BBVA: Housing Market Makes A Strong Start To 2017

10 May 2017 – Europa Press

BBVA’s latest report highlights the “positive” evolution of the real estate market at the beginning of 2017, given that house purchases are still being “backed” by mortgage financing, construction is continuing to grow and house sales are maintaining their upwards trend.

At least that is according to the “Real Estate Observatory of Spain”, compiled by BBVA Research, the financial entity’s research service and BBVA’s Real Estate area, which states that the recent review of the macroeconomic scenario by BBVA, which forecasts GDP growth of 3% this year, introduces “an upwards bias into the forecasts for 2017”.

In this sense, the entity highlights that house sales maintained their growth rate, supported by the “strong performance” in terms of employment and mortgage loans, whilst construction activity also “remained dynamic”.

According to data from the General Council of Notaries, during the first two months of 2017, 72,371 homes were sold, up by 13.9% compared to a year ago, but in line with the average for 2016 as a whole.

Amongst the factors that BBVA points to as reasons for the improvement in the real estate sector, are the labour market in Spain, which “has continued to improve”, as reflected by Social Security sign-on data, such as the Active Population Survey (EPA). According to the EPA, the number of people in employment grew by 0.6% during the first quarter of the year.

In addition, credit conditions remain “favourable” for households. Interest rates are at minimum levels: the mortgage rate for new operations remains at around 2.2%; meanwhile, the 12-month Euribor rate hit a new minimum in April, closing at -0.119%.

The mortgage market supports residential demand

Moreover, the mortgage market is continuing to drive residential demand. New loans to buy a home rose by 23.5% YoY during the first quarter, excluding refinancings, according to data from the Bank of Spain.

In turn, during the first two months of 2017, almost 12,800 housing permits were granted (20.3% YoY).

Finally, BBVA highlights that the dynamics in the market for land “are still positive”, given that during the first two months of the year, the number of transactions involving land rose by 12.8% YoY, which represents an increase in the traded surface area of 8.8% in one year.

Original story: Europa Press 

Translation: Carmel Drake

Spain’s Rental Market Is Thriving, Boosted By Buy-To-Let

9 January 2016 – Expansión

Thanks to strong investor appetite / The high profitability of residential investments has increased expectations in the rental market, given that it is the option now chosen by 21% of Spaniards. Experts forecast rental price rises of more than 5%.

The rental market closed 2016 with price rises of 6.7%, but in many large cities, the increases were in the double digits. The difficulties facing young people when it comes to affording a home, the emergence onto the market of hundreds of thousands of homes that were empty and the high returns of real estate investments have increased expectations for this residential option, once forgotten in Spain and which is now the alternative chosen by 21% of Spaniards.

This year, “given that interest rates are not expected to rise in Europe over the medium term, housing will remain attractive as an investment asset”, said Jorge Ripoll, Director of Research at Tinsa. “Speculative demand will push more and more savers towards the sector”, predicts Miguel Cardoso, Chief Economist for Spain at BBVA Research.

In this context, the consensus of the panel of real estate experts consulted by Expansión is that the rental boom will not only continue during 2017, but that the rises may even be larger, especially in the large cities. Julián Cabanillas, CEO at Servihabitat, highlighted that his forecasts indicate an average YoY growth in rental prices “of more than 10%”.

The increase in prices will be “particularly noteworthy in the large cities, whose weight over the national average is also more significant”, added Cabanillas, who warned that: “If prices continue to rise in the double digits, many households will be priced out of the market, particularly those formed by young people”.

The President of Tecnitasa

José María Basañez points out that “during the last few months of 2016, the rental market in Spain was more robust than the market for house sales”, a trend that will continue into 2017, in his opinion. “Therefore, we may well see price rises of more than 5%, on average”. (…).

