The Bank of International Settlements (BIS) has recently released the conclusions of an investigation about how ageing affects the future of house prices in 22 developed countries including Spain. And the conclusion was… What a forecast!!!! … By 2050 Spanish property market prices will drop by 75%.
One of the key pieces of data for the BIS forecast is that the Spanish population will be the oldest in the EU in 2050: 36,5% will be above 65 years old, according to Eurostat.
This is the conclusion of the BIS’ paper explained in a very simple way:
Economic theory suggests that ageing affects asset prices negatively, which is widely accepted. But apart from the ageing effect in the property market in Spain, there is a huge over supply (more than 700,000 unsold brand new units), combined with a few additional factors.
That is why the BIS analysis needs to be implemented with market facts.
The key factors that have boosted the market
However, there are four factors in the last 15 years that have boosted the property market in Spain beyond the potential demand that the buyer demographic alone could generate:
These factors are, from my point of view, the reason why, between 2005 and 2009, a total of 2,753,600 properties were built in Spain according to the Ministry of Housing.
Do not rely on immigration
So, Spain is getting old. This means less and less people will be able to buy the large stock of 700,000 new and unsold units because they are more dependent on an active population.
In the case ten years ago, authorities hoped that immigration could slow down the ageing trend of Spain, but now such expectations have been ruined by the economic climate. Foreigners who moved to Spain for economic reasons are moving back to their countries. In a quarter of a year there are less than 100,000 immigrants to the country.
Migration trends and city markets
Cities are still a reliable market for primary residence properties. The Spanish urban population has grown since 1970 until 2000, from 66% to 78%, and currently the rate is slightly above 80%. This means that property in cities will always offer a good exit strategy to the investor in Spain. In addition, the market for second residences, top end investments and luxury properties will have a good market, but different networks and different marketing strategies for investors are needed.
Demography, migration flows, offers, demand, location, blah, blah, blah… they all come together to the main point: price.
It is known that prices have dropped an average of 12% in the cities and certainly a further fall will come. Prices performance not only varies depending whether an area is rural or urban, but also depending on region.
So far, the highest prices fall per region (-16%) have been in the provinces where the new property developments were higher during the property bubble, increasing the stock by 30%: Guadalajara, Toledo, Huesca, Alicante, Málaga, Las Palmas y Murcia (according to the Dr Julio Rodríguez López).
Based on demographics, stock, and trends, Spanish property needs new input from market players and regulators. Here we have some conclusions:
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