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25 October 2017 – El Mundo
The ratings agency Fitch is warning that a real estate bubble is now visible in the centre of Spain’s large cities, although it does not anticipate a widespread bubble in house prices across the country as a whole in the short term, due to the high volume of stock that still needs to be absorbed and the restrictions facing people wanting to access a home.
Those were the findings of analysis performed for the Housing Sector in Spain report published by the entity, which explains that bubbles involving these types of localised assets are now very evident: the strong demand and limited supply of housing in the country’s main cities are leading to extreme price increases that are becoming increasingly “unsustainable”.
According to the agency, in the central neighbourhoods of Madrid and Barcelona alone, prices have recorded an annual increase of between 15% and 35%.
For Fitch, this demand is being influenced by quantitative easing, purchases by foreigners and investment decisions, given that investors are looking to benefit from the appreciation in asset prices and rental yields. Nevertheless, the agency forecasts that these “ingredients” will not influence the overall real estate market in the short term.
Similarly, the ratings agency asserts that it is “highly unlikely” that the problems in the real estate market are correlated with the economic recovery in general and it forecasts that the average discounts being applied to sell foreclosed homes are going to continue to be very high and stable over the next few years.
This situation will continue for as long as the banking sector continues to have an excess stock of housing and for as long as buyers insist on significant discounts to acquire foreclosed homes, said the ratings agency.
According to data from the company, the discount on the sale of foreclosed homes is still “high”, up to 60% on average, compared to the initial valuation, whilst discounts can range from between 50% to 75%.
In this sense, the dispersion of the discounts on the sale of foreclosed properties is decreasing. In fact, the gap between the range of discounts decreased to 25 percentage points at the end of 2016 from 35 percentage points during the period comprising 2010 and 2011. Nevertheless, it says that this reduction is not widespread.
Problems accessing housing
On the other hand, Fitch explains that access to housing will continue to be complicated because the velocity of the house price index is exceeding wage variations.
In this way, the families’ capacity to save is increasingly reduced, also due to the labour market that favours temporary contracts over permanent ones, which makes it hard for would-be buyers to save enough to make the initial down payment of 20% necessary to buy a home.
The report also underlines that access to housing over the long-term may be limited by the gradual elimination of monetary stimuli in the market and the likely scenario of higher interest rates.
Original story: El Mundo
Translation: Carmel Drake