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Property Market Insights

PROPERTY MARKET SPAIN

The crisis in the Spanish real estate market ended officially in the first quarter of 2016, with no less than 31 consecutive quarters of falling prices – from the fourth quarter of 2007 to the third quarter of 2015 – Spanish real estate is one of the most interesting investments in Europe. 
Spain has never been established among the richest countries in Western Europe, at least not in the modern era. The two Iberian countries – Spain and Portugal – have always closed the European indices of progress and wealth, such as GDP per capita, public sector efficiency, ease of doing business, and more. While Spain is considered one of the largest economies in Europe, and its soccer league is the richest on the continent, it has not been able to catch up with the economies of Germany, France or Britain in the industrial and technological race. 
The roots of the last real estate crisis in the country began in 1999, when the Spanish entered the eurozone and the death of the peso and high inflation in favour of the euro and low interest rates. At the height of the bubble, in 2007, Spain recorded more construction commencements than Germany, Britain, France and Italy combined. About 13% of the Spanish workforce was employed in the construction industry, which accounted for about 10% of the GDP. The real estate bubble was also convenient for the Spanish government, because it gave it extraordinary tax revenues that balanced the budget and hid the structural economic ailments that the country’s economy suffered from: low productivity, technological backwardness and competitive disadvantage in global markets. 
Ostensibly, the Spanish economy grew well in those years, and the buying power of the Spaniards rose; The Spanish banks distributed low-interest mortgages for very long periods of up to 50 years, and in 2010 the rate of mortgages reached 63 percent of GDP, a double-digit increase from 2003. As a result, In the US subprime crisis, banks also did not ask borrowers too many questions, and provided money to all who wanted it. The catalyst for the explosion was a change in interest rate policy in the euro zone at the beginning of 2006 and the beginning of a series of rate hikes raised monthly repayments and pushed many borrowers into bankruptcy. In 2010, about a third of Spain’s mortgages were defined as bad debt. At the same time unemployment soared, from a low of 7% in 2007 up to 26% in 2013. 
Along with Greece, Spain was the European country most affected by the financial crisis in Europe in 2010. In May 2012, the country’s largest mortgage bank, National Bank, was nationalized, and in June 2012 Spain received a 100 billion euro rescue package from the European Union. Unlike Greece, Spain under Mariano Rachuy’s government was able to apply relatively well the painful economic measures imposed on it as part of the rescue conditions: banks without rehabilitation were nationalized; Bad loans were withdrawn from the stable balance sheets and were concentrated in a state-funded fund; Regional banks, controlled by local authorities provided credit to real estate developers who were nationalized, sold to private banks or closed down, and the Spanish banking system adopted European standards of reporting so that bad debts could no longer be hidden. 
In addition to cleaning up the banking system, the Spanish government led two reforms designed to increase the competitiveness of the Spanish economy in the global market. Rahi released the hard labour market and made it easier for companies to recruit and fire permanent employees. He also reduced Corporation Tax from 30% to 25%. At the same time, external processes have taken place in the Spanish economy that have helped it recover: the weak euro has increased the viability of exports throughout the euro zone, while the low oil prices have made it easier for the Spanish economy, which has no independent energy sources (other than renewable energy). The policy of quantitative expansion and low interest rates in Europe also helped Spain recover relatively quickly and resume investments. 

