While it would be wrong to suggest that the Spanish property market has been the worst performing property market in Europe, the truth is it has had a torrid time. The 2008 US led worldwide economic downturn is still being felt today with European base rates at record lows. However, what does 2017 hold for the Spanish property market?
Increased demand for Spanish property
BBVA Research issued a very interesting note on the Spanish real estate market looking ahead to 2017. First of all, BBVA believes that the ongoing recovery in Spanish property prices will continue into 2017. The company forecasts an increase in sales next year of 6.5% which equates to around 475,000 transactions. Average house prices are also forecast to increase by 3.5% which is obviously less than the forecast increase in sales but a good start to the year.
At this point it is worth reminding ourselves that the Spanish construction sector ground to a halt in light of the 2008 worldwide economic collapse. What had been seen as something of a “safe haven” in the shape of Spanish holiday resort properties were suddenly friendless and impossible to sell. This led to many Spanish banks taking on properties after their owners defaulted and while many have since been sold-on there is still an overhang.
Economic activity
Spain is slowly but surely starting to see a recovery in its economy but it will take some time to regain lost confidence. Indeed we only need to look at the volatile political situation, general European economic slowdown and independence issues surrounding Catalunya to understand what may hold back the economy. When you also throw in the U.K.’s forthcoming exit from the European Union into the mix the situation becomes a little more unclear. However, even in light of these difficulties it is good to see that BBVA fully expects property markets to recover.
Interestingly BBVA is also forecasting the creation of 800,000 new jobs across Spain, This together with historically low mortgage rates should help to support an albeit slow but steady recovery in property prices.
Investor optimism
While there is still a lack of confidence surrounding the Spanish economy, and property market, from domestic investors it seems that overseas it is a different matter. UK property investors have been returning to their old Spanish hunting grounds and there are signs US investors will be pouring record funds into the region. Slowly but surely the remaining unwanted stock, taken on by Spanish banks when customers defaulted, will start to dwindle at which point the balance between supply and demand will change. This will be a gradual process but one which does appear to be at least moving in the right direction.
Sometimes it is good to put figures in perspective because even a rise of 3.5% in the value of Spanish property prices would only be a small increase compared to the 38% devaluation the sector saw back in 2007/8. This cold hard fact puts everything into perspective although in many ways investors need to learn from the past, then put it in the past, and focus on the growing number of interesting investment opportunities ahead.