A report issued by international credit ratings agency Fitch shows that although property prices in Spain are 30% below their 2007 peak, prices are still likely to continue falling in 2014, bottoming out in 2015.
Despite increased interest in the country's real estate, particularly from non-EU buyers following the introduction of the 'Golden Visa' scheme in September 2013, over one million properties remain unsold which is expected to prevent price inflation for at least another year.
Another factor forcing prices downwards is the increased de-leveraging activity of Spanish banks. Throughout 2013 banks became more willing to offload retail residential assets at deep discounts in bids to clean up their balance sheets. Significant discounts of up to 70% are available when purchasing a bank-repossessed property in Spain and some are available with 100% financing although interest has not been significant enough to improve property prices overall.
Fitch expects that property will become more affordable as prices decline and incomes increase moderately and this ratio should improve further in 2014. For the meantime however, the mortgage market remains depressed in the first quarter and is expected to remain so for the rest of the year with new mortgage lending volumes reaching a historical low of 100,000 which is less than 20% of peak year lending volumes.
The weakening of the mortgage market is a continuance from last year when by November, the number of mortgages granted had fallen by 26.6% year-on-year, which corresponds to €970 million in lost revenue and approximately 84% fewer mortgages being granted since the end of 2007. The lending landscape remains bleak although a significant pick-up in property sales to cash rich foreigners in certain regions of Spain is providing a degree of buoyancy to the property market.
Buyers needing to leverage their purchases may also be more cautious as mortgage performance is highly vulnerable to a rise in interest rates. Spanish Mortgages are mostly variable rate linked to Euribor which is currently at historical low levels but could revert to higher levels in the medium to long term and so buyer confidence is likely to remain subdued for some time.
There is distinct possibility that the Spanish property market will become more fragmented over the next year with prices inflating faster in the more popular areas on the coast of Southern Spain as a result of foreign interest and there is a possibility that this will lead to localised bubbles in the housing market.
Tinsa, a Spanish property appraisal company predicts that an improvement in demand will see the current glut of one million properties gradually reducing year-on-year by 2017. This is counteracted somewhat by the shortage of new properties coming on to the market. Developers were amongst the hardest hit by the financial crisis and the thousands of incomplete builds littering the coastal areas is testament to that fact.
Although low property prices will increase the appetite of the foreign investor looking for property bargains, for the 10.7% of Spanish mortgage holders in negative equity, the situation spells further misery. There are currently 580,000 who are stuck with their properties until the situation improves or they are forced to vacate. If house prices fall further as predicted, this number will swell to an estimated 710,386 negative-equity holders.
- Wednesday 30 April 2014