Other analysts, such as Julio Gil, Chairman of the Foundation of Real Estate Studies, and José García Montalvo, Professor of Economics at the Pompeu Fabra University, think that the rental price rises will be more moderate. Nevertheless, like in the case of house prices, “there will be areas where rental prices will grow more quickly (such as in Madrid, Barcelona, the Canary Islands and the Balearic Islands)”, said Montalvo.

“The rental market is here to stay in Spain. We are seeing a change in mentality, with more and more people convinced that it is the way forward”, says Beatriz Toribio, Director of Research at Fotocasa.

House prices are also rising

Finally, it is worth noting that two new phenomena are being seen in the rental market. On the one hand, rental prices are rising and the volume of house sales are increasing, as Jaime Cabrero, President of the Real Estate Agents’ Association in Madrid, explains. On the other hand, the rise in rentals is making house purchases more expensive, according to Juan Fernández Aceytuno, Director General at Sociedad de Tasación: “The rental market is causing house prices to rise because there are increasingly more investors who are buying properties to rent”. “The high returns offered on buy to let properties are behind the tensions in terms of prices that we have been seeing and will continue to see in 2017”, adds Toribio.

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

BBVA Research: House Prices Will Rise By 3.5% In 2017

19 October 2016 – Expansión

(…). BBVA Research indicated yesterday, in its report entitled “The Real Estate Situation in Spain” for Q2 2016, that “the improvement in sales is permitting a gradual appreciation in house prices”, which are expected to grow by 2.5% this year and by 3.5% next year. It added that this rise will be accompanied by very significant growth in terms of transaction volumes, given that sales are forecast to grow by 10% this year and by 6.5% next year, to reach 475,000 real estate operations in 2017.

This report echoes data published by Spain’s National Institute of Statistics (INE) and the Bank of Spain, as well as by property registrars and several appraisal companies. One of them, Tinsa, recently indicated that house prices rose by 2.4% in September, with a strong increase in rental prices. Nevertheless, BBVA Research went a step further and said that this positive trend will continue well into next year, and may even accelerate thanks to job creation, improved confidence, the opening of the credit tap and demand from overseas buyers.

All of this will reinforce the effect that the price rises seen in recent months have had in terms of encouraging the market and investors who do not want to miss out. In this sense, BBVA Research said that “the path observed in terms of residential property prices is generating positive expectations, which will become a new factor that will support the demand for housing”. As a result, the sector will manage to offset some of the forecast deterioration in other factors next year, such as economic growth (which will slow by almost one percentage point in 2017, according to the main analysts, including BBVA itself), the moderation in global growth and the expected increase in oil prices.

Knock-on effect

Nevertheless, this increase in prices and transactions is not isolated, but rather is generating even greater positive effects in other aspects of the market. In this way, permits for new homes have recovered at a rate of almost 35% across Spain as a whole and by more than 100% in regions such as the Canary Islands and La Rioja. As a result, 90,000 new permits are expected to be signed next year, with housing starts at record highs compared to recent years.

In addition, the market for land is also enjoying more activity, with a 19.2% increase in the surface area sold during the first half of the year. This increase has also been accompanied by an increase in land prices (5.9%) following an increase of 4.3% in 2015, which reflects the outlook for the sector. Meanwhile, the purchase of land has undergone a significant change in recent years, given that at the start of the crisis, the major investors were individuals and now 70% of buyers are companies, thanks to the return of credit to the market.

Original story: Expansión (by Pablo Cerezal)

Translation: Carmel Drake

BBVA: Residential Investment Will Accelerate In 2017

9 September 2016 – Expansión

Investment in construction, in particular in residential housing, will become one of the main drivers of the recovery next year. BBVA Research, the research arm of the financial institution, forecasts that real estate investment will experience annual growth of 2.8% in 2016 and of 3.3% in 2017. According to the entity, the real estate boom will continue for the next two years.

Nevertheless, the “Economic Observatory for Spain” report, which the research arm presented yesterday, warns that domestic uncertainty and new “fronts of scepticism” – such as those resulting from Brexit – “will also affect the real estate sector over the next two years”. Even so, BBVA forecasts that house sales will continue to grow over the medium term, supported by “favourable financing conditions”. “The gradual increase in demand in an environment of decreasing supply will encourage construction activity and the emergence of new residential projects”, predicts the bank.

