Bankinter report predicts Spanish Property value growth

A report recently published by Spanish retail bank Bankinter suggests property prices will rise for the first time since 2008, when they peaked and subsequently started the steep descent ushered in by the international financial crisis and the Spanish property market crisis it triggered.

Average house price movements across the country, which is what the report focuses on, appear to have levelled off in the earlier part of this year, when the resumption of demand in areas across the country was strong enough to halt any further decline in property values.

The first areas to reach this situation were Mallorca, Ibiza and the Costa del Sol, whose turning point came in 2012, followed by Madrid, Barcelona and cities such as Valencia, Sevilla, Málaga and Bilbao. By 2015 the recovery had spread to large parts of the country, leaving only areas such as Extremadura, La Mancha and some of the rural northern regions to still register drops in prices. Now growth is gathering pace across the country, as evidenced by new construction activity, these regions too are expected to slowly recover and stabilise in terms of values.

Where nominal house prices still showed a year-on-year drop of 1,6% on a national level in 2013, by 2014 they had levelled off and for the immediate future an annual increase of 2,5% is predicted, taking prices back to the boom-year level of 2004 by 2016. It may, however, still be a while before the previous peak of 2008 is surpassed, as while luxury markets such as Marbella are forging ahead strongly there remains a glut of properties in some parts of the country. It is only once stock of this kind is totally absorbed that prices will really begin to recover across the county.

Having said that, already property values are outpacing the official CPI (Consumer Price Index) inflation rate, and are expected to pull further ahead in the coming years. This means that real estate is again becoming a good investment that outperforms the markets as it – particularly in strong areas such as Marbella – grows on the back of strong demand. As economic growth (expected to be 3% this year) gathers pace, unemployment drops and wages slowly begin to rise, this effect will spread across the country.

Another factor that should be reinforcing the national market is the strengthening of the banks over the past few years and the resultant return of mortgage lending – currently at highly attractive low interest rates. What’s more, at 33% the affordability ratio of property in relation to incomes is now at a far healthier level than the 49% it had reached by 2008, when property price increases far outstripped the growth of income and savings. All these factors point to recovery and growth in the Spanish real estate market, with the accompanying upward movement in property prices.

Pia Arrieta, 05 Oct 2015 - Intelligence