Tue. Apr 23rd, 2019

Report of the Bank of Spain on the real estate sector

Las transacciones de vivienda están un 37% por debajo del boom inmobiliario


The recovery of Spanish real estate sector It is an undeniable reality after the bursting of the bubble in 2008 and more than five years after the crisis. Volume of investment, prices, demand, all the indicators are positive since 2013, the year in which the sector bottomed out. When alarms new bubble have already started to detonate, a report published this Thursday by the Bank of Spain, titled 'Recent evolution of the housing market in Spain " notes that the recovery is very heterogeneous, but that in aggregate terms the maximums before the crisis are still far away.

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In 2018, closed housing transactions totaled 550,000. This is 10% higher than in 2017, and the maximum level in five years. Even so, they are still far, 37% below, from the 885,000 that were recorded as an annual average in the period 2004-2007. Investment in housing reached 2018, levels close to 5.5% of GDP. This level is in line with European countries and far from the 12% that had been registered before the crisis, according to the report. On the other hand, the rest of the investment in construction has gone from representing 9.4% of GDP in 2006 to 5.1% in 2018, after a decade of falls.






Trend

Prices went up 49% in Madrid, but 8% in Extremadura

Even so, the recovery of the sector is far ahead of the economic evolution. The real investment in accumulated housing between the fourth quarter of 2013 and the fourth quarter of 2018 increased by 45%, while in that period the GDP grew by 15%.

But recovery is not the same for everyone. In terms of prices, the trend is clearly bullish throughout the territory, but while in the two most dynamic communities Madrid and Catalonia have risen by 49% and 39% respectively, in Extremadura and Castilla-La Mancha that recovery has barely registered a 8% increase.

Increase in housing prices from the minimum marked in the crisis.

Increase in housing prices from the minimum marked in the crisis.
(Bank of Spain)

Beyond these two large areas, the Mediterranean coast and the islands have been the other areas where recovery has been most noticeable. And in this, foreign buyers have a special influence. In 2018, they accounted for 16% of transactions, while between 2007 and 2013 they accounted for 10% of the market.





The British are still the most dynamic when it comes to acquiring properties in Spain, although the Brexit is taking its toll. In 2018, they accounted for 14% of transactions, while during 2008 and 2016, their presence was 19%. They are followed, by far, by French and Germans (8% each group) and Romanians and Moroccans (7%, each group).


Market

Fixed rate loans are 40% of the total compared to 6% in 2014

The Bank of Spain report also identifies the bases on which this recovery is based. In the first place, he mentions the recovery of employment in recent years and the wage increases that families have had. It has also been influenced by a relaxation of the banks in the requirements to access a loan in recent years, an improvement in the financing conditions, (the average interest rate has fallen from 3.1%, at the beginning of 2014, to the 2.1% in February 2019). Mortgage repayment terms have been lengthened, up to 22 years for those signed at the end of 2018, compared to the usual 13-year average at the beginning of 2014.

Financial entities have adjusted their margins, which is why they have taken more prominence in fixed-rate mortgages, which have gone from just 6% in 2014 to 40% in February 2019.






New behaviors

The rent, the great protagonist of the recovery

Far from European standards, if anything has changed in Spanish real estate is that the rent is increasingly accepted either by obligation or by conviction. In 2017, 16.9% of households lived on a rental basis, compared to 14.2% in 2008.

Young people affected by job insecurity and new ways of understanding property are the group where the rent has more weight. Although the pressure of prices shows that this is an option increasingly demanded. In 2018 rental prices, according to Idealista.com data quoted by the Bank of Spain, rose 9.3%. An important increase but not as much as the 18.4% that had risen in 2017.

The report of the financial regulator centers the analysis in Madrid and Barcelona. "While the price of the sale has not yet reached the level prior to the crisis, the price of rents would be above that level," he says. Although it also highlights that "in 2018 there has been a weaker growth in the rental price in relation to previous years, even showing a fall in the case of Barcelona". In this city, in addition, there has also been a deceleration in the sales price, rising from over 15% in 2017 to below 3% in 2018.







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