The Chief Economist at the BBVA Group and Director of BBVA Research, Jorge Sicilia, explained that the recovery in the housing market is still in its “very early” days, and as such, he believes that we should be “on alert” to the effect of low interest rate policies in the event that they last for a long time. In this sense, he indicated that although these policies are driving savings and investment decisions, they may end up having a “negative impact”. Despite these risks, BBVA’s research service calculates that residential investment will increase by 2.8% this year and by 3.3% in 2017. It also forecasts that investment in construction – which includes public works and non-residential properties – will grow by 2.3% this year and by 3% next year.

Echoing the report published on Wednesday by Analistas Financieros Internacionales regarding the evolution of GDP, BBVA forecasts that the economy will grow by 3.2% this year, before slowing down to 2.3% in 2017, due to a deceleration in private consumption and exports. According to the report, the political uncertainty resulting from the lack of Government may reduce economic growth by up to seven tenths this year and next, although this negative effect on GDP is one tenth lower than the impact calculated in May.

The labour market will also feel the effects of the slow down in the economy. This year, half a million full time jobs are expected to be created, but next year that figure will decrease to 300,000. The unemployment rate is predicted to decrease to 18.2% by the end of next year.

Original story: Expansión (by C.R.)

Translation: Carmel Drake

BBVA Research: House Prices Will Continue To Rise

5 September 2016 – El País

House prices have not bottomed out yet and will continue their path of gradual growth over the next few months, which will encourage house purchases, above all from people looking to reposition themselves in the market or invest. Nevertheless, that will not avoid the least active markets from continuing to show progress in terms of house prices. Geographical heterogeneity will continue to be present in the Spanish real estate market. Those were the conclulsions of the latest Real Estate Observatory in Spain report, prepared by BBVA Research, the financial institution’s research service.

Following a positive balance during the first half of the year, we expect the residential sector to continue to grow during the second half of 2016, underpinned by favourable financial conditions and the increase in foreign tourism, which is forecast to hit a new record this year.

However, the bank indicates that the economic moderation that is forecast to take place over the next few months will result in a smaller increase in house sales than that recorded during the first half of the year. Moreover, the uncertainty in terms of political-economic decisions may be reflected in demand to some extent.

Meanwhile, real estate activity will continue to build on the growth in demand and in the gradual absorption of the oversupply of housing, which points to significant growth by year end, although from relatively low levels.

That is also being demonstrated by the strong evolution of transactions involving urban land: according to data from the General Council of Notaries, the surface area of land sold during the second quarter of the year grew by 81.5% YoY, the highest increase in recent times.

Original story: El País (by S.L.L)

Translation: Carmel Drake

BBVA Revises Down Its Forecasts For Housing Investment

17 May 2016 – Expansión

BBVA Research, the research service arm of the financial institution, has revised down its growth forecasts for housing investment in Spain to 2.8% in 2016 and 4.4% in 2017, from its previous estimate of 4.2% and 8.2%, respectively, due to political uncertainty, according to reports by Servimedia.

According to the bank’s latest ‘Situation in Spain’ report, “the recovery of the real estate sector is continuing, but at a slower rate than expected”. In addition, the report highlights that the fundamentals of residential demand (the recovery of the labour market and low interest rates) remain “solid”, which means that we can expect to see increases in sales over the coming months.

According to the study, construction activity, which has showed “significant” momentum in the last year, is going to continue to respond to the increase in sales. With this, added BBVA “we expect that residential investment will continue to grow over the next few years”.

Nevertheless, the bank warns that the “persistence of uncertainty surrounding economic policy, and the negative surprises recorded throughout 2015, have driven down its forecast for growth in residential investment over the next few quarters”. In terms of investment in construction, BBVA Research forecasts that it will grow by 3.1% in 2016 and by 4.1% in 2017, down from its previous estimates of 3.8% and 5.9%, respectively. (…).

