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5 reasons why 2017 will be the definitive recovery of the real estate market in Spain.

Although I have been blowing my own trumpets since a year ago writing about the end of recession for the real estate market, a new BBVA bank report has officially declare that 2017 will be the definitive recovery for the real estate market. 

 

 Slowly but surely.

The Spanish residential market has definitely entered a new cycle, the cycle of recovery. According to the BBVA Bank report on the 'Real estate situation in Spain'. The take-off will occur although with some moderation. In fact, the report, drawn up by BBVA Research and Real Estate, points out, the start of the new cycle is much softer than in previous occasions due to the accumulation of new unsold dwellings which has conditioned the effectiveness of the market in recent years, delaying the start-up of new projects and lowering the price of housing.

By 2015, housing sales has exceeded 400,000 units. The change of trend began in 2014 and has consolidated throughout this year. In fact, in the first three quarters of 2015, housing sales has increased by 10.9% to over 283,000 units. This pace of sales will accelerate in the fourth quarter and the trend has continued, too, in 2016. Not surprisingly, from the study department of BBVA, they assert that the recovery in the labour market will continue.

The recovery has come, then, to stay, but what are the pillars that will underpin this trend in 2016 without fear of a relapse?

Well according to this report the main reasons are 5.

 

1.- More jobs.

A continuous strength on demand due to improvement in employment.

 

Between 2014 and 2015, the number of employed have risen by slightly more than one million people and everything suggests that the improvement have continue also in 2016 and will generate around half a million additional net jobs which represents a strong impulse for the residential demand, not only for the main houses but also for holidays’ home.

 

2.- Families income.

As a result, household disposable income began to show positive growth signs from the summer of 2014. This trend has also continued in 2015, reaching an increase of 4% year-to-year. In this sense, the improvement of household income, while reducing the fiscal pressure, leads to an increase in families’ income, which implies the existence of another positive element that supports residential demand. Going forward, it is expected that the family's income will also recover in 2017 via employment recovery.

 

3.- Family wealth.

For the first time since 2007 (and since the second quarter of 2014) there have been actual growth rates. The positive evolution of the financial markets and the stabilization of residential prices are allowing the recuperation of wealth within the families, which facilitates the return to residential households investment: in 2016, the increase in disposable gross income has intensified, reaching a year-to-year rate of 3.1% in nominal terms, which will be facilitated by the increase in the wealth of the households and by the reduction of the tax burden derived from the reduction of the Personal Income Tax.

 

4.- Consumers’ confidence.

At the end of 2015 it has similar levels and even higher levels than before the crisis. Thus, at the end of the third quarter of 2015, the indicators of perception by households of the economic situation for the next 12 months showed pre-recession peak values. Improvement in employment, in the income and wealth of families contributes to a more optimistic view that families have on the economy.

 

5.- Positive evolution of the process of formation of homes.

In fact, since the first quarter of 2007 a total of 19 million new homes have been formed in Spain, with a year-to-year increase of 1.4% on average.

 

A rise of 5 per cent.

According to the experts, in 2017 growth will be more important and the most probably the current rhythm will continue, although evolution of prices could be more moderated. Thus, it expects a 10% increase in sales, compared to an expected 5 % increase in prices: Any operations grow is favourable, but not so much if prices increase, because it will expels young people and other groups from the real estate market.

It is also also expected prices to close this year and the next with increases of between 4 and 5 % although some companies are expecting an increase of between 5 and 7 %.

 

It must be pointed out that those are national averages and that, therefore, will be influenced by locations, such as the best areas of Madrid, Málaga, Barcelona and Valencia, where prices will rise more than the average, since it is in those locations where job creation is concentrated, and where the most consolidated tourist locations are also located. Although evolution of the real estate market could depend more on foreign financial policies than of what happens inside Spain. For example the implications of Trump's victory for world trade, the consequences of the 'Brexit' on the pound etc.

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