Spanish property market contracts in Q2 2019 after five years of continuous growth

spanish property market home sales house prices q2 2019
Q2 2019 annualised change in home sales (left) and house prices (right). Source Notaries.

The spanish property market contracted 7.8% in the second quarter of 2019, led by a slump of 20.8% in Balearic home sales, according to the latest report from the Association of Spanish Notaries.

This was the first quarter in the last five years that the Spanish market has failed to expand, say the notaries. The market shrank in twelve of Spain’s autonomous regions, led by the Balearics (-20.8%), and Madrid (-17.6%).

Home sales have fallen in the Spanish capital for two consecutive quarters, whilst sales in the Balearics have been on the slide for a year.

Sales were also down in the Canaries (-9.4%), Anadlusia (-8.9%), Asturias (-8%), the Valencian Region (-7.2%), and Catalonia (-5.9%). Murcia was one of the few bright spots, with sales up 2%, and Galicia almost unchanged at +0.8%. The map on the left above shows the change in market volume by region in Q2.

Price-wise, regional market were more positive than negative, especially in areas where foreigners tend to buy (map above on the right). Hose prices were up 6.2% in the Balearics despte a 21% decline in sales, at least according to the notaries. Local estate agents argue that prices are rising whilst transactions fall due to an acute shortage of homes for sale on the islands. At a national level, property prices were up 1% in Q2 to 1,430€/m2.

These figures from the notaries showing a decline in Q2 Spanish home sales paint a similar picture to recent reports and figures from the National Institute of Statistics, based on data from the Land Registry, showing sales down heavily in May and June.

There is now clear evidence of a slowdown in the Spanish property market, more than just a blip. The slowdown in Q2 was partly due to a new mortgage law coming into force that reduced sales in the period, and that negative impact might wear off in the coming quarters. However,the Spanish property market is also facing other headwinds such as:

  • Political uncertainty and instability in Spain, especially in Catalonia, one of Spain’s biggest housing markets
  • Weakness in the global economy
  • Spanish economic growth running out of steam, with unemployment rising
  • High transaction costs biting harder as house prices are higher
  • All the usual Spanish market problems like unprofessionalism and the lack of transparency continuing to deter potential buyers, especially when other factors are giving them doubts
  • Brexit undermining British demand
  • Spanish tax and rental laws that deter investors, especially foreign investors

I don’t see much risk of a crash in sales, but a period of continued weakness in sales and investor confidence is quite possible.

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