Spain’s Housing Sector is Heading for Another Golden Cycle

6 February 2018 – Cinco Días

Ten years ago, the largest real estate bubble of the democracy was about to burst, and although it was not the first, it was by far the most spectacular:  not only were residential property prices extremely high, everything relating to property was excessive: the volume of homes built, the amount of credit granted and the number of sales recorded. And although there were those who warned that the bubble would burst and the consequences would be dire, no one guessed how dramatic they would actually be.

Now, a decade later and four years after the recovery began, the consensus amongst analysts is that we are starting a new golden cycle that shares almost no similarities with the one that burst in 2008. The most optimistic observers even forecast five years of stable and sustained increases in house prices, as well as an increase in house sales and in the construction of new properties boosted by the global economic recovery.

In terms of prices, the forecasts for 2018 range between a conservative 3% increase and an average of 6% for the whole country. Nevertheless, regardless of the figure projected for the country as a whole, all of the studies agree that house prices will rise at different speeds this year. Madrid, Barcelona (but not the rest of Cataluña) and the Balearic Islands will clearly perform better than the rest, with price increases in the double-digits. And although they will record their fifth consecutive year of rises, prices will still be around 27% below their former peaks, on average, according to Eduard Mendiluce, CEO of Anticipa Real Estate.

The forecasts for this year are not surprising if we take into account the latest figures for 2017, relating to the third quarter, which show an annual increase in house prices of 6.7% YoY (…).

In terms of the areas that will see the most activity, Victor Pérez Arias, Managing Director of the international real estate fund manager ASG Iberia, says that the Mediterranean Arc will continue to account for a great deal of activity, spurred on by the pull of overseas demand (..).

According to the CEO of Servihabitat, Julián Cabanillas, given that more than 470,000 homes were sold in 2017, the psychological barrier of 500,000 is going to be exceeded again this year, something that has not been seen since the fateful year of 2008.

One of the determining factors in the return of house purchases to positive rates was the reopening of the credit tap. Nevertheless, access to financing is still a long way from the free bar decreed at the beginning of the 2000s. The granting of a mortgage now requires certain solvency criteria, which forces future borrowers to have savings – and that requirement was avoided in the past on too many occasions. This prudence on the part of the banks is one of the keys that, according to the experts, differentiates this cycle from the previous one and distances the ghost of a new bubble.

In fact, the CEO of Sociedad de Tasación, Juan Fernández-Aceytuno, says that whilst the volume of mortgages granted is considerably below the volume of purchases, the market will be healthy and that is what happened in 2017. With the official figures yet to be published, all indications are that around 470,000 house purchases were recorded in 2017, whilst the banks granted no more than 320,000 mortgages (…).

The previous crisis also hit property developers hard, given that demand was stopped in its tracks from 2008 onwards, following the outbreak of the global economic crisis, whereas just two years earlier, the number of new housing permits had set a new record, with more than 800,0000. Numerous companies had started projects without any presales, convinced that they would sell all of the units quickly. Given that it takes between 18 and 24 months to build a housing development, many buildings were finished only to spend years unoccupied. In this way, construction was suspended, above all, from 2009 onwards and even today, just 10% of the record volumes reached twelve years ago are being built.

Nevertheless, given that in the large cities and certain areas along the Mediterranean Coast, the absorption of stock has evolved at a good pace in recent times, for the experts, it seems that the time has come to increase the rate of construction once more. That is what the National Director of Residential and Land at CBRE, Samuel Población, thinks. He expects the supply of new homes to start to increase from the end of this year, although its impact will be greater in the second half of 2019. That consultancy firm is sure that despite this rise in supply, prices will not increase by less than 5-6%, with Madrid, Barcelona and a large part of the coast as the most dynamic markets (…).

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake

House Prices: How Much Upwards Wiggle Room Is There?

13 June 2017 – El Mundo

In many respects, the housing sector has been restored to its former glory: house sales are rising at an increasingly faster rate, the development of new homes has resumed and the granting of mortgages is growing apace. However, the jubilation in the residential market can be felt, above all, in the significant increase that prices are experiencing in the new real estate cycle.

House prices rose by 7.7% in YoY terms during the first quarter of 2017, according to Real Estate Statistics from the College of Property Registrars. In the historical series published by that body, that figure represents the highest increase in house prices since 2007, in what is now the third consecutive year of increases in the market after seven years of severe decreases. (…).

The Registrars highlight the favourable behaviour of the real estate and mortgage markets, but warn that this strong dynamism “does not justify any intensification of growth towards double digits anytime soon”.

The registrars reiterate in their analysis that “From a global perspective, the market is debating between sustainable growth and an intensification towards forgotten figures”. They attribute the significant increase in house prices to the consolidation of economic growth, creation of employment, low interest rates, activity in the mortgage market and overseas demand.

