The inconclusive result of Sunday’s general election is not great news for the housing market.
Sunday marked the end of Spain’s two-party system as both the incumbente Popular Party (PP) and the opposition Socialist Party (PSOE) took a beating at the polls. Insurgent parties Podemos (hard-left) and Ciudadanos (centre) surged into parliament, with 69 and 40 seats respectively. The electoral arithmetic makes it hard to see any stable Government taking shape. Weeks, or perhaps months, of uncertainty lie ahead, and fresh elections may be necessary.
“The issue now is whether Spain is governable. All the parties are at daggers drawn and this could drag on for weeks. I don’t see any sustainable solution. We can certainly forget about reform,” says sovereign bond strategist Nicholas Spiro, in comments to Ambrose Evans-Pritchard of The Daily Telegraph.
The lack of an obvious parliamentary majority brings to mind a period of weak government and more power to nationalists from regions like Catalonia and the Basque Country. Looking for something positive to say, coalition politics could also make politicians more conciliatory and open to compromise, though early signs aren’t encouraging.
UNCERTAINTY AND A TILT TO THE LEFT
Political uncertainty is never good for an economy, so that alone could have a negative impact on investment decisions, including new development investment and home-purchase by individuals.
The likelihood of a tilt to the left also has implications for the housing market. The Spanish economy needs more reform, says the IMF, but that is now off the table, and we could even see labour-market reforms of the last Government reversed. Weaker economic growth in future will hardly boost local demand for housing.
What about the market in coastal hot-spots that attract foreign buyers, like Marbella and Ibiza? Some foreign buyers might be put off by the political uncertainty and increased possibility of leftwing policies that rarely favour property owners, at least until the situation becomes clearer. So on balance, I think these election results could mean weaker demand for holiday-homes than might otherwise have been the case had the PP or PSOE won an overall majority.
However, I also think that local factors of supply and demand will continue to be more important than national politics. True, the overall situation just took a step backwards, but in the absence of a major crisis, local factors will continue to dominate local housing markets. And foreigners will continue to buy in Spain as long as it offers secure property rights (a moot point) and a pleasant quality of life at a reasonable cost.