What is the outlook for the Spanish property market as we move in to 2019?
Spain has traditionally been the most popular for British property investors buying a home abroad and British buyers have been the largest group of foreign buyers in Spain. What impact is Brexit having?
Spain’s property market was heavily impacted by the global financial crisis in 2007/08. The impact of the financial crisis was made worse by the oversupply created by over-aggressive development plans in Spain. Even today many developments remain empty and neglected and although prices have recovered from their lows they remain below the prices seen in 2008. According to the Knight Frank 2018 report on the property market in European cities, Barcelona city prices were 20% below 2008 prices with countryside prices 24% below.
The impact in Spain was driven by speculative developments combined with loose restrictions and corruption. Banks leant freely and ended up with a mountain of debt and repossessed properties. The government set up a bank, SAREB, to buy the debts and save the private banks who had over-extended themselves. Major investor’s such as Blackstone have acquired the debt. With the recovery in prices and greater regulation of the banks the value of the debt has improved and properties have been sold off by many banks. However, there are still many properties held by SAREB and others that have not yet been sold.
The market for British investors is heavily impacted by Brexit. Prices may be improving in Euro terms, but the uncertainties of Brexit has reduced the buying power of British expats by at least 25%. With the Brexit departure date getting ever closer there is still no clarity on the likely outcome and the risk of a no deal Brexit causing a further major fall in sterling does not provide an incentive to buy. The impact on British holders of Spanish property is the opposite with higher Euro prices and the fall and potential further fall in sterling meaning that their purchasing power in the UK property market is getting stronger. A favourable settlement of the Brexit negotiations will crystallise the position and could lead to a recovery in sterling releasing pent up demand from British investors hoping to move or retire to Spain.
So what are the prospects for the Spanish property market?
Bloomberg reports that Spain’s real estate recovery is a tale of two markets. They say that key cities and tourism hot spots are enjoying a fresh boom, fuelled by interest rates that are still near historic lows, an economic recovery and a banking system that’s finally cleaning up its act. However, if you travel out of the main centres to the outskirts of smaller villages, and there are still ghost towns with once ambitious developments still stand half finished, unable to find a buyer.
Property Wire report that Marc Pritchard, Sales and Marketing Director of Spanish home builder, Taylor Wimpey Espana expects strong demand from domestic and foreign buyers. He predicts that popular locations such as Mallorca, Ibiza, the Costa Blanca and the Costa del Sol will continue to attract buyers, particularly from Germany and France. He says:
‘These two groups are likely to be buying in big numbers, along with keen interest from buyers in Scandinavia. It will be interesting to see what impact Brexit has on British buyers next year too. At present they remain the leading nationality in terms of foreigners buying homes in Spain, though whether that will remain the case is something that nobody can predict with any certainty,’
Tinsa, a leading property valuation company in Spain, is predicting that there will be a rise of between 5-7% in 2019 as Spain sees a recovery in the economy with falling unemployment leading to growing demand for property. They point to the increase in the number of building licences and refer to the mortgage and sales figures. Prices increased 5.6% year on year in November and point to the fact that prices are still 36% lower than the level reached before the financial crisis in 2007.
They predict an increase in the volume of sales from 500,000 to between 625,000 and 650,000 and an increase in the number of building licences awarded to 100,000 to 125,000 in 2019.
Although Tinsa point to this growth in prices overall in Spain, like Bloomberg it sees regional differences with the larger cities seeing significant rises but says that coastal and less populated areas may not see such rises.
The Property Finders in their report on the 2019 Spanish Property Market point to the concerns expressed by the IMF in December warning about early signs of a ‘slight overvaluation’ in property prices and pointing out that Spanish banks remain highly exposed to real estate sector developments. They have been urging the Spanish authorities to set up a monitoring agency and are critical of its failure to do so.
They point to the fact that with most banks currently offering maximum loans of 80% LTV and pressing for conservative valuations those unable to pay a large deposit are excluded from the market. However, they point out that record numbers of overseas buyers were attracted to Spain in 2018 and the potential for capital growth in the medium term remains provided you can buy at the right price for the current market. The report makes it clear that they see the recovery restricted to the prime locations, which for the overseas market means the Mediterranean coats, the Balearics and the Canaries.
The new-build against resale market is also interesting with the demand for new-build continuing strongly and supply of new apartments lagging behind. With the new-build market prices increasing ahead of resales it can be more difficult to sell if the need arises and there is an enormous premium per square metre for new-builds. The only way for the price pressures to ease, says The Property Finders, is for a sustained increase in the supply of new-build properties. This seems highly unlikely and it is more likely that there will be a fall in demand for ‘over-priced new-builds’ they say. This points to the advantages of looking at the resale market.
Spain remains a popular destination with its climate, beaches and relaxed lifestyle. It is a safe and stable country with a rich cultural tradition. The market is generally moving in a positive direction and, if Brexit can finally be settled without a major disaster, pent up demand is likely to be released from British buyers adding to the increased domestic and overseas demand.