Four Reasons For Optimism, One For Concern

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View from Diagonal Mar: one of Barcelona’s property hot spots

An article at the Spanish property portal Idealista.com explains there are four reasons to be optimistic about the Spanish property market, but also one big reason to be concerned.

Adaptation and translation of an article published by Idealista.com.

Official statistics show an evident stabilisation in the Spanish property market. Experts claim that demand for property will continue to rise and point out that it’s a good time to invest because of the attractive returns available. However, they’re wary of a possible rise in the Euribor base rate. They rule out this happening in the short term, but warn of the danger when it does happen.

In general terms, the experts and agents involved in the Spanish property market welcome the signs of optimism that are starting to appear. But some warn that all that glitters is not gold, and that it’s necessary to tread warily to avoid another property bubble like the previous one.

Experts such as Ignacio San Martín, head of BBVA Real Estate Research Studies or Juan Fernández-Aceytuno, managing director of ST Sociedad de Tasación (a valuation company), point out four factors that show the property sector is stabilising and even recovering:

1. Demand for property will continue to rise. San Martín claims that household income is growing in real terms, which will favour demand. Furthermore, household wealth has stabilised. As well as demand from Spaniards, demand from foreigners also needs to be taken into account. He believes that this year will see another record for purchases by foreigners.

2. Excess supply will decrease. Albeit slowly, the housing stock will gradually go down. The Spanish Ministry of Development estimated the excess new builds at 563,908 units at the end of 2013, while BBVA Research puts it at 450,000, of which it considers 30 per cent is unsellable. The bank expects this excess to no longer be a problem in 2016 and that it will start to be absorbed.

3. Price stabilisation, and even small price increases. BBVA is convinced that property prices are stabilising and even goes as far as predicting price rises for this year. San Martín points out that new growth in demand for property and price stabilisation will lead to better quality mortgage portfolios. “If the increase in demand carries with it an increase in loans and price stabilisation, this will improve the quality of credit,” he added.

4. Increase in mortgage approval. Mortgage loans are back, particularly for individual home buyers. Banks have a big incentive to make loans to increase their earnings from mortgage interest. The outstanding mortgage balance is currently falling, and will continue to do so over the next few months until banks speed up mortgage loan approval.

NOW THE CONCERN

1. Rising mortgage base rates. If there’s anything the sector should be worried about it’s the Euribor rate at a record low. The buyer thinking about getting a mortgage nowadays should bear in mind that the Euribor, the most-used reference for calculating mortgage loans, can only go up.

For example, Adicae is one of the organisations recommending not to take out a mortgage at the moment because “there’s a risk of default in the future”. The Euribor is low but as soon as it starts to rise it will make mortgage repayments high because differentials are still high compared to the pre-crisis period. “An interest rate higher than the Euribor plus 1 per cent differential means a huge extra expense. Above the Euribor+2 is dangerous,” says Manuel Pardos, president of Adicae.

That’s why some experts like Juan Villén, head of mortgages at Idealista, recommend a fixed-rate mortgage because you then know what you’re paying every month. At the start of the year, Kutxabank launched a mortgage with a fixed rate of 2.5 per cent.

Juan Fernández-Aceytuno claims that the only visible risk in the property sector is “a radical change in the international situation that could affect interest rates” and by extension, the Euribor, “which would be very harmful for the recovery of the property market”. However, he does not envisage this scenario in the short term. It’s unlikely but not impossible. Never forget that Euribor reached 5.4 per cent in 2008.


Related articles: What Risk Of Rising Interest Rates In The Eurozone? and Time Bomb Of Variable Rate Mortgages
Spanish Property Insight adapts and translates selected articles from the local press for the benefit of non-Spanish speakers.

This translation is based on the following article (in Spanish): cuatro motivos para ser positivos con la vivienda y uno para estar (muy) preocupado

Comments

comments

9 thoughts on “Four Reasons For Optimism, One For Concern”

  1. Juan Miguel

    Like most Brits I watched the rise and fall of hopes in the UK election.
    And it was quite obvious that we believe what we want to believe. I remember Ed Balls blindly stating that even with a minority and less seats than the Tories, Labour could form a government. How could he believe that? Answer simple he believed what he wanted to.
    So recovery! Open your eyes, two bedroom apartments, on golf course, gym, swimming pool etc. 51,000 Euros! Let the scales fall from your eyes; it’s not going to happen, not for a long while yet! Anyone who thinks otherwise will be sure to be disappointed.
    Crisis, what crisis!

    J M

    1. Graham

      Hi J M
      Your comments are intesting to myself and wife . Presently are looking to purchase Full time in in Spain , Tremp area. Problem we have is we are not sure if the prices are high and what offer we should be putting in? One reason we are confused is that properties are on the market in the coastal regions for what we think are expectionally low prices , for example villa near Granada 3 beds swinmming pool , great views just for 250k euro . Whilst properties no were near as nice in Catalonia area prices are similar . Confused ? Can you advise ?

  2. David Vick

    That’s exactly why it will happen. Everything is saleable at a price and that looks a pretty good price. Enonomic/property cycles have not yet been abolished. In – say – 2 to 3 years time we’ll all wish we had filled our boots with these 50kE flats.

  3. Andrew

    100% right David. In fact 12 months ago was probably the best time to buy when the market was still filled with panic and not the current optimism.

  4. Rob

    I think a lot of people have been holding off waiting for the bottom, and once there’s a big enough groundswell of opinion, people will realise that prices are not dropping but heading upwards; at this point, I would have thought there would be a lot of activity, with people jumping in not wanting to miss out on bargains.

    When I look at UK prices (i have a few properties here), I just shake my head in disbelief. The same amount of money for a 2 bed flat in surrey (250-300k pounds, or close to 420,000 euros) will get an amazing property in a nice area of spain.

    I genuinely believe that now is the best time to buy, and I expect that the market will become rapacious in the not-too-distant future, as people clamour to get on board.

  5. David

    I shake my head in disbelief too Rob, exorbitant property buying and selling costs in Spain around 20% combined, plus a huge oversupply in Spain depending on different analysts from 750 thousand – 2 million and still plenty of doubts over the EU and illegal builds. Whereas the UK has just voted in a Conservative Government which all the talk says is fantastic for the UK property market even though it is high in London and lots of other areas. I cannot see that people ‘jumping in not wanting to miss out on bargains’ in Spain, that would be folly as there are just so many Se Vende signs everywhere. One chain of estate agents has some 26,000 properties on it’s books alone.

    I have to agree with comments about ‘optimism’ in Spain but it is often agent led, if you are a buyer agents tell you this story, if you’re a seller it’s often a different story such as ‘yes the market is showing signs of picking up in key areas but there are still so many for sale so your price must be realistic’. ‘Rapacious’ no way, wishful thinking, EU problems will hold that back.

  6. Phillip

    @rob. The point is if you bought a property in Surrey last year it would have risen 10%+ in value and you could sell it within weeks. Compare that with Spain, prices are still dropping on the Costas and it could take years to sell.

    I see most of the news about Spanish property still has Agents as the source, take it with a pinch of salt. The sheer scale of property for sale will dumb down property for years. Bankia has just released another 4.5 BILLION properties on to the market.

  7. David

    There is no lack of buyers in Surrey, our daughter lives there but rents a 2 bed terrace near Esher at huge cost, great for her work though. Properties costing a million pounds upwards sell in days even hours, no shortage of buyers including many very wealthy overseas buyers, it’s a different world to Spain apart from Mallorca and key areas of the CDS. The world’s rich are buying London up, Oxford now one of the UK’s wealthiest postcodes.

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