The Spanish property market contracted in January for the first time in almost two years, perhaps as a result of the Spanish political situation and lead-up to British EU referendum.

There were 29,093 homes sales recorded in the property register in January (not counting subsidised housing), 2% less than the same time last year, according to the latest figures released by the National Institute of Statistics (INE).

A 2% reduction is not in itself a big decline, but it might portend a period of weakness for the market after two years of rising sales in which transactions increased on an annualised basis by double-digits in 9 out of 12 months last year, and have not fallen since February 2014 (excluding a 0.5% drop in August 2014).

The decline came from a 30% fall in new home sales that was not sufficiently compensated for by a 7% rise in resales. In recent months new home sales have been falling by between 30% and 40%, but reales have been rising by between 20% and 50%, so it was weaker growth in the resale market that led to the January decline in overall sales.

BY REGION

Sales were up in small markets like Granda, home to the Costa Tropical (+39%) and Almeria(+35%), whilst bigger markets like the Balearics (+8%) and Madrid (+4%) were also positive. But important markets like Barcelona (-5%), Alicante, home to the Costa Blanca (-8%), and Malaga, home to the Costa del Sol (-18%), were down.

ANALYSIS

We can’t read too much into a small, one-month annualised decline at the start of the year, but it does invite the question ‘how robust is this recovery?’ if sales decline when the market is still near the floor. It suggest demand fundamentals are not as robust as needed to get the Spanish property market back on its feet without losing steam. That said, it probably doesn’t mean the market is going to turn back down and plumb new depths. Let’s assume for now some sort of recovery is still under way.

However, there are political questions that are encouraging buyers to sit on the sidelines for the next few months, which could mean several more months of weakness to come. The Spanish political situation is uncertain, and could be affecting the economy, all of which could reduce the confidence of potential buyers until the situation is resolved. That could take six more months or more.

The EU referendum in the UK could also be having a negative impact on sales, as a weaker Pound and wait-and-see attitude amongst British buyers reduced demand in the biggest foreign segment (21% of foreign demand last year). Recent comments in the forum and in response to my recent article on Foreign demand for Spanish property in 2015 show that British buyers are taking these factors into consideration. That might help explain sales declines in the Costa Blanca and Costa del Sol, where the British are the biggest group of foreign buyers.

SUMMARY TABLE: Monthly home sales and YOY percentage change (not counting subsidised housing)