The seven-year Spanish property crash is over, claims the Bank of Spain, preferring to use the term “adjustment”. But there was no suggestion of a boom returning.
The director of research at the Bank of Spain, José Luis Malo de Molina has stated that “adjustment in the Spanish property sector is, in theory, over” and that “expectations are for the start of a possible recovery”.
Malo de Molina made these statements at “The Role of Different Agents in the Current Property Market” conference, organised by the Spanish Property Studies Foundation.
He took great care to explain that the adjustment has been “unusual” and that, amongst other things, no one knows exactly how much unsold property there is and that unemployment is still “a limiting factor” on property purchases. He pointed out that the absorption rate of this excess is “very slow”, which makes it difficult to soak up the “onerous inheritance” of the crisis in the property market.
Despite all this, Malo de Molina reiterated that there are “signs of a slight recovery” in the sector, starting with a price adjustment of 45 per cent in real terms since the start of the crisis, a reduction that “seems reasonable” in his opinion. “We could say that price adjustment has in theory come to an end,” he added.
FOREIGN BUYERS WERE THE FIRST TO SMELL A RAT
He also stated that the increase in property purchases by foreigners “should be seen as a sign that expectations are for recovery in the property sector. Non-residents were the first to smell a rat and the first to get out, and now they’re beginning to see a change in the cycle,” he said.
Looking to the future, Malo de Molina reminded the audience that “the Spanish property sector played a decisive role in the Spanish economy before the crisis”. He did point out, however, that “at this current time, with economy recovery taking off, it’s worth asking ourselves what role it will have in the new growth model”.
He pointed out that, in the years prior to the crisis, investment in property and construction contributed an average of 6 and 9 per cent respectively to Spain’s GDP. Later on during the crisis, this contribution was negative.
Over the next few years, Malo de Molina expects these percentages to return to “positive figures” with a contribution to Spain’s GDP of below 0.5 per cent. “We will enter a half-way stage, between what happened during the crisis and the boom,” he added.
Finally, Malo de Molina believes in “highly cautious” policies to prevent new crises in the future. On this point, he said that the loan-to-value ratios for property should play an active role in preventing the taking on of excessive risk since both monetary and fiscal policies have a limited margin to contain built-up imbalances in the property market.
Malo de Molina also lamented that “the lack of quality statistics made it difficult to make a solid and early diagnosis of the problem”. As a result, he called for statistical bases that allow, for example, investors “not to take half-sighted decisions” but provide sufficient knowledge about the nature of the sector.