Upturn in Property Sales: Full Recovery or a Mirage?

28/07/2014 – Cinco Dias

Is it the complete recovery for the Spanish real estate market? After record-low year 2013, spring rebounds seem to be a mirage on the desert as statistics show that the number of new mortgage approvals fell by 3.4% year-on-year in March.

Experts from property portals Pisos.com and Idealista.com think the backward movement has just confirmed that it is still too early to speak of a full recovery basing on such a short period of time. “Lending will continue to give priority to the sales of foreclosed assets. At present, majority of transactions are cash purchases.

Fernando Encinar, Research director for Idealista.com, says “banks want to lend but the buyers are still insolvent”.

More optimistically, Fotocasa.es portends a year-on-year increase in mortgage approvals “starting from June”. According to the portal´s research head Beatriz Toribio, statistics yet do not take the “shy lending” observed over the past months into account.

Bankinter´s analysts drew a report stating there are five factors indicating the recovery is just around the corner:

1. Improvement in Economy & Unemployment Rate 

Spain´s GDP is expected to grow by 1.3% and 2.1% over 2014 and 2015 respectively. “Rise in employment directly contributes to rise in property sales”, explains th bank. By the end of 2015, it is estimated the rate will have shrunk from 25.9% to 22.2%.

2. Increased Number of Foreign Buyers.

Both foreign and non-resident investors bought less in annual terms accumulating a 40% slump compared to the 2007-2009 figures. However, over the past years, the property sales to foreigners shot up significantly, currently this group representing 16% of the total. Bankinter foresees appreciation in the next quarters triggered by adjusted real estate prices and the “Golden Visa” scheme, convincing mostly the German and the British (the first) and the Asian buyers (the visa).

3. Growth in Property Purchase as an Investment.

Low-cost properties and the abrupt decline in return from other types of assets like deposits or public debt have driven interest in higher risk assets, such as private equity and real estate sector.

 4. Recovery Signs Seen in Large Cities.

Bankinter reminds that according to statistics, prices started to rise in specific areas, for example in the main cities and touristic spots. Madrid and Barcelona reflect it best.

 5. New Housing Supply Shortage.

A number of dwellings forming the 2013 stock is concentrated inside “undesireable” developments , located in far-flung places with almost zero – demand. As per Bankinter´s researchers, the homes may be sold only at bargain prices.

However, the sellable stock is expected to gradually diminish due to halt in developer activity as the number of finished homes dipped down and so did the building permits (only 30.000 issued in 2013). Neither of the factors is said to improve over 2014 and 2015.

Original article: Cinco Días (by V. Gómez)

Translation: AURA REE