In the second quarter of 2014, Spanish house prices recorded an increase for the first time in six years, confirming the nation's return to economic growth.
The Spanish office of national statistics said that Q2 house prices showed an increase of 0.8% compared with the same period in 2013 after a disappointing Q1 that saw a decrease of 1.6% in house prices over the same period last year.
The news heralded a tentative projection of higher growth for the Spanish economy by the country's Finance Minister, Luis de Guindos. He also confirmed that Spain's central bank would be asking the European Central Bank (ECB) for €30bn to put Spain "in a competitive condition".
Spain's property prices rebounding from lowest levels since crisis
Head of research at property agents Fotocasa, Beatriz Toribio said: "The increases can be read as the strongest signal yet that the collapse of real estate prices that began in 2008 has bottomed out."
Property prices in Spain have declined by 35% as a whole over the past six years. Towards the end of 2013, the economy emerged from a nine-quarter-long recession and has been gaining traction since.
Although domestic demand for second homes is growing, the principal home market remains weak in Spain, with foreign demand for investment property driving prices up in sought-after areas. This has dissipated the recovery, creating pockets of value predominantly in perennially popular tourist locations such as Madrid, Barcelona and the Costa del Sol.
Foreign investors are flocking to Barcelona as well as Madrid and the Costa del Sol
Property prices rise for first time since 2007
According to the data, Q2 house prices declined on a quarterly basis in just two of Spain's 17 autonomous regions – the Basque Country and Cantabria, located in the north of the country.
Q2 2014 saw Spain's economy out-perform most other countries in the Eurozone, even as major trading partners such as France and Italy registered slumps in output.
Luis de Guindos is now planning to raise Spain's 1.2% growth projection for the year and its 1.8% projections for 2015.
OECD praises Spain's improved economic performance
The Organisation for Economic Cooperation and Development (OECD) presented its latest report on the Spanish economy on Monday 8th September. The report recommends that Spain must build on recent overhauls to accelerate growth and close loopholes that keep tax receipts below the levels of neighbouring countries.
The Paris-based organisation praised Spain's steps to make the labour market more flexible and clean up its troubled banks but said more should be done to reduce unemployment, currently at just under a quarter of the workforce.
Spain's turnaround has been helped by measures such as banking and labour reforms, the report by the Organisation for Economic Co-operation and Development said. The key challenge now was to enhance growth and reduce unemployment.
The beautiful city of Ronda in the province of Malaga, one of many locations perennially attracting record numbers of tourists
Household and corporate debt levels remain a concern
Household and corporate debt levels in Spain are declining but remain relatively high, with companies more heavily indebted relative to earnings than in most European countries, making the country vulnerable to any renewed turmoil in the sovereign debt markets.
The report went on to suggest that paying down this debt, alongside spending cuts and reluctance of banks to lend will continue to restrain economic activity. The OECD recommended a simplified personal insolvency procedure to recognise losses quickly.
The report identified the risk of deflation that could arise from the very low inflation rate of 0.40% unless accompanied by stronger economic growth but nevertheless stated that Spain's economy should gradually accelerate over the next two years with domestic demand making an increasing contribution.
Spain must address issue of unemployment
Despite returning to economic growth in the second half of 2013 and growing at the fastest pace of any mainland western European country, Spanish unemployment remains among the highest in developed countries, at 24.5%.
The OECD report said, "Tackling unemployment is crucial to reduce poverty and inequality" and urged Spain to improve vocational training, encourage greater scale and specialisation of universities and make it easier to start a business.
It also said Spain should shift the tax burden from labour to indirect taxes by cutting employer social security contributions for low-skilled workers and narrowing exemptions to value-added and corporation taxes.
Spain's construction sector has improved, creating employment opportunities particularly in coastal areas
The green shoots of recovery now visible
In conclusion, the report confirms that on many levels, Spain is beginning to flourish albeit with a little way to go before economic vulnerabilities such as low inflation and high unemployment prevent stonger and more sustainable recovery.
However, record-breaking visitor numbers throughout 2014's tourist season have yet to be factored in to government expectations and with tourism already contributing more than 10% to the country's GDP. providing a much needed boost to the labour market, it is predicted that Spain will enjoy modest and yet sustainable growth in the coming year.
From a foreign investor's perspective, the Spanish property market is clearly displaying "buy signals" as the market reaches the bottom and begins its ascent back up the growth curve buoyed by a slowly recovering economy.
- Thursday 11 September 2014