Original story: Expansión

Translation: Carmel Drake

BBVA Research: House Prices Will Rise By 3% In 2016

19 April 2016 – El Economista

BBVA’s Research Service forecasts that house prices will grow by around 3% this year across the country and that house sales will increase by 10% to amount to 440,000 homes, assuming that the economic and political uncertainties do not end up having a negative impact on demand.

In this sense, BBVA Research argues in its report, that the sector, just like the rest of the economy, is not without its risks.

The uncertainties that exist around global growth and relating to economic policy over the next few years may be conditioning the investment decisions of households and companies and so may end up affecting demand and supply in the sector.

In addition, the report forecasts that investment in housing will grow by 3.8%, taking its weight over GDP to 4.6%, and house prices will continue to be supported by increases in demand and the gradual reduction in supply, although this evolution will be relatively heterogeneous.

Large cities and the Mediterranean Coast

Whilst price rises will be more intense in the most active markets (i.e. in large cities and along the Mediterranean Coast); they have not started their recovery yet in the least active markets and will remain stable there in real terms.

The volume of new homes is also expected to grow in some markets in 2016…(…). As such, in terms of construction permits linked to the initiation of new homes, the report forecasts an annual growth rate of around 30%.

This, together with the greater dynamism seen in the market for land, will ensure the progress of construction activity. Moreover, the evolution of employment and household income will be positive and will continue to stimulate demand for housing.

Building work begins

The improvement observed in the real estate market has also moved to the construction segment, which will result in a significant increase in activity in the residential construction segment, which is set to be the big star of the sector in 2016.

Not only have residential prices have moved on from their minimum values, but also the trends indicate that more markets will have positive revaluations in 2016. Furthermore, mortgage financing is playing a significant role in the recovery and will be key for its development over the course of this year. The report adds that financing for property developments is expected to gradually consolidate this year.

Original story: El Economista

Translation: Carmel Drake

BBVA Forecasts A 10% Increase In House Sales In 2015

4 December 2015 – El Economista

BBVA Research, the financial institution’s research service, says that house sales will grow by 10% in 2015 and that in 2016, the real estate sector will finally leave behind the recession and will consolidate its growth.

Those were the main conclusions drawn by the latest Real Estate Watch Spain report published by BBVA on Thursday, which says that the sector is showing positive signs and that the available data indicates a significant improvement in demand, in an environment characterised by an increase in credit and the stabilisation of prices.

Moreover, the report explains that the scarce supply of new homes coming onto the market is enabling a significant reduction in the existing stock, to the extent that the supply is even running out in the most active markets.

This year is also seeing a significant improvement in the amount of activity undertaken by property developers, says BBVA, which means that in 2015 the residential construction segment is going to positively contribute to GDP for the first time since the start of the crisis.

The report notes that the recovery in demand, initiated in 2014, has strengthened during the course of 2015. In fact, it forecasts that the current year will end with around 400,000 house sales, i.e. an increase of around 10% compared with 2014.

This rate of sales will accelerate during the fourth quarter and the trend will continue into 2016, say the experts at the bank, who highlight that improvements in the fundamentals of demand are driving this trend.

Specifically, it mentions the recovery of the labour market and the increase in household disposable income, the positive developments in the financial markets and the stabilisation of residential prices, the strong performance of house purchases by overseas citizens, and an environment characterised by financial stability with interest rates on mortgages at historical lows.

Prices

Meanwhile, the report sets out that the growth in demand, in the context of a reduction in supply, lends itself to the stabilisation of house prices.

According to BBVA, prices have begun their journey through the recovery phase of a new cycle, a recovery that is currently undergoing a period of stabilisation and one that is happening more slowly than in previous cycles.

By type of asset, the bank observes a similar evolution in terms of both new housing and second-hand housing. Nevertheless, it clarifies that, whilst price decreases have been more intense in the second-hand segment, the recovery has begun more quickly in the new build segment.

