22 February 2016 – Expansión
The recovery of the real estate market is growing from strength to strength and according to Bankinter, in its latest report about the sector, around 420,000 homes will be sold this year, in other words, 53,000 more than in 2015. But, what is driving this growth spurt?
The entity’s analysis predicts that the upswing will continue into 2017, when it forecasts that 450,000 operations will be closed.
Above all, demand for homes is going to be driven by the “improvement in employment, reduced financing costs and the increasing attractiveness of homes as investments”, says the report.
Moreover, “the combination of higher demand and a limited supply in the major cities will result in an increase in average prices in 2016 and 2017 of almost 3% p.a., a figure that could reach 5% in prime areas”, predict the experts at Bankinter.
A new feature of the real estate sector compared with 2015, will be the increase in number of new homes, in light of the upturn in new housing permits registered last year”. However, the analysis warns that this improvement will only happen “provided the political context does not result in a loss of confidence”.
Below, we detail the factors that are expected to drive house sales this year:
1 – Economic growth and an improvement in employment
Bankinter highlights that the Spanish economy is going to grow by more than 2.5% in 2016, a rate that will facilitate the continuation of the positive trend in the labour market over the next few quarters. And it adds that “the increase in the number of people in work (by 525,000, of whom 171,000 have permanent contracts) may represent a catalyst in terms of the demand for housing”.
2 – Low financing costs
Another factor…is the low rates of interest, a scenario that the bank expects to continue until the end of 2017. “12-month Euribor will remain close to 0% in 2016 and the conditions for accessing credit will continue to improve”, according to its forecasts. (…).
3 – Favourable yields compared with alternative investments
The report argues that the gross yield from housing rentals compares favourably to other investment alternatives, such as long-term deposits and fixed income securities, which are currently offering yields of around 0%. (…) …. meanwhile, “gross yields on residential investments may reach 4.0%…”.
4 – “Cultural” trend towards buying homes
The culture of ownership versus renting has survived the crisis in Spain. In fact, despite the fact that demand and the possibilities for accessing housing reduced significantly during the recession, “the percentage of rental homes still remains low (compared with the European average) and has barely increased in recent years (the current rate stands at 21%, up from 17.2% in 2011)”, explains the document. (…).
5– Market outlook
Bankinter also highlights the positive influence of the strong outlook for the market. Specifically, the entity forecasts that housing sales will grow by 6.5% this year and that the favourable conditions in the real estate market will continue into 2017. (…).
No chance of a return to the boom figures
Nevertheless, Bankinter also stresses that, despite the good times being enjoyed by the property sector at the moment, the recovery “does not represent a return, in any way, to the levels of demand seen during the real estate boom years”. The study points to various factors to explain this, such as the declining population (due to the negative migration balance), the awareness that property prices may indeed decrease and, in particular, the fact that the unemployment rate will remain above 17.5% until the end of 2017. These aspects “represent structural changes in the market, which mean that levels of demand exceeding 900,000 homes per year are no longer attainable”.
Original story: Expansión (by B. Amigot)
Translation: Carmel Drake