Spanish housing market struggling with political headwinds

spanish new home building activity stagnated in october 2019
New home building activity stagnated in October

Political interference is the biggest headwind holding back the housing market this year, argues the research arm of BBVA, Spain’s second largest banking group.

The market has lost its previous vim thanks to recent regulations, despite demand fundamentals remaining “relatively positive” argue BBVA Research in a recent report.

Home sales in October and November 2019 “continue without any sign of a clear recovery following the sharp falls recorded since the second half of 2018,” they say.

There were 47,182 home sales in November, according to the Association of Spanish Notaries, a decline of 5.6% year on year (-1.3% seasonally adjusted).

Job creation in the construction sector is weak, and planning approvals stagnated in October.

BBVA Research points out that Spanish home sales are falling whilst the usual drivers of housing demand are still in positive territory, such as employment (+2%), wages (+2.3%), low interest rates and a growing population.

Though the mortgage market was a bit more perky at the end of last year, that boost to the housing market was offset by cash buyers pulling out, with a decline of 9.3% in the year to November. New mortgage loans were up 6.8% in November, according to the notaries, the fourth consecutive monthly increase since the 20% plus declines in June and July last year.

Political headwinds

With the fundamentals of demand still in positive territory, what is holding back the housing market? Political interference, say the experts from BBVA Research.

Speaking at a recent real estate conference in Barcelona Félix Lores, head of real estate analisis at BBVA Research, said that “The lower growth in 2020 and the uncertainty in the context of the political economy will take its toll on the the real estate sector in the course of the year.”

“In a year like 2019, in which the economy grew by 1.9%, jobs were created and interest rates were low, we have seen how home sales declined instead of growing, ending the year with a decline of around 2%,” the point-head said. “In spite of the positive macro figures, that did not translate into increasing sales as it has done since 2014.

“Both in Spain and Catalonia, the real estate sector has been subject to a multitude of legislative changes that have increased the uncertainty, from AJD [Stamp Duty] to real estate credit contracts. The coming into force of the mortgage law meant a fall in home sales.”

BBVA Research suggests that the Spanish housing market would have grown again last year had it not been for political interference. However, the fundamentals are there for the market to recover its former dynamism if politicians let it. “We can see that the sector has foundations to continue progressing, although the regulatory changes and uncertainty are not helping.”

Despite the political headwinds, he forecasts that house prices will continue on their upward curve, though regional variations will be significant. “The economy justifies continued house price growth, although in a heterogeneous manner.”

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