Housing also adds to the inflation fever


MADRID

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The inflation that currently plagues the whole of Europe is also making a dent in Spain, standing at 5.5% per year in October, its highest level since September 1992, according to data from the National Institute of Statistics (INE).
Everything is more expensive: electricity, fuel, the shopping basket … and housing.
Rising prices are a double-edged sword. As pointed out by Scope Ratings, “it can encourage households to buy properties, but it can also cause an increase in mortgage interest rates.” In this sense, the position of the European Central Bank is not to withdraw stimuli prematurely, although they have already taken it upon themselves to convey the message that house prices in Spain are overvalued by between 5% and 15%.

The big hit in residential prices that was expected for 2020, remained in a soft adjustment for the new construction and a somewhat more intense devaluation for the second hand. Taking into account the contained magnitude of these setbacks in the worst year of the health crisis, it was to be expected that in 2021 this indicator would resume the upward path. The forecasts vary in percentage, but all are upwards. S&P Global Ratings estimates a 4.3% rise for the end of the year, and warns that, given the mismatch between supply and demand, the rallies have come to stay throughout Europe, although at a more moderate pace as the months go by. Meanwhile, Bankinter reduces it to 4%. In addition, the owners second the increase. A Knight Frank survey indicates that 63% of Spaniards believe that the value of their home could grow between 1% and 9% in the next 12 months.

The new work commands

The buying power has collaborated in pushing the upward curve. A push that has been noticed a lot in the promotion. «Strong demand from the second half of 2020 continued strongly in 2021 and lNew home prices have increased by around 5% compared to the previous year,standing slightly above precovid levels “, reveals Jorge Laguna, Business Intelligence Director of Colliers.

The balance has leaned towards new developments “due to their better adaptation to the new needs generated by the pandemic,” he clarifies. Sofia Cayuela, responsible for the accounts of financial entities of the Institute of Valuation.

When pocket savings are reduced, the pace of purchases “will be more in line with the creation of homes”

As for the used one, its recovery is being somewhat slower, but safe. Laguna points out that this typology “has experienced similar increases, approaching the previous levels, but without exceeding them, since they were preceded by a more pronounced contraction.” For its part, Ferran Font, Director of Estudios de piso.com, praises the resilience of this market and predicts that prices will rise 2% in 2021, “which is a healthy and controlled situation”, according to the expert.

Looking ahead to next year, the evolution promises to be positive, although the new construction will be the clear protagonist. Daniel Cuervo, general director of the Association of Real Estate Developers of Madrid (Asprima), admits its progressive revaluation for 2022, “given the high demand for this type of housing and its relative scarcity, especially in the most stressed areas.” From Colliers, they highlight the stability of prices, “Although increases of 5% -10% may occur, more in new housing than in used”.Jose Luis Bravo, Director of Residential Sales at Savills Aguirre Newman, locates markets with a high level of demand and an insufficient supply of new construction in Madrid, Barcelona, ​​Malaga, Valencia, Seville and Alicante.

Second hand

As for second hand, flats.com predicts a 4% rise by 2022. Raquel Gomez, Head of Valuations of urbanData Analytics (uDA), comments that “the main real estate markets in the country, such as Barcelona, ​​Palma de Mallorca, Donostia-San Sebastián, Malaga or Valencia, are the ones that lead the growth of second-hand housing at the end 2022. Madrid, which by the end of 2021 will already present one of the fastest price recoveries at pre-ndemic levels, will maintain stable growth “.

The confinement drastically reduced spending by Spaniards, which caused the household savings rate to reach its historic record in 2020: 14.8% of their disposable income. The loss of purchasing power of this unproductive savings due to inflation, has motivated the investment of “a solvent and stable demand that has not been significantly affected even during the most pressing moments of the pandemic”, explains Antonio de la Fuente, Managing Colliers Corporate Finance Director.

Deferred purchases

However, the high levels of buying and selling that we are witnessing are mostly deferred acquisitions, so the effect on prices will be limited. Bravo points to “those who were going to buy in 2020 and did not do so due to the difficulty of the purchase process and due to economic precaution.”

If construction costs continue to skyrocket, the tension will come to the new construction

That is why, after this accumulated bag is exhausted, it is most likely that “we will return to a level of purchases more in line with the rate of home creation,” he concludes.

In addition, these capital reserves will be diluted because “with the advance of the vaccination campaign, the recovery of international mobility and the return to normality, travel and leisure-related expenses are returning,” Cayuela estimates. The INE endorses this hypothesis: the volume of savings fell by 37.2% in the second quarter compared to the same period in 2020.

Another of the price spurs, especially in new promotions, is the
rising cost of raw materials due to delays in their supplies.
According to the National Construction Confederation (CNC), four out of ten companies have canceled or paralyzed their works due to this surcharge, putting the rise in the cost of the works at 22.2%. However, these incidents are temporary for De la Fuente, who affirms that they will be resolved “to the extent that freight rates become normal and the health situation of many of the countries to which the crews of merchant ships belong improves.”

The building is also exposed to a lack of labor, a factor that does seem to become chronic. According to a report by the Royal Institution of Chartered Surveyors (RICS) and the General Council of Technical Architecture of Spain (CGATE), this shortage of qualified professionals will raise construction costs by 8% in the coming months. If the situation regarding raw materials and employment is maintained over time, the tension will come to the new work. In any case, Cuervo admits that “companies could decide if they are in a position to lower their margins so as not to have to pass on these price increases to the customer, but it is a strategic decision that will have to be assessed by each of them when the time comes. ».

In the heat of financing

The inflationary scenario makes transactions more dynamic. Cayuela indicates that “those with sufficient financial capacity that meet credit quality standards are taking advantage of low interest rates and attractive financing conditions. Investment is also favored as a way to make savings profitable, since “We are in a mature cycle”, according to Gómez. From Colliers they add that “as long as inflation is above financing costs, the real estate sector will continue to be among the assets most in demand by investors.”

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