Spanish households are being driven towards rental accommodation by a two-speed property market characterised by low mortgage lending and investors seeing rental returns driving up prices in hotspots, concludes the latest report from the Spanish Valuation Analysis Association (AEV in Spanish).
Adapted translation of an article published by El Mundo.
The report is written by the AEV together with Paloma Taltavull, head of Applied Economics at Alicante University, and a group of 19 experts made up of valuation companies, members of the association, and other recognized experts in the sector.
The report finds a slight recovery in the number of new builds with 6,500 homes completed per month during Q1 2017, a low figure even though it represents a 19% increase on the average during Q1 2015. 75% of the panelists, both members of AEV and independent experts, believe that the market could absorb between 5,000 and 10,000 properties a month. 20% think that an absorption of over 10,000 a month is feasible.
Shortage of new-build supply
The report refers to sales figures indicating that almost 90% of transactions will be for resale properties at the end of 2017. This isn’t through buyer preference but because the market has a significant shortage of new-build homes for sale. Several experts point out that capacity for absorption is uneven. While large cities could notch up the figures mentioned, it’s expected that activity in the property market in many small towns will remain on hold.
Sales are increasing at a higher rate than 2016, but sales are still just 50% of the 2006 peak. The report argues that this trend is consistent with steady price growth and mortgage loan approval, growing slowly but surely, and reflects the gradual arrival of new households in the market.
All external panelists and 60% of AEV members say that, although it’s a good time to borrow at historically low rates, and there is a wide choice of mortgage products, lower-income families and those with precarious jobs still find it almost impossible to get a mortgage, forcing them into the rental market.
The report predicts a price rise of between 1.8% and 2.3% for 2018, after 2016 when prices rose by up to 3.6% in some quarters. All experts believe that prices will rise, although they warn of big differences depending on location and type of property. They underline the importance of the observation of two clearly differentiated speeds in the market. While large cities are experiencing strong growth, in the rest of Spain prices often rise only very slightly and in some cases, are still going down.
As an explanation for the increases, they cite growth in sales, better access to mortgage loans and good economic performance. However, factors that could moderate this growth include salary stagnation, job insecurity and the shift in the market towards rentals as an easier and safer option.