Housing transactions in Spain will experience over 15% of year-on-year growth in 2017 for a total of more than 465,500 units sold
- The main indicators that analyze the market’s progress show clear signs of recovery for the industry in 2017, although the various micro-markets are worth analyzing.
- Home prices in Spain will rise by an average of more than 4% this year, with the highest average transaction values in the Balearic Islands, the Basque Country and the Community of Madrid.
- Housing starts will increase by an average of 15.3% in Spain, completed homes by more than 20% and new construction stock will drop by 17.8%.
- The average gross rate of return for a rental home is 5.4%.
Barcelona, July 11, 2017.- The Spanish real estate market shows clear signs of recovery in 2017, as noted in the evolution of the various indicators in the fourth report on the “Residential market in Spain” prepared by Servihabitat Trends, the Servihabitat market research and analysis platform. In line with the moderate growth trend experienced last year, the various micro-markets are worth analyzing in order to take the pulse of the market as a whole. According to Julián Cabanillas, CEO of Servihabitat, “The market stabilization process, with slightly higher demand and the resulting price increments, is not occurring homogeneously throughout the country, which means that the progress of each specific region is worth analyzing, as specified in the report. As a whole, we can confirm that in 2017 all the indicators are showing sustainable growth and industry consolidation, although at different rates.”
There are 15.2% more transactions this year
According to the report, demand continues to increase in 2017 due to: job stability and higher household income; more mortgages being granted; stronger demand due to investments, which according to the study, currently make up between 20% (primary residences) and 22% (vacation homes) of the transactions carried out in Spain; and stronger supply and demand for new housing, which is increasing sales involving households that have been waiting for these types of products to be available in order to make their purchase decision.
These and other factors explain the upward trend in the number of transactions expected for 2017: 15.2% more than last year for a total of over 465,500 transactions.
Andalusia, Catalonia and the Community of Madrid are the regions with the highest number of transactions, although Extremadura (+27.1%), Cantabria (+26.7%) and Aragon (+22.5%) have grown the most compared with data from 2016.
According to the Servihabitat Network of partner agents (APIs), existing homes are driving the industry since they represent more than 70% of transactions for primary residences and also vacation homes.
In terms of the average length of time that homes are up for sale, this number is close to seven months for primary residences and slightly more than nine months for vacation homes.
It is noteworthy that more than half of primary residence buyers are between the ages of 36 and 45 years, although in the case of vacation homes the age range is 46 to 55 years.
Homes started, homes completed and approved projects increase by more than 15%
New construction figures are expected to continue their upward trend, as shown by the various indicators. Servihabitat Trends expects housing starts to grow by 15.3%, resulting in more than 75,500 properties. On the other hand, 2017 should end with over 48,500 homes completed, 20.2% more than last year. In terms of approved projects, it is estimated that 2017 will end with almost 116,000 units for 25.9% of year-on-year growth.
By analyzing the evolution of new construction stock, it is worth highlighting that developer activity is recovering moderately although it is much stronger in Madrid and Barcelona and their metropolitan areas, as well as in other capitals such as Bilbao, Seville and Málaga. Most projects are small or medium developments that are sold off-plan, although larger transactions are becoming increasingly common. In addition to large cities, certain traditional and consolidated vacation home destinations, like the Balearic Islands, Costa del Sol and Costa Blanca, are some of the most active markets in terms of housing starts, although there continue to be regions where stock levels have not been absorbed and new projects have not been detected.
Of all the communities, Madrid, Catalonia and Andalusia are expected to have the highest housing starts this year; the same applies to completed homes, but with the addition of the Community of Valencia. At 37.3%, the Community of Madrid has grown the most compared with last year as far as new projects.
New construction stock has fallen by nearly 17.8%, although it is not being absorbed homogeneously
New construction stock continues to be absorbed and is expected to drop by 17.8% this year (compared with 2016) for a final number of 324,000 homes.
In any case, this indicator should by analyzed by region since absorption levels differ throughout the country. Upon analyzing stock levels with respect to population size, the Community of Madrid, the Balearic Islands and Catalonia currently have technical stock levels. New construction projects are progressively taking shape in these communities. On the other hand, in markets with smaller populations or where vacation homes play a major role, the existing stock is being absorbed more slowly.
