It’s crucial to keep an eye on global property trends if you’re considering an investment property. One such important market to consider is Spain, which has been showing some interesting trends. Spanish house prices have been steadily on the rise, a trend that contrasts with many other eurozone countries. An article by ING takes an in-depth look at these phenomena, discussing the contributing factors, and what potential investors can expect in the future.
The Rising Wave of Spanish Property Prices
When we look at property markets across the eurozone, we can see a clear picture that Spain’s property market is on the upswing. Figures from Eurostat reveal that Spanish house prices rose by 2.1% on a quarter-to-quarter basis in September. Remarkably, this stands in contrast to the mere 0.1% quarter-to-quarter growth rate we saw across the rest of the eurozone. We even saw house prices in Germany, France, and the Netherlands exhibit a decline on a quarterly basis during the second quarter.
A year-on-year analysis of the Spanish property market shows an increase of 3.7%. Meanwhile, average property prices in the rest of the eurozone fell by 1.7%. It becomes clear that Spanish property prices are proving more resilient in the face of rising mortgage rates than those in the rest of the eurozone.
The Demand for Property in Spain Remains Steady
One headwind for the property market in Spain is the soaring interest rates on mortgage loans. Data from the Spanish statistical service INE presents a rather telling picture: the number of mortgage loans granted in July 2023 was 18.6% lower than the corresponding month the previous year. The number of property transactions also saw a 10.1% decrease during this period. However, this downturn doesn’t measure up to the drop experienced in other countries.
Factors such as a growing number of households, partially due to immigration, and an economy growing robustly compared to the eurozone average, lend support to the property market. In fact, forecasts suggest that the Spanish economy is likely to grow by 2.5% in 2023, compared to the eurozone’s average growth of merely 0.5%. Additionally, a tighter labour market combined with nominal wage growth and lower inflation are creating real wage growth, which means Spanish households are finding themselves with increased purchasing power.
Spain’s Property Supply Struggle
In any property market, when growing demand runs into a stalling supply, you can’t escape price hikes. This is precisely the case in Spain. A rapid net household growth rate compared to a slower net supply growth rate has led to a scarcity that’s pushing house prices ever higher.
The pandemic presented an unexpected respite for this phenomenon due to the drop in foreign demand along with increased inheritances due to Covid-19 fatalities. However, supply growth in the property market had been unable to keep up with demand for several years prior, and this trend seems likely to persist.
Spanish Property Market versus the Eurozone
Spain’s house prices didn’t increase as much as those in other eurozone countries during the pandemic. This has resulted in a more modest downturn compared to countries where property markets potentially overheated. Reductions in mortgage lending rates and slowing economic growth are expected to further dampen market dynamics in the short term.
Although the Spanish property market has shown resilience, the European Central Bank (ECB) anticipates that house prices will continue to rise, albeit at a slower pace. This potentially makes for a more secure and sustainable investment opportunity compared to other eurozone markets.
A Glimpse into the Future
Investors always aim to interpret the signals of today to adjust their strategies for tomorrow. When it comes to the Spanish property market, the horizon suggests a gradual slowing down. ING predict that mortgage lending rates will rise until the end of the current year and remain at that level for some time, which may temper real estate purchasing power.
In conclusion, Spanish property prices are doing well, growing steadily despite wider economic challenges. With this in hand, exploring investment avenues in this market might be a promising route for many potential property investors. Let’s keep an eye on how these trends unfold in the coming period.