A report this month from CaixaBank Research explains why the recovery in demand for housing in Spain is so skewed towards the coast.

In a report titled ‘Demand for housing: Uneven growth’ CaixaBank research explain that the “recovery in the real estate market is getting stronger by the month” but go on to say that “the recovery is particularly strong in some zones”

They point out that economic growth, improving financial conditions, “a more dynamic labour market”, and improving credit conditions due to “more solvent banks and the ECB’s accommodative monetary policy” are all helping to lift demand for housing.

But the growth in foreign demand is a key factor driving the recovery in certain areas, they argue.

“At the same time, more localised factors are pushing up demand for housing in certain zones, and particularly foreign demand,” the report explains. “Foreigners buying second homes lie behind a large proportion of the sales recorded on the Mediterranean coast and Canary Islands. Specifically, these account for more than 30% of the total purchases made in the Balearic Islands, the Canary Islands, Malaga (Costa del Sol) and Murcia.”

The map below, prepared by CaixaBank Research, clearly illustrates how important foreign demand is in this recovery. All the provinces where the housing market grew more than 10% in Q2 of this year were on the Mediterranean coast or the islands, where foreigners buy holiday-homes and invest. In all other Spanish provinces growth was below 10%, including Madrid.

FOREIGN INVESTORS

Large cities like Barcelona and Madrid are also in the fast lane of the housing market recovery, and foreign investors are playing a key role in that too. “The purchase of housing as a means of investment is also becoming more significant given its attractive return compared with other alternatives, already accounting for 20% of all sales. This phenomenon is particularly significant in large cities, which also attract international investors.”

They conclude that “the combination of these factors, both common and local, is responsible for the uneven growth in sales recorded in the current expansionary cycle. This heterogeneity in demand is passed on to prices, whose trends have also differed throughout Spain. The extent of the recovery comes down to each region.”

BARCELONA IN THE CROSSHAIRS

Barcelona is in the crosshairs of all groups – lifestyle buyers and investors, foreign and local – which is why the market here is recovering the fastest of all. This weekend I spoke to some local friends who have just bought an investment property in the city because, like everyone else who isn’t a hedge fund manager, they have nowhere else to put their money that makes any sense to them. They reported seeing properties go fast and prices rising almost on a weekly basis, as if the market was boiling. I’m not sure this is welcome news, but that’s what people in the market are starting to see.