In Spain, the average level of new construction stock is close to 70 homes per 10,000 inhabitants. This average is easily surpassed in Castilla-La Mancha, La Rioja and the Community of Valencia, but it is much lower in the Community of Madrid, the Balearic Islands, Extremadura and Catalonia.
Home transaction values have increased by 4.1% in 2017, although not uniformly
The pressure exercised by demand on the market will continue driving prices up, although moderately and not homogeneously throughout the country. Specifically, average transaction values are expected to increase by 4.1% in Spain this year, with the highest absolute values in the Balearic Islands, the Basque Country and the Community of Madrid. Navarre, the Community of Madrid and the Canary Islands have grown the most since last year. The cities that have shown the most progress are Madrid and Barcelona (surpassing the rest of the nation), followed by Málaga, Seville and Valencia. There have also been signs of growth at certain traditional vacation home destinations in Costa del Sol, Costa Blanca and the two archipelagos. Prices will increase slightly or not at all throughout the rest of the country.
Rental prices have increased by an average of 4% to 5% during the first half of the year
The price for a rental home with 80 to 90 sqm of floor space is €600, although the Balearic Islands, the Community of Madrid and the Basque Country surpass this average. According to the report prepared by Servihabitat Trends, home rental prices in Spain will continue their upward trend and are expected to increase by an average of 4% to 5% by the end of the first half of the year. During the next six months, prices will continue to rise between 2.5% and 5%, depending on the region.
The average supply of rental homes in Spain is 2.5 homes for every 1,000 residents and 5.8 homes for every 1,000 households. The Community of Valencia and Andalusia have a supply of 20,000 homes or more.
The autonomous communities of Castilla y León, Cantabria, and Castilla-La Mancha also surpass the national average in terms of the supply of rental homes per resident and per household.
The average gross rate of return for a rental property in Spain is 5.4%, although certain autonomous communities such as Catalonia (5.9%), the Community of Madrid (5.6%) and the Balearic Islands (5.6%) have average annual gross rates of return that are higher than the national average. Despite this, the Basque Country is the autonomous community that has increased its rate of return the most compared with the previous six-month period, from 3.9% to 4.2%.
The study shows the positive evolution of the rental market in Spain, in line with key indicators, although three categories can be established: Madrid, Barcelona and their metropolitan areas, where rental prices are experiencing an upward trend and demand is sustained; cities with more than 300,000 residents and a moderate rise in activity; and all other locations, with growth that is virtually inexistent.
The demand—which remains high—and the supply—which is sometimes not flexible enough so as to fill the demand—are two indicators to be analyzed in depth. According to Juan Carlos Álvarez, General Director of Real Estate Business at Servihabitat, “The Company has made a concerted effort to operate in this market, particularly in recent years, by expanding our rental portfolio to nearly 60,000 properties. In any case, we must remain aligned with the new needs the market demands since the profiles of end users have changed significantly over time. Now, more than 70% of renters in the regions where our APIs operate are between the ages of 26 and 35 years. Rentals are becoming increasingly popular due to employment conditions that require greater geographic mobility as well as the consolidation of new family models.”
Foreign buyers maintain their presence in Spain’s housing market
According to the Servihabitat Network of partner agents (APIs), 30% of vacation home transactions involved foreign buyers. In terms of primary residence purchases, this group has made 20.2% of purchases.
In ten provinces, the percentage of home purchases involving foreign buyers out of all sale transactions surpasses the national average, which was 17.1% in 2016 according to the Ministry of Development. They are Alicante (49.7%), Santa Cruz de Tenerife (46.6%), Málaga (37.7%), the Balearic Islands (37%), Las Palmas (33.2%), Girona (31.1%), Murcia (25.5%), Almería (21.9%), Tarragona (17.6%) and Castellón (17.4%). The Canary Islands (39.4%), the Balearic Islands (37%), the Community of Valencia (33.5%), the Region of Murcia (25.5%) and Andalusia (17.8%) are the autonomous communities where the percentage of homes purchased by foreigners surpasses the national average.
Of the total, 94.8% of homes were purchased by residents and 5.2% by non-residents.
British citizens continue to be the top nationality in terms of foreign buyers in Spain, followed by French, German, Swedish and Belgian citizens.
In summary, Spain’s housing market as a whole is expected to evolve favorably according to the report on the “Residential market in Spain” prepared by Spain Trends, pointing to an optimistic scenario that is worth analyzing by region, as shown by the key indicators that measure the market’s progress.
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