Original story: El Economista

Translation: Carmel Drake

Housing: BBVA Notes “Significant” Recovery In Construction

2 November 2015 – El Economista

BBVA Research, the financial institution’s research service, says that the evolution of the number of new building permits granted for residential use shows a significant recovery in construction activity. That was the bank’s conclusion following its analysis of the latest data published by the Ministry of Development regarding new building permits, which increased by 27.9% between January and August, compared with the same period in 2014.

BBVA says that although it is virtually certain that 2015 will end with a recovery in the number of building permits granted for the construction of new homes, data from the labour market reflect an easing of new workers in the construction sector.

Specifically, it notes that whilst the second quarter closed with a 1.2% increase in the number of new workers, that figure remained stable in Q3. For this reason, it considers that the rate of growth of building permits may ease off during the latter part of the year.

Original story: El Economista

Translation: Carmel Drake

Has Spain Learnt Anything From The RE Crisis?

17 September 2015 – Mercado Financiero

Standard & Poors published a report at the end of 2007, which predicted a 22% decline in the construction sector over the next 3 years in Spain. A year later, the decrease in the number of job offers in the real estate and construction sectors amounted to 57%.

In the years before the crisis, Spain shared in Europe’s prosperity, where belonging to the middle class was an outmoded concept. Buying a new house, changing car and travelling constituted the basic premises of an economic model dominated by the real estate sector.

During the decade between 1997 and 2007, the construction sector drove more than half of the country’s economic growth, and accounted for 23% of total employment, according to a study by Rafael Doménech, Chief Economist for Developing Countries at BBVA Research.

Specifically, in 2007, construction accounted for 21.7% of the Spanish economy’s GDP. Seven years later, in 2014, the weight of the sector had decreased by almost half, to account for 10.5% of GDP.

No one ever talked about the risk premium; the word eviction was effectively invented in 2008; and purchasing property was a very profitable business, since prices always increased.

Over-valued assets?

Excess demand gradually drove up the price of properties. According to the Bank of Spain, at the end of 2008, the price of a typical home (measuring 93.75 m2) was 6.5 times greater than the gross disposable income of an average household.

That magnitude dissipated during the second quarter of 2008 when house prices began to fall and the declining trend continued until the middle of 2014, when the first price rise was recorded after 24 quarters of decreases.

But the issue goes much further than that. During the years before the crisis, the Spanish economy was characterised by the following: a high inflation differential with respect to the Eurozone; a lack of competitiveness; and the high price of real estate assets that encouraged their purchase. Pillars of growth that IESE described as “unsustainable”.

Growth is returning

In 2015, seven years after the crisis began, the positive macroeconomic outlook seems to be indicating the end of the recession. Such trends are also being seen in terms of house prices, which despite the sharp downward trend, have now reversed. With the 4% increase experienced in Q2 2015, house prices have now recorded five consecutive quarters of YoY increases.

In this context, what we should really be asking ourselves is: Are we at the beginning of a new real estate bubble? Rafael Doménech…says that the spike in house prices during the second quarter of the year (a 4% YoY increase) is “the typical rebound following an over-reactionary adjustment”. Moreover, he is certain that the market is not returning to its old tricks again.

Meanwhile, the Head of Research at the Bank of Spain, José Luis Malo de Molina, says that “the adjustment in the housing sector has, in theory, come to an end” and that “the outlook points to the start of a possible recovery”. Likewise, Malo de Molina believes that the recovery in transactions is leading to an increase in the number of permits for the construction of new homes. (…).

In any case, the Spanish economist Santiago Niño Becerra argues that Spain will never again construct more homes than in France, Germany and Italy put together, because of easy credit fuelled by cheap money. “I think that the future of the real estate sector will centre around the renovation and conversion of properties for rent, together with very carefully planned construction”.

Original story: Mercado Financiero

Translation: Carmel Drake