Spanish transactions rising, thanks to foreign buyers

Spain’s housing market continues to recover, amidst continuous improvement in economic conditions. House prices are still falling. But the good news is, property demand has already picked up, thanks to foreign homebuyers.

Spanish house prices dropped 3.56% during the year to end-June 2015 (-3.56% inflation-adjusted), up from the 3.03% y-o-y decline in May 2014 and almost the same as the 3.57% annual drop seen in the previous month, based on figures from TINSA. Quarter-on-quarter, house prices fell by 0.7% (-2.2% inflation-adjusted) during the latest quarter.

On the other hand, the Bank of Spain released more optimistic house price figures. During the year to end-Q1 2015, Spanish house prices dropped slightly by 0.1% (but increased 0.94% when adjusted for inflation). In a quarterly basis, house prices fell by 0.36% (but rose by 1.35% inflation-adjusted) in Q1 2015.

Spanish house prices have been falling for seven consecutive years, with a total decline of 41.2% (46.5% inflation-adjusted) from the values reached in Q4 2007, before the crisis.  There have been 31 consecutive quarters of y-o-y declines:

• In 2008, Spanish house prices fell 8.75% (-10.05% inflation-adjusted)
• In 2009, house prices fell 6.57% (-7.23% inflation-adjusted)
• In 2010, house prices fell 3.85% (-6.67% inflation-adjusted)
• In 2011, house prices fell 8.17% (-10.28% inflation-adjusted)
• In 2012, house prices fell 11.34% (-13.82% inflation-adjusted)
• In 2013, house prices fell 9.19% (-9.44% inflation-adjusted)
• In 2014, house prices fell 2.96% (-1.96% inflation-adjusted)

The national figures conceal regional house price movements. Most regions are showing remarkable improvement while others remain depressed.

During the year to Q2 2015:

• In the Capital and Large Cities, house prices dropped 2.65%, a sharp improvement from annual declines of 4.84% in Q2 2014, 11.55% in Q2 2013, and 13.53% in Q2 2012
• In Metropolitan Areas, house prices dropped 4.88%, from annual declines of 2.96% in Q2 2014, 12.72% in Q2 2013, and 11.64% in Q2 2012
• On the Mediterranean Coast, house prices dropped 3.13%, an improvement from annual declines of 7.16% in Q2 2014, 7.44% in Q2 2013, and 13.33% in Q2 2012
• In Balearic and Canary Islands, house prices rose slightly by 0.15%, up from annual increase of 0.07% in Q2 2014, and in contrast with y-o-y declines of 3.74% in Q2 2013, and 6.78% in Q2 2012
• In Other Municipalities, house prices fell by 5.53%, worse than the y-o-y drop fo just 0.14% in Q2 2014, but an improvement from annual declines of 11.49% in Q2 2013, and 7.36% in Q2 2012

Residential property transactions rose by 17% to a total of 30,578 units in June 2015 from the same period last year, its tenth consecutive month of annual rises, according to the Instituto Nacional de Estadistica (INE). The increase in home sales was mainly driven by the rise in existing home purchases.

This improvement in property transactions is mainly driven by foreign property buyers, buying luxury homes on the coast and in cities like Barcelona and in Costa del Sol, one of the country’s most popular areas with overseas purchasers.

“Buyers are realizing the market has hit rock bottom,” said Rachel Haslam of real estate agency Lucas Fox. “This situation has led to an increase in buying activity but we still have not noticed the increase in prices,” said Damian Pena of Engel and Volkers. “The logical tendency is that the prices will start to rise next year,” he added.

Britons accounted for 15% of all sales to overseas investors, followed by the French (10%), Russians (9%), and Belgians (7%), according to Spain’s society of property registrars. There is also an uptick in interest from U.S. buyers, with the dollar strengthening against the euro.

The total number of foreclosures also fell by 6.5% to 17,786 dwellings in Q1 2015 from the same period last year, based on figures from the INE.

The Spanish property market is expected to continue stabilizing for the remaining months of the year. “With unemployment falling, the economy growing faster than predicted and property reaching the bottom, 2015 is set to be a pivotal year for Spain’s property market. Prices are on average 40% below what they were since the start of the crisis in 2007 and we predict a slow and steady recovery,” said Alexander Vaughan of real estate agency Lucas Fox.

In Q2 2015, the Spanish economy expanded by 3.1% from a year earlier, up from an annual real GDP growth rate of 2.7% in the previous quarter and the biggest expansion since Q4 2007, according to the preliminary data released by the INE. The economy is expected to grow by 3.1% this year and by another 2.5% in 2016, up from a growth of 1.4% last year, and contractions of 1.2% in 2013, 2.1% in 2012 and 0.6% in 2011, according to the Bank of Spain.