The Spanish economy has demonstrated resilience with recent figures suggesting that it’s outperforming forecasts. Spain was 2015’s fastest-growing advanced economy in Europe according to the IMF. Over half a million new jobs were created and employment levels are expected to continue growing at a rate of over 3%, creating over a million jobs in the next 2 years. This economic performance represents a period of stability and will help to allay fears that the nation’s ongoing political uncertainty will engulf the country’s economy until June’s election.
This strong resurgence of macroeconomic conditions has led many investors to question how the Spanish residential market is performing and whether it is showing comparable signs of recovery.
Domestic Driven Demand?
JLL’s newly released Spanish Residential Research report shows that demand for residential property in Spain is undeniably on the up with the market experiencing an upturn in fortunes. Not only has the number of property transactions increased by over 10% in the past year but investment volumes have also grown by 2.5%. This growth in investment is in part a result of the ECB’s expansionary monetary policy which has led to average annual interest rates falling just under 1% over the past year. It is also in part a result of international capital’s renewed interest in the Mediterranean country. Foreign investors now account for 14.4% of residential property transactions in 2015, compared to just 4.25% only 6 years ago.
Rebalancing Supply
The dilemma of oversupply had long plagued the residential market since the global economic downturn. Despite the fact that there are still areas with major imbalances and excess supply, the stock of new homes is beginning to gradually fall and currently stands at around 500,000.
In terms of new housing starts, permit requests have increased by over 40% in the past year according to figures published by the Ministry of Public Works and Transport. As supply has failed to meet demand in certain regions of the country, house prices have begun to experience growth following 6 years of decline. The average price per square metre for private housing rose by 1.85% in 2015 to €1,490sq m, consolidating the positive trend that began in mid-2014.
Two Tier Economy
It is imperative to note that Spain’s largest cities and tourist hubs have enjoyed a large proportion of this growth in investment. Foreign demand and the economic upturn in these regions are underpinning the progressive recovery of the sector. As shown by [Box 1.1] large metropolitan areas in Madrid and Barcelona have seen the greatest share of residential sales followed closely by tourist hot spots Alicante and Malaga.
Both Madrid and Barcelona have exhibited price increases that are significantly higher than the national average, growing by 3.4% and 3% respectively. This upward trend is expected to continue given the scarcity of new and refurbished product. In Madrid, the lack of supply is driving development activity, especially in the north and northwest of the city. Meanwhile, in the Catalonian Capital, the supply problem has given rise to building refurbishments, office to residential conversions and development activity.
The JLL EMEA Residential Property Capital Value Clock monitors price growth movements across the region’s principal residential markets, with each city’s position on the clock indicating JLL’s assessment of their current sales market. Both Madrid and Barcelona find themselves within the acceleration segment of the clock, signifying that there’s no anticipation of any slowdown in capital value growth in the short term.
The pertinent question that remains is whether these hot spots will continue to carry the rest of the country up on a positive upward path or whether these lagging second tier locations will instead begin to narrow the gap in terms of price growth. With indicators showing that Madrid and Barcelona’s strong price growth shows no sign of letting up, our gaze now turns to the rest of Spain to see how widespread this recovery will be.
Box 1.1
