors) has plummeted due to the demographic effect. From 500.000 properties sold each year from 2003 throughout 2006, now the number of transactions averages at 170.000 units changing hands anually.

While considering the stock volume, at the end of 2013 there have been 650.000 properties pending sales. By 2016, diminishing at a speed close to zero, the stock will duplicate the natural demand. And yes, UBS included the vivid interest of overseas investors in the Spanish real estate.

Housing in Spain Remains Expensive

To make matters worse, the Swiss bank convinces that in spite of the pricing drop-off, Spanish housing is not cheap. In the best case, accessibility levels out, influenced by high unemployment rate, low salaries, high taxes and major differentials in mortgages. Putting it in other words, if the number of young people does not grow and many of them have no job or earn one thousand euros monthly, who is going to buy houses in this country?

The few lucky who can attempt to purchase a dwelling must face considerable differential rates on mortgages.

However, UBS positively assesses the rental market as gran part of the sectors investment (including shopping done by Socimis – Reits) targets this particular segment.


Original article: El Confidencial (by Ruth Ugalde)

Translation: AURA REE