Spain Autonomous Communities by Population

In 2013, the Spanish economy rose as predicted, and since then it has been growing at the highest rate among the EU countries. In contrast to growth after joining the euro bloc, this time growth is based on stronger pillars. High unemployment caused a decline in the cost of manpower in Spain, while in other major European countries there was an increase. The more flexible labour market, the healthier banking sector and the low interest rates attracted foreign investment in the Spanish economy, particularly in the automotive sector. Today, Spain has 13 car and vehicle manufacturing plants, including manufacturing centres of leading international brands such as Mercedes, Volkswagen, Renault, Peugeot, Ford, Nissan and GM. Spain is now Europe’s second largest automaker, behind Germany, with 80% of its production destined for export. And the figure that represents most of all the change in the Spanish economy since the crisis is the rise in exports: from 24% of GDP in 2009 to 33% of GDP today. From an economy based mainly on tourism, real estate and agricultural products, Spain has become a more competitive economy globally, and more balanced in terms of capital coming in and out. 
Demand in the local property market did not arise immediately after the return to growth in 2013. It took at least another two years for real estate prices to continue falling. The main reason for the delay is the huge inventory of apartments remaining empty with the onset of the crisis. It took a long time for the banks to get rid of these apartments, even in areas of high demand like Madrid and Barcelona. Even today, this inventory still has a negative impact on real estate prices, and estimates are that there are still half a million unsold apartments waiting for buyers since the crisis. 
Nevertheless, as noted, since the first quarter of 2016 there is a gradual increase in apartment prices in Spain. One of the reasons for the change in trend is that since the crisis almost no new apartments were built, and in the big cities – Madrid, Barcelona, Valencia and Malaga – there was a surplus of demand that began to push prices upwards. Foreign investors who identified the recovery were the first to return to the Spanish property market, but the main force pushing the demand for real estate in the past two years is the Spanish themselves. 
Spain’s unemployment rate, which has been in decline for the last four years, now stands at 16.6%. This is still a higher level of unemployment than the five largest Western European countries, but the return of millions of unemployed people to the labour market is gradually generating renewed demand for residential real estate. The highest in Europe, and the Spanish bank BBVA found that there was a correlation between the areas where unemployment fell and areas where property prices rose. It is possible that the wealthy Europeans have returned to buy vacation apartments in southern Spain, but what affects the demand most in the Spanish property market, and therefore prices, is the renewed growth of the local economy.

Present and Future Outlook for the Spanish and Balearic Housing Property Market

The Graphs presented display the price indices of the Balearic and Spanish housing markets. After the disastrous impact coming as a result of the financial crash, property prices in the Balearic Islands and Spain as a whole have shown a strong recovery since the low in 2014.

The imposition of extensive austerity measures, necessitated by a European Bailout in 2012, severed domestic demand considerably. Paired with the overall impact of economic recession on the European market as a whole, depressing off-shore demand, the Balearic and Spanish property markets until 2014 underwent a difficult decline.

Balearic Islands Property Market Price Index

Spanish Property Market Price Index

Since then (2014), the Spanish and Eurozone economies have shown encouraging signs of growth. Reported recently, the Eurozone in 2017 recorded growth at its fastest pace for a decade, with the 19-nation bloc growing at 2.5%. Growth estimates for 2018 have been revised upwards by the European Central Bank, with hopes for prolonged period of prosperity widely felt. Spain’s own performance has also been positive, with unemployment falling to its lowest point in almost 10 years. The revival of Spanish demand is crucial to national house prices, the Balearics included, where despite strong international demand Spanish buyers are still in the majority.

Provisions for the future are optimistic. Despite reduced British demand as a result of Brexit uncertainty, it is more than being accounted for by growth in demand from EU countries. French, from a 3.78% share to 6.3%, Russian and Italian buyers grew significantly in number between 2016 and 2017; with the upward trend predicted to continue in 2018. There are also signs that American and Chinese buyers are being enticed by prices considered good value, accompanied by all the charms of Spanish landscapes and culture. The Spanish economy is showing little sign of slowing, with home-grown demand likely to push the Balearic and National Price index continually upwards.

Given the buoyant economic outlook for Local and National property markets, index prices have made, and will continue, to make significant headway towards the pre-crash peak of 141.55. All things considered, both heart and mind can agree that 2018 is an excellent year to enter the market.

Property Market Price Index for Spain and the Balearic Islands

Recent growth in mortgage lending support optimistic views for the Spanish housing market. Since 2014 the number of mortgages issued annually has increased by 36% and looks set to reach pre-crash levels in the coming years. This has been identified as a key driver behind the revival of domestic consumption as people benefit from the growing economy and look to take advantage of low interest rates. Interest rates will remain low for the foreseeable future as the European Central Bank consolidates encouraging growth forecasts. Economists polled by Reuters asserted that inflation will not reach the 2% target until 2020, leaving the chance of interest rate increases unlikely.

Mortgages Issued, 2014-2017 Spain

Within the Spanish property market then, demand will continue its upwards trend. In the Balearic Islands 2017, there were a total of 5,068 transfers of property, a strong figure with the region’s population taken into account. Other Regions also performed strongly, smaller coastal towns in Andalucía and the Communitat Valenciana, such as Almeria and Alicante, attracted considerable sales as the Spanish look to recover their cherished holiday spots. For the Balearics and Spain as whole property prices, it can be safely presumed, will therefore continue to rise. For Ibiza in particular, the positive economic environments in France and Germany will drive invaluable foreign spending.

Transfer of Property by Spanish Region and City April 2018

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