The main consequence of the variables listed by the registrars, which work in favour of rising prices is, clearly, the increase in the number of potential buyers of homes, as highlighted by Julio Gil, Managing Partner at Horizone Consulting Inmobiliario. “The factors that are driving the appreciation in house prices nowadays are demand-driven, with three very clear facets: pent-up demand from previous years, which is now coming into play, demand to reposition and demand to invest”, reflects Gil. (…).

Moreover, all indications are that prices will continue to rise, at least, in the medium term (…). What is not so clear is the intensity of that increase. (…).

According to the registrars “Our predictions are based on forecasts of moderate growth rates, defined to be YoY rates of around 5%-6%, although there may be cyclical periods of more intensive QoQ rates. It would seem that “the social and economic reality does not justify an intensification much greater than these amounts”. And they highlight: “The evolution in terms of the number of inhabitants, wage levels, the outlook in terms of interest rates etc. ought to put the brakes on the upwards trend, to a certain extent”.

That prediction is not shared by Gonzalo Bernardos, Economist and Director of the Masters in Real Estate Management and Development at the University of Barcelona. “House prices will rise by around 8% in 2017 if the net credit available to purchase a home does not increase; and will soar by around 13%, if lending rises by 5%”. For the time being, this expert does not see an obvious risk of a bubble and recalls that that only happened a decade ago after net credit had been increasing for 10 years by almost 20%. (…).

Looking ahead, Bernardos takes it for granted that the steep rise in house prices will be contained when the price of money increases (it currently stands at 0% in Europe). He calculates that, provided nothing changes in the international environment, this turning point in interest rates will happen at the end of 2018, which means that by 2019, the average YoY increase in house prices will be sustained at around 3%-4%-5%. (…).

Original story: El Mundo (by Jorge Salido Cobo)

Translation: Carmel Drake

Significantly Fewer Homes For A Much Smaller Population

7 March 2016 – Cinco Días

The real estate sector is preparing to undergo a comeback this year after the burst of the real estate bubble caused house prices to depreciate by 35% since 2008 and more than half of its productive fabric was destroyed. The cranes have returned, albeit, in moderation, for the time being. And the demographic projections support this caution, given that between now and 2029, Spain is expected to lose one million inhabitants.

In the face of some apparently overly optimistic estimations from certain players in the real estate sector about the evolution of the market this year, experts and other operators, such as the national trade association of property developers APCE emphasise the need for prudence and restraint when taking on new projects.

The truth is there are many reasons to be optimistic. House prices seem to have bottomed out across most of the country, sales are continuing to maintain the good tone with which they closed last year and the return of financing has resulted in a higher volume of solvent demand. If the improvement in the labour employment continues in the short and medium term, then property developers will be in no doubt that 2016 will be the year of the return of construction with figures showing the market taking off, after it lived the worst crisis of its recent history.

But, as always, there are risks and threats that cannot be ignored. The most short-term factors will be those relating to the good performance of the economy: employment, credit and interest rates are three key variables. Plus, the political climate. (…).

However, one of the variables that was critical during the previous real estate boom and which all Governments and economic agents must bear in mind is that of demographics.

At the end of this year, the National Institute of Statistics (INE) will update its long-term population projections, which it does every two years. The last update, at the end of 2014, drew devastating conclusions that the real estate market cannot ignore if it wants so avoid another phase of runaway growth, with the undesirable effects on price, supply, indebtedness, activity and employment. Thus, in 2015, INE’s first prediction was fulfilled. It was the first year during which the number of deaths exceeded the number of births, and so began the population decline that INE has forecast will happen over the next 15 years, which will amount to 1.02 million inhabitants (2.2%) in total and will amount to 5.6 million inhabitants over 50 years. In this way, there will be 45.8 million residents in Spain in 2024 and just 40.9 million in 2064.

The reduction in the population will happen as a result of this gradual increase in deaths over births, a trend which, if nobody remedies it, will become even more accentuated, above all from 2040 onwards, and which will not be mitigated even by the flow of migration. Not even considering that over the same period there will be a net positive migration balance of 2.5 million people  (the difference between immigrants who arrive in Spain and Spaniards who move overseas). The truth is that the baby boom generation, the largest in Spain’s recent history, explains to a large extent how the most prolonged period of rising prices and house sales last century was created from the end of the 1990s. (…).

Gómez-Pintado has already launched a study at APCE to calculate, in the most comprehensive way possible, what the demand for homes will be by autonomous region between now and 2017. “The purpose of the study is to establish ranges of need for housing and to avoid constructing in places where there is no demand”. (…).

Although the study has not been completed yet, Gómez-Pintado revealed that his projections will fall in the intermediate range, between the most pessimistic, i.e. those who calculate demand of just over 60,000 homes per year, and those who are convinced that almost 250,000 new homes may be built.

According to Josep Oliver, Professional of Applied Economy at the Universidad Autónoma de Barcelona, not even the pull on demand for housing from foreigners can justify the construction of 250,000 homes per year. (…).

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake