REPORT June 2017
KEY FEATURES OF THE MARKET AND RESIDENTIAL SECTOR IN SPAIN CONTENTS
EXECUTIVE SUMMARY CONCLUSIONS 4 62
1. 2. 3. 4. 5. 6. MACROECONOMIC HOUSING HOUSING HOUSING RENTAL HOUSING MARKETS IN THE INDICATORS SUPPLY DEMAND PRICES AND THE RESIDENTIAL MAIN CITIES 6 14 26 36 INVESTMENT MARKET 52 44 1.1. Recovery in full swing 2.1. Residential 3.1. Effective Housing 4.1. Housing prices 6.1. Madrid 7 construction demand 37 5.1. Rental market 53 15 27 45 1.2. Rising job creation 4.2. Housing accessibility 6.2. Barcelona and prices holding 2.2. Financing 3.2. Effective demand and financing terms 5.2. The residential real 56 back 19 profile and conditions estate investment market 10 30 40 50 6.3. Main 2.3. The land market cities 22 3.3. Overseas demand 59 33
Contents 3 EXECUTIVE SUMMARY
Consolidated growth and economic sentiment indicators suggests that banks are starting to mitigate risks. Current suggest that we have turned a corner in the property cycle, banking sector trends suggest a potential hardening of with consumption and investment set to continue driving financing terms and conditions on the back of both the recent aggregate demand. According to forecasts, the economy will European Court ruling and potential interest rate hikes. continue to expand between 2017 and 2019. Housing prices remain modest across Spain. The isolated Construction of new-build homes is below the levels seen price increases registered are due to the new-build segment, in the 1990s. However, the number of projects undertaken which is recovering given the lack of supply and buoyant has risen sharply, suggesting that housing production could demand. potentially recover over the next few years. Indicators suggest that housing accessibility has improved An intense deleveraging process has taken place across the significantly thanks to reduced prices and lower interest rates. board, with the sector seeing a major shift away from bank financing and towards alternative sources of financing. At the local level, prices in some markets are starting to climb sharply. Prices are rising thanks to stronger demand in In the land market, the demand for serviced development major cities such as Madrid and Barcelona, as well as some land has surged, an asset class that offers limited risk coastal areas. exposure. Demand for land is beginning to pick up again in certain areas, where prices starting to climb considerably. Renting is now an established housing option for a At the national level, prices are not expected to rise given the considerable number of people looking for a home. Higher vast quantity of supply. In the major cities, such as Madrid and demand has driven up the number of properties to let and Barcelona, there is no longer any quality supply on the market, professional companies have now started to focus their product a situation which could cause prices to spike in specific areas. offering on rental housing.
Housing demand is constantly growing in certain areas, The upturn in renting is helping to establish the residential mostly bolstered by the purchase of existing homes and market as a valid investment option. Buoyant demand and over faster-paced markets (large towns and coastal areas). The the upswing in rents are generating attractive gross yields that weighting of new-build housing has declined since the previous outstrip equivalent investment alternatives. expansive cycle, due to limited supply. The professional residential investment market booked The buyer profile has changed dramatically; they are now €2,100 million in 2016, tripling the volume recorded in more financially sound,no longer so reliant on mortgage previous years. loans, and is probably oriented to move up the property ladder, [extending/downsizing due to changes in household circumstances, relocating to a better area....] through their housing equity.
The mortgage market is growing, albeit very modestly. We are also seeing a shift towards fixed-interest loans, which
4 Key features of the Market and Residential Sector in Spain | CBRE Executive summary 5 1.1. RECOVERY IN FULL SWING
Continued GDP growth is a testament to just how much Spain’s economy recovered in 2016. The country’s latest GDP figure (3.2%) confirms that Spain’s recovery is indeed in full swing, despite the political impasse that overshadowed most of 2016 and the muted performance in neighbouring economies.
FIGURE 1a 1 GDP ANNUAL GROWTH SPAIN VS. EU MACROECONOMIC % Change 5.0
4.0 3.2 INDICATORS 3.0 1.8 2.0 1.0
0
(1.0)
(2.0)
(3.0)
(4.0)
(5.0) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
GDP (Spain) GDP UE-28
Source: Spanish Statitical Office, Eurostat, Oxford Economics
Despite current global uncertainty, economic sentiment indicators suggest that the key Spanish market players are now more optimistic in terms of future activity than their European counterparts.
These two indicators would suggest that the economy has come a long way in the last couple of years, and despite the challenges posed on the international stage (Brexit, Trump and the threat of terrorism), the financial crisis is now well and truly behind us.
6 Key features of the Market and Residential Sector in Spain | CBRE Macroeconomic indicators 7 FIGURE 1b FIGURE 2 ECONOMIC CONFIDENCE INDEX (SPAIN VS. EUROZONE) GDP GROWTH AND CONTRIBUTION OF OTHER FACTORS (% CONTRIBUTION TO AGGREGATE DEMAND) 120 % Contribution to GDP 110 3.00%
100 2.00%
90 1.00%
80 0.00%
-1.00% 70
-2.00% 60 2010 2011 2012 2013 2014 2015 2016 2017 -3.00%
Spain Eurozone -4.00% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Eurostat
Private Public Investment External GDP Consumption sector Demand
Since 2013, economic growth has been heavily influenced by Source: Spanish Statitical Office, Eurostat stagnating prices and wages, and by favourable financing terms and conditions.
As a result, private consumption and capital investment have been key in underpinning economic growth. Over the last 12 quarters, private consumption and investment in goods and equipment have accounted for an average of 55% and 41% of quarterly growth in aggregate demand respectively.
Meanwhile, robust external demand has also contributed heavily to economic growth. Increased competitivity of Spanish goods and services, due to low wages, and the positive growth in tourism helped to bolster the country’s trade deficit balance. 55% 41% Private Capital Investment Consumption
8 Key features of the Market and Residential Sector in Spain | CBRE Macroeconomic indicators 9 1.2. Regulatory reforms have played a major role in lowering unemployment levels and expanding the workforce. The high JOB CREATION ON THE RISE number of temporary work contracts, severe wage cuts and high unemployment rates among certain demographics (young people AND PRICES HOLDING BACK and women) remain some of the main challenges facing the Spanish economy. Job creation is the clearest sign that the Spanish economic recovery is in full swing. At YE 2016, the unemployment rate broke below the Rising employment levels are not, for the time being, creating 20% barrier for the first time in 6 years, and the trend during the first inflationary pressures. Stagnating wages and sliding oil prices since months of this year suggests that it could hit circa 17% by the end of 2014 fuelled negative growth throughout most of 2015 and 2016. 2017.
FIGURE 3 FIGURE 4 UNEMPLOYMENT RATE SPAIN VS. EUROZONE CPI SPAIN VS. EUROZONE
% Unemployment rate % Y-o-Y VARIATION 30.0 17% 4.0 Forcasted
25.0 unemployment 3.0 rate for YE 2017
20.0 2.0 18,6 15.0 1.0
10.0 9,5 0
5.0 (1.0)
0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (2.0) 2010 2011 2012 2013 2014 2015 2016 2017
Spain Eurozone Spain Eurozone
Source: Spanish Statitical Office, Eurostat & Oxford Economics Source: Spanish Statitical Office, Eurostat
10 Key features of the Market and Residential Sector in Spain | CBRE Macroeconomic indicators 11 However, prices started to pick up during the first few months of 2017 The economy will continue to generate employment. The as a result of the increase in oil and electricity prices. unemployment rate is forecast to reach 13-15% by 2020, meaning that between 360,000 and 400,000 jobs are expected to be created Economic forecasts suggest that this growth will hold for the next 3 each year. Lastly, despite the upturn during Q1, forecasts still suggest years owing to sluggish market fundamentals. According to estimates that any price increases will be minimal. The y-o-y CPI rate is published by the Bank of Spain (March 2017) and the IMF (April expected to come in at circa 2.2-2.4% by YE 2017, with moderate 2017), Spanish economic growth will continue to exceed 2% between growth expected up until 2019. 2017 and 2019. This growth will be driven by continued strong domestic consumption and sustained investment levels.
MACRO-ECONOMIC FORECASTS Bank of Spain (March 2017) 2017 2018 2019 Between 360 K GDP (Constant Prices) 2.8 2.3 2.1 & CPI 2.2 1.4 1.6 Unemployment rate (year-end) 16.7 15.4 13.9 IMF (April 2017) 400K 2017 2018 2019 Annual New Jobs GDP (Constant Prices) 2.6 2.1 2.0 CPI 2.4 1,4 1.5 Unemployment rate 17.7 16.6 15.8
12 Key features of the Market and Residential Sector in Spain | CBRE Macroeconomic indicators 13 2.1. RESIDENTIAL CONSTRUCTION
The bursting of the housing bubble at the end of 2007 sparked a dramatic slowdown in new-build construction. Between 2007 and 2016, the number of homes completed slumped from 615,000 to 42,000, equating to almost 15 times less productivity in the sector. This slowdown was triggered by the sharp drop in demand, the large amount of unsold new-build stock that started to build-up, and the hardening of financing terms and conditions, factors which put the lion’s share of developers and contractors of all sizes that had flourished during the boom years out of 2 business. In the current market climate, new-build production is insufficient to HOUSING SUPPLY satisfy current levels of demand, despite the large volume of unsold housing stock. In recent years, buyers have been taking up a large part of the surplus generated during the expansive phase of the property cycle. However, current production still falls considerably short of levels recorded K during previous cycles. Completed new-build constructions currently stand 42 at a quarter of the average figure registered in the 1990s. Homes completed in 2016
FIGURE 5 COMPLETED HOUSING (OPEN MARKET AND SUBSIDISED)
Number of completed Homes Average 2004-08 700,000 618k
600,000
500,000
400,000
Average 1991-99 300,000 267k
200,000
Average 2013-16 100,000 51k
0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Spanish Development Ministry
14 Key features of the Market and Residential Sector in Spain | CBRE Housing supply 15 New-build construction is mostly focused on markets where demand FIGURE 7a is more solvent. Large cities such as Madrid and Barcelona, as well as CONSTRUCTION PERMITS (2012-2016) the Mediterranean provinces, which benefit from established overseas demand, account for more than half (51%) of new-build production. Num Construction Permits 70,000 43% 50%
40% FIGURE 6 60,000 29% COMPLETED HOUSING (OPEN MARKET AND SUBSIDISED (VPO)). 30% DISTRIBUTION BY PROVINCE (2016) TOTAL =41,323 50,000 20%
10% Madrid 40,000 2% 23% 50% 30,000 -10% -22% 20,000 -20%
-30% Other Provinces 10,000 -40% 49% Alicante -44% 0 -50% 10% 2012 2013 2014 2015 2016
Single Family Home Block housing % Y-o-Y Variation (right)
Barcelona Source: Spanish Development Ministry
Valencia 8% Málaga Baleares However, the levels from which new-build housing production is 5% recovering are extremely low. However, it must be noted that many 2% 3% of the new-build projects where construction has recently begun, were actually approved some time ago. In fact, the number of construction Source: Spanish Development Ministry permits granted in 2016 (64,000) is proof that housing production remains insufficient.
Leading indicators for new-build construction show that production levels are bouncing back. In 2016 and 2015, the number of new-build construction permits granted grew by 29% and 43% respectively, a clear sign of recovery. 64k Construction permits granted in 2016, suggests that housing production remains insufficient
16 Key features of the Market and Residential Sector in Spain | CBRE Housing supply 17 FIGURE 7b 2.2. CONSTRUCTION PERMITS; MAIN CITIES FINANCING Construction Permits Y-o-Y variation 18,000 90% Traditionally, the real estate development market requires 78% considerable financial investment and tends to be more highly 16,000 80% leveraged than in other sectors.
14,000 70% In the last 5 years, the reduction in bank financing has been one 58% of the main culprits behind the slowdown of new-build production. 12,000 48% 60% Nevertheless, the deleveraging of the sector and the search for 47% alternative sources of financing has created a new, more sustainable 10,000 45% 44% 50% market environment.
8,000 40%
National average 2016 6,000 30% 22%
4,000 13% 20% FIGURE 8a OUTSTANDING DEBT IN THE CONSTRUCTION SECTOR (DEBT/ASSET RATIO) 2,000 10% Deb /Asset Ratio (%) 0 0% Madrid Barcelona Alicante Málaga Vizcaya Zaragoza Sevilla Valencia 300%
2016 2015 % Y-o-Y variation
Source: Spanish Development Ministry 250%
According to forecasts, new-build production is set to increase, and 200% this should place production levels more in line with current demand. The recovery is being felt in the more fast-paced markets. The number of construction permits granted in 2016 was far higher in the 150% provinces of Madrid [48%], Barcelona [45%] and Malaga [47%] than the national average [29%]. In other markets such as Bilbao, Seville, Zaragoza and Valencia, housing production has also started to pick up at differing rates. 100%
In our view, new-build housing construction has good upside
potential. The current levels of new-build demand [see Fig. 12b] and 50% the limited market supply are clearly correlated. A large number of potential buyers looking for new-build properties are simply not 48% finding it. annual growth 0% in the number of 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 construction permits Source: Bank of Spain granted in Madrid province
18 Key features of the Market and Residential Sector in Spain | CBRE Housing supply 19 FIGURE 8b FIGURE 9 VOLUME OF BANK FINANCING GRANTED TO THE REAL NO. OF MORTGAGE LOANS OVER URBAN LAND VS. URBAN LAND TRANSACTIONS ESTATE AND CONSTRUCTION SECTORS
Billions Eur Transactions
350 25,000 300
250 20,000
200 15,000 150
100 10,000
50
0 5,000 2002 2003 2005 2007 2009 2010 2012 2014 2016
0 Construction Real Estate Management 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Bank of Spain Mortgage Loans over Urban Land Urban Land Transactions
Source: Spanish Development Ministry and Spanish Statistical Office based on Property Registry data According to figures released by the Bank of Spain, the volume of bank financing granted to the real estate sector was cut by two thirds between 2009 and 2016, from €322,000 million to €124,000 million. This reduction in financing has given rise to an intense Furthermore, the figures indicate that securing bank financing for land deleveraging process across the sector. According to the Bank of purchases is once again becoming a rarity. In 2004, the number of Spain’s Central Balance Sheet Data Office, the outstanding debt in loans granted for urban plots of land ready for development (39,900) the construction sector [measured as a ratio of debt/on-balance sheet represented just 46% of urban land transactions (86,000). In 2016, this assets] stood below 190% in 2015, meaning that the level of debt in ratio stood at 39%. This demonstrates that financing for land acquisitions the construction sector is at similar levels to those seen in the early is returning to levels seen during the last property cycle, and this would 2000s. suggest that the sector’s growth is more sustainable.
In recent years, the sector has seen a shift towards alternative The outlook for the sector suggests greater sustainability in terms of financing, secured via sources other than banks. Some of these financial resources. The (as yet unresolved) uncertainties surrounding the alternatives involve corporate solutions, such as joint ventures banking sector will continue to curb the growth of bank loans as a source with capital injections from companies, profit-sharing projects, of financing in the sector. In recent years, these risks are being offset by cooperatives, etc. In some cases, there is a search for institutional the arrival of new foreign capital, via funds that directly invest in properties shareholders, followed by stock market listings, as was the case with and/or have direct stakes in corporate structures. 39% NEINOR Homes in March 2017. Of 2016’s urban land Over the next few months, it is anticipated that the capital inflow from transactions were The search for alternatives to bank financing is clearly demonstrated direct or indirect foreign investment will continue to play a major role financed through by the dramatic decline in the number of mortgage loans granted for in the sector, albeit to a lesser extent than during the last two years. land purchases [6,700 loans in 2016, down from 55,000 in 2006] The search for real estate investment capital may start to shift towards mortgage loans institutional markets, as shown by the intentions of some key players to list on the stock market (Via Célere and AEDAS Homes).
