Fitch Warns Of RE Bubble In The Centres Of Spain’s Large Cities

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

Solvia: 71% Of Spaniards Think Now Is A “Good Time” To Buy A Home

19 April 2017 – El Mundo

71% of Spaniards think that now is a “good time” to buy a home, according to a study conducted by Solvia, a subsidiary of Banco Sabadell, and the research institute Kantar TNS, which have prepared a real estate confidence index to quantify the perception and expectations of Spaniards regarding buying a home.

According to the results of the index, which ranges between values of zero (for the most unfavourable perceptions) to 200 (for the most favourable), the situation in terms of real estate confidence amongst Spaniards is “positive”, since the index value currently stands at 112. The index, which has been prepared on the basis of interviews with 1,000 people, reveals that 71% of those surveyed believe that, in general, now is a “good time” to buy a home. The report’s authors highlight the following main arguments as justification for respondents’ answers: “the decrease in prices that the housing market has seen; the notion that buying is a good investment; and the fact that the market is currently offering some genuine opportunities”.

By contrast, the study adds that the interviewees’ perception changes when they are asked about their personal circumstances. In this sense, 61% of Spaniards consider that from their own individual perspective, now is a “bad time” to buy a home.

In this regard, employment conditions and the limited capacity to save, with the consequent difficulties involved in accessing financing, explain the negative perception held by Spaniards when it comes to acquiring a home now. Nevertheless, the people interviewed hope that, within two years, they will be in a better position financially to buy a home, thanks to improvements in their employment conditions.

In terms of the evolution of house prices over the last year, 35% of Spaniards think that prices have risen, compared with 43% who believe that house prices have remained stable and 22% who consider that they have decreased.

Finally, buying a home is the option that the majority of those interviewed (55% of the total) would recommend to family and friends thinking about their primary residence.

Original story: El Mundo

Translation: Carmel Drake