Spain – bottom of the market and set for recovery?


In August 2012 we commented on the Irish property market and the fact that all markets recover in time and Ireland would be no different. This has certainly been the case, with prices in Dublin having risen over 20% in the last year. The recovery has also spread to the rest of the country with prices rising by 5% over the same period. Some analysts have even asked whether a price bubble is forming. This is for a property market that a short time ago many people were questioning whether it would recover in this decade, let alone the next few years! The same applies to the UK market. Like Ireland it fell as a result of the global financial problems of 2007/8 and took some time to recover. When it did, it took many investors by surprise and they ended up buying far outside 10% of the bottom of the market.

Over the past twenty years we have seen a number of ‘boom and busts’ and have learnt a couple of things that we keep reminding ourselves and our clients of – it is almost impossible to pick the absolute bottom of a property price cycle and all markets recover in time. It is a question of ‘when’ and not ‘if’. We firmly believe that if you buy within 10% of the bottom of the market you will have done well. If you buy within 10% of the top you will certainly not have done so. But getting the timing right is not easy. Markets seem to recover a lot quicker now than they did twenty years ago when we started our business. This is partly due to better communication channels (the internet, social media etc), which gives people easy access to market information. Unfortunately, this doesn’t mean it is easier to pick the bottom of a property cycle, it has always been extremely difficult to do that and we doubt that will ever change. It does however, help investors more quickly identify market trends and move quickly to take advantage of opportunities.

If you are looking for a medium term investment in a market:

that appears to have bottomed out and in any event should be within 10% of the low point of the current price cycle
offers security of title
an adequate legal system
access to market information etc
has an active secondary market
is not an emerging market
where do you look?
One country you could consider is Spain. The market there certainly crashed and the ‘doom and gloom’ commentators have said that there is an over supply of properties, no investor demand and no hope of recovery. Does all this sound familiar? We commented on the Spanish market in June and November of last year and fully acknowledge there has been an over supply and little investor demand. However, no hope of recovery? All markets recover in time and Spain seems to be about to do that.

It certainly appears that the market is now within 10% of the bottom of this price cycle. House prices dropped 3% year on year to June 2014, the lowest annual fall for 6 years. The data from Tinsa is the latest evidence of what commentators increasingly declare to be ‘the bottom’ of Spain’s housing market decline. The month of July saw price rises in several provinces, with the improvement being largely credited to foreign property investors buying on the coast and in major cities. These investors are looking to cash in on the highly depressed property prices which tumbled from their pre-crisis highs. This is particularly the case for Britons who accounted for 15% of all sales to overseas investors, followed by the French (10%), Russians (9%), and Belgians (7%). The Golden Visa scheme, which allows residency through the purchase of a property, came into force on the 30th September 2013 and has also resulted in increased interest from the Middle East, Asia and Russia.

Commentators are now becoming more bullish, so we can expect investors to increasingly return to the market. “We have already seen a staggering 2,500 per cent increase in Middle Eastern buyers this year versus the same period in 2012, and a 190 per cent increase in buyers from Russia and Lithuania.”, said Marc Pritchard, sales and marketing director for Taylor Wimpey España, in a report in Telegraph UK. This sentiment is supported by Myles Johnson of the Financial Times who said “Several large deals have been completed for assets that 18 months ago not even the most foolhardy speculator would have touched.”

The general economy is also showing signs of improvement. Spain has the 13th Highest GDP in the world and in 2013 it stood at approx. $1.4 trillion, with a per capita figure of $30,557 . In line with most countries in Europe and elsewhere, its economy was adversely affected by the 2008 global financial crisis. The government was forced to seek EU financial aid and introduce severe budget cuts which culminated in unemployment exceeding 20%. By 2014 the economy was on its way to recovery with 1.4% increase over the previous year. Exports mainly led the recovery which was aided by private consumption, an improving labour market and stronger confidence. Business investment is projected to benefit from the better economic outlook and higher exports. Higher activity will result in positive employment growth, but ample spare capacity will keep inflation low.

The above doesn’t mean that prices are going to boom overnight throughout Spain, but it does mean that in some areas now is the right time to buy and take full advantage of the up-turn.


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