After years of nothing but bad news from the Spanish property market, we are now entering a period of mixed signals as the downturn loses steam, but a recovery has yet to take shape.
On the one hand, there are clearly signs of improvement. For example, the number of foreigners buying property in Spain surged last year, rising to more than 12% of the market in Q4, according to data from the property register. “The purchase of homes by foreigners continues to grow quarter after quarter, representing one of the most dynamic factors in the Spanish property market today,” says the latest report from the property registrars.
Growing foreign demand is particularly positive for the Costa del Sol, as a popular holiday destination that attracts foreign buyers. There is also anecdotal evidence that all-important British buyers are coming back in greater numbers, buoyed by a stronger economy and better exchange rate, with the Pound above 1.20 Euros for most of this year
Smaller price declines
There are also signs that house price declines are on the wane. The official House Price Index for the third quarter of last year, published by the National Institute of Statistics based on figures from the Notaries, showed the first quarterly price increase in three years, though it had to be taken with a pinch of salt with sales at such a low levels.
Another sign of shrinking price declines is the 2013 asking price data from Fotocasa.es, a property portal. Last year there were fewer regions with declines of 10pc or more, and prices even rose in some municipalities and city districts. Price falls in Malaga province were the second lowest in Spain, whilst prices were just 2.8% down in Marbella and rose in Estepona (+2%) and Manila (+11%). Overall, the average price of housing in Spain declined 8.5pc last year, to 1,730 €/m2, compared to a decline of 10.5pc in 2012.
Home sales still falling
But it’s still way too early to celebrate the end of the crash, and there is plenty of bad news to remind us of that. Home sales fell by -22% last November, new build sales by -60%, house prices by -10.2%, and mortgage lending by -30%, according to recent figures from the Notaries, though these dire figures can partly be explained by fiscal changes that distorted the market.
With unemployment still high, the housing glut still monumental in places, and mortgage lending still hard to get, the Spanish property market is not going to recover with any speed. But when the recovery does take shape, it’s a safe bet it will be led by bellwethers like Marbella and prime parts of Barcelona and Madrid.
My hunch is that prime property prices won’t go any lower, and we have reached the best time in the property market cycle to invest in prime Spanish property, as the downturn loses momentum, but the recovery has yet to take shape. However, absurdly high transaction costs in some areas are a serious problem for investors, and could wipe out potential gains from capital appreciation for several years.