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Residential property market in Costa-del-Sol

Spain – Residential property market is on stable footing

For the last few years Spain exhibited good rate of growth, and in 2017 this trend continued. In the third quarter of 2017 the economy grew by 3.1%, as compared to the similar period in the year before. This betterment resulted out of good private spending and investments, which in turn resulted out of increase in earnings and lower interest rates. Nykredit Markets forecasts a GDP growth of 3% by 2018. By the end of the third quarter of 2017, unemployment rate fell to 16.4%, but still this level is higher than other Eurozone countries.

Unemployment decreased in 2015, whereas the level of employment increased.

During the previous one and a half years, nearly 0.6 million new jobs were created, which was made possible largely thanks to the reforms introduced by the Rajoy government since 2012. The job market is still segmented and tough, and most of the newly created jobs are part-time jobs. Further on, unemployment rate among the youth is 36%, and is one of the highest in the whole of Europe. Therefore, the Spanish job market still requires betterment.

Keeping instep with improvements in economy, real estate values keep growing. Since 2015 property rates have gone up, and in 2018, this trend will sustain. In the third quarter prices grew by 2.7% as compared to the third quarter of 2016, and according to appraisal company TINSA, the prices further increased by 0.5% from the third to the 4th quarter of 2017, taking into account the normal seasonal growth.

Area wise disparity decreased, as the prices, during the last one and a half years, grew all over the country. The largest gains were noted in Barcelona and Madrid and in their suburbs, as well as in the Balearic Islands, where annual price hike was nearly 5-10%.

Nykredit Markets expects that the betterment of situation in the residential property market will continue, whereas the residential property prices will grow by 2.9% in 2018.

Residential property market in 2017

Sales of residential property grew in Spain by 4.5% in December 2017, amounting to 48956 deals, where the average price of sold property, in December, was 1.8% higher in euro/m2, as compared to similar period the previous year, as shown by figures by the “Spanish Notary Union”.

The sales of residential property grew by 11.2%, in January 2018 reaching 38953, with per square meter price reaching 1363 euros – a reduction in price of 0.4% only as compared to the previous year, as shown in the latest data published in a report about the residential property market, by the Spanish Notary Union.

Taking into account all seasonal variations, the rate of growth in property sales, during January, was 7%. Sales of apartments grew by 9.2%, sales of new apartments grew by 11.8%, and sales of single houses grew by 19.6%.

For the last 5 years the sales of residential property stably grew, and currently are at the 2009 level, but are still about 30% below the peak 2007 level. Same goes for the prices.

Foreign buyers

The share of foreign buyers is growing. The top-3 buyers are still headed by the British, whose share is the same as numbers 2 and 3 – Germany and France – combined. The Swedish share is growing very strong and Swedish buyers hold the 4th position, whereas the share of Danish buyers had grown a little, but is still only 1.18% of the overall foreign buyers, which makes it the 16th largest group of buyers.

Why did the Spanish property market needed more than 10 years to grow back to a 70% level as compared to its previously “Top” spot? This question is asked by real estate analytic Mark Shtyuklin of the Spanish Property Insight, and he responds: “On the one hand the boom was not great, it was crazy. You cannot compare to those years, but the market today is better than it was, although many Spaniards, especially the young families, are excluded from this market due to repressive taxes and high transaction costs, not even looking at the tough financing criteria. On the other hand, when the real estate bubble was busted, the Spanish government and the banking system tried to avoid the real problems, which led to unnecessarily prolonged suffering for many years to come. But, it looks like the worst of times are really over”.

What can we look up to in 2018?

In January, the Spanish national real estate appraisal company TINSA came out with its forecast of market growth in 2018:

The start of the year shows an increase in the price of postage stamps, natural gas, road taxes …, and as should had been expected, also of residential property in 2018. The average price of residential property, new and old, increased by 4.2% in 2017, according to preliminary data by TINSA IMIE Local Markets – TINSA stats for the fourth quarter, and everything indicates that this gradual increase of price will continue in 2018. The positive trends in economy and employment will give a rise to the demand for purchase of residential real estate, as well as an increase in demand for rental properties.

“The improvements in the market will keep showing the variations among different areas. Real fast growth in prices will be seen in markets, such as large cities, islands and some coastal areas, where the prices will go up more intensively, will grow together with other markets, where the demand is lower, and where the prices in 2018 will remain stable”, says Jorge Ripoll, director of TINSA Studies Service.

It is expected that this year will see a gradual increase in process in large (provincial) cities, following peaks experienced during 2017: 17.1% in Madrid and 14.8% in Barcelona. In the said markets, the prices especially went up in the central districts, which house popular tourist spots – areas, where rates of property rental are probably close to reaching their peak.

The unsatisfied demand for real estate, due to high property prices and rents, from these districts, will be diverted to peripheral towns, which might result in price hike in the districts away from the center, or even in neighboring municipalities.

Growth in prices will gradually affect a large number of areas in the country. The areas, which recorded a decrease in property prices during the previous year (as per IMIE data, in 19 capitals and provinces during 2017) will seize to decline or even might experience a slight growth, depending on the location.

Purchases will grow in 2018 from 10% to 15%

Increase in demand will also mean increase in purchases and sales of residential property during 2018, which can be as high as 10-15%, which will mean more than 550000 transactions. Although the market is a long way from 900000 transactions recorded in 2006, but still market growth has been very significant during the previous years. The average waiting period for apartments in Spain has dropped from 10.6 to 8.6 months during the previous 2 and a half years. In Madrid the given period of waiting was reduced to 2.6 months. This is indicated in the TINSA data for the fourth quarter of 2017.

There will be a 10% and 12% increase in provision of new mortgages

As far as the financing is concerned, the forecast is that the number of new mortgages will increase by 10-12%, which will bring 2018 data of the same to 350000.

As per IMIE’s latest report, families use 16.7% of their annual gross income to settle their mortgages. In 2007 this number was as high as 33%. Soria and Teruel – provinces where you need the least financial spending (12.6% of family income), whereas in Barcelona (17.6%), Malaga (21.7%) and in Balear Islands (22.3%) are the provinces, where your mortgage takes up a large part of your income. In the last two provinces the data was influenced by the high demand for residential property, which gives a rise to average prices.

The new construction projects can go up in price by 20%

Increase in demand for real estate in certain areas of the country stimulates the construction of new housing. Number of construction approvals can increase by 20% during 2018 and will reach nearly 100000 permits for construction. In this case the given number will mean a threefold increase as compared to 2013, when following the crisis the least number of permits was recorded: 34288.

Although, these 100000 permits would only make up the tenth part of the number identified.

The latest TINSA data for January 2018 confirms the abovementioned trend.

Average price for residential property in Spain grew during January by 3.6% as compared to the previous year, which was greatly influenced by the capitals, large cities, as well as islands, growing to 5.1% and 4.1% respectively, in annual terms. Five of the sub-markets, analyzed in the IMIE General Index and Large Markets by TINSA, indicate growth in their average values for the last year. The total decrease as compared to the maximum levels is currently 38.3% after the index grew back by 7.6% from the minimum value, recorded during the crisis.

Although it is now clear that residential property prices are growing, and so are the sales growing proportionally, we think that the growth will be mild during the near future, which will result in growth in number of sales and prices of new constructions.

The trend in the old property market will be more gradual depending on the location and condition.