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Two restraints for the Spanish property prices to rise ‘only’ up to 5% in 2017

 It is a fact that the Spanish Property market is on a recovery phase. Housing demand keeps raising, financial banking is becoming cheaper, the price of land has started to rise and investing on the construction industry is a good alternative to interest rates of 0%. In this situation, Bankinter estimates that housing will increase in value, but ‘only’ up to 5% this year and the next one, due to two curbs: the massive effort needed for buying and the portfolio with housing at discounts that Sareb (the bad Bank) owns.

“Price of housing will keep raising modestly throughout all Spain. Even though the increase has slowed down during the first months of 2016, the moderate upward trend of prices that we have been estimating on our reports from December 2013 is still valid.” Thus states a paragraph from a Bankinter report on the real estate sector.

The financial institution assures that the housing increase will be limited through the second half of this year and 2017 due to two restraints:

 

  1. The financial effort out of investing in property. Bankinter reminds us that still today buying a house demands setting aside 6.4 years of household income, a higher level, compared to other countries, kept only by the large propensity of the Spanish people for buying rather than renting (79% of housing is in property and use).
  2. Selling of houses at discounts. Sareb owns a portfolio with 105,000 properties, of which 48% are dwellings. These assets will become commercialised in the next quarters, which will be a factor of pressure to decrease the average price in buying and selling.

However, despite these two factors, the bank, as already stated above, assures that the price of housing will increase thanks to four factors:

 

  1. Scant offer of new homes. The amount of housing finished in Spain during 2014 and 2015 was less than 50,000 per year, which prevents from covering a standardised demand of around 250,000 new homes. This lack of new offers may be highlighted on areas already very consolidated and with a strong demand as it is the north of Madrid, where the halt of the Operación Chamartín will keep limiting the housing construction and push the prices upwards.
  2. Increase on the price of land. The prices of urban land in Spain picked up to 5.2%, on an inter-annual rate from the first quarter of this year, and have increased in 5 of the last 6 quarters. If this tendency is consolidated, then it is a matter of time that it starts affecting the final prices of housing.
  3. Strong price-rise in the larger cities and the most requested touristic areas. The price-rise in Madrid and Barcelona is speeding up, with a year-on-year increase of 5.1% and 8.2% respectively and continuous rises during the last 6 quarters.
    “With Madrid and Barcelona in the lead of price-increases in the residencial sector, the positive tendency is expanding towards other significant cities, which begin to register the first inter-annual rises in the first quarter of 2016, as in the case of Valencia (+0.4%), Bilbao (+2.2%) or Malaga (+4.8%) and other coastal areas of “premium image” and a more restricted offer.
  4. The renting prices are rising already. The price of rental dwellings has increased in Spain by 5.8% during the second quarter of 2016, being the price of the square meter 7.8 euros per month. On an inter-annual rate, it is an 8.5% increase, according to the main property portal in Spain.

 

Moreover, according to Bankinter, “as the overnight stayings in private tourist apartments and flats increase, the prices of more requested areas will rise due to the additional profitability that this tourist renting provides.”

Overall, Bankinter considers that the residencial market is securing the path towards recovery that began in 2014. This argument is supported by this data: housing sales have increased by 16.8%, in accumulated terms, until May, according to the General Council of Notaries. Market demand is led by the sales of second-hand housing, that pick up to 20% and constitute more than the 91% of flat sales. Prices keep a more moderate upward tendency, after a 2.4% increase in the inter-annual rate during the first quarter of 2016.

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