20 Key features of the Market and Residential Sector in Spain | CBRE Housing supply 21 2.3. As well as the sector’s major players, the banks and SAREB also still have considerable land banks. Figures released by the Bank of THE LAND MARKET Spain indicate that in 2016, the amount of land on banks’ books was valued at €31,500 million, whilst SAREB’s land portfolio was valued at €4,200 million, with a large part of this land in the planning Demand for land over the last three years has been focused mainly, process. In the medium term, the land market’s performance will and almost exclusively, on serviced development land. The most largely depend on the pace at which these two players manage their active players on the market are avoiding projects involving planning portfolios. and land management in order to minimise any political-structural risks associated with a plot of land over time. The supply of serviced During the last few months of 2016 and the first few months of 2017, development land at the national level and the limited financing the land market has seen heightened levels of activity. The total available are not conducive to developing long-term strategies. number of urban land transactions registered in 2016 (17,400) was up by just over 10% on 2015, whilst sales and purchases completed The lack of bank financing for acquiring land has created a new by companies (6,367 in 2016) equated to a 13% y-o-y increase. playing field for the market’s key players. The players with equity or immediately available capital are currently the most active, able to identify opportunities and close deals.
As a result, different types of players are breaking onto the scene. On the one hand, the more traditional players [Metrovacesa Suelo y Promoción, Realia, Acciona etc.] hold significant land banks among their assets, albeit at various stages of development. Whilst on the other, the new players [Aedas Homes, Neinor Homes, Via Célere, Q21 Real Estate, AELCA etc.] are building significant serviced development land portfolios, thanks to the capital being injected by international investment funds.
Land Bank Company Assets (€M) –Est.– (Milion. sqm) +13% Realia 2,011 1.85 2016 increase on urban land purchases from Metrovacesa Suelo y Promoción SA 1,375 2.3 developers and property Reyal Urbis 1,234 6.7 companies
Neinor Homes 1,120 1.03
Aedas Homes 1,100 1.35
Via Célere/Dospuntos 704 1.0
Total 8,494 14.23
Source: Annual Reports (2016 and 2015).
22 Key features of the Market and Residential Sector in Spain | CBRE Housing supply 23 FIGURE 10 FIGURE 11 URBAN LAND TRANSACTIONS VARIATION IN URBAN LAND PRICES BY PROVINCE (€/SQM) (MAXIMUM-MINIMUM 2004-2016) Num. Transactions €/sqm 20,000 700 18,000 17,396 600 16,000 500 14,000 400
12,000 300
10,000 200
8,000 6,367 100 6,000
–
Jaén León Lugo Ávila Soria Teruel Lleida Álava
4,000 Cádiz Toledo Sevilla Burgos Huelva Murcia Girona Huesca Madrid Cuenca Málaga Zamora Almería La Rioja Cáceres Asturias Segovia Alicante Vizcaya Badajoz Palencia Baleares Ourense Valencia Navarra Albacete Córdoba Castellón Granada A Coruña Zaragoza Barcelona Valladolid Cantabria Tarragona Las Palmas Guipúzcoa Pontevedra Salamanca
2,000 Ciudad Real Guadalajara
0 2011 2012 2013 2014 2015 2016 Santa Cruz de Tenerife 4Q 2016 Avg. Urban Land Price (€/sqm) Corporate Purchaser Urban Land Transactions Source: Spanish Development Ministry Source: Spanish Development Ministry
In certain local markets, demand for serviced development land is According to figures published by the Spanish Development Ministry, pushing up prices due to both the lack of this type of land on the in Q4 2016 the average price of an urban plot of land in provinces market and housing demand forecasts. such as Madrid, the Balearic Islands and Malaga stood at 27%, 36% and 40% respectively versus the average of the studied period (between the maximum and minimum from 2004-2016), suggesting that demand is rising in these areas.
The land market forecasts for the coming months indicate that we will continue to see demand for serviced development land, especially in the markets where there is greater new-build housing activity. Despite the uptick in demand for land in certain locations, no significant price increases are expected across Spain, given that the volume of potential supply remains relatively high. In addition, following the recent regulation regarding properties on banks’ balance sheets – Bank of Spain Circular No. 4/2016, 27 April 2016 et. seq (November) – a significant amount of product could come onto the market over the next few months and further dampen the prospects of any possible price increases.
24 Key features of the Market and Residential Sector in Spain | CBRE Housing supply 25 3.1. EFFECTIVE HOUSING DEMAND
The heightened effective housing demand is also a sign that the economic recovery is in full swing. Over the last three years, the number of housing sales closed has continuously grown for 12 consecutive quarters, reaching 457,000 transactions per year at YE 2016.
FIGURE 12a 3 % VAR. IN HOUSING TRANSACTIONS % Y-o-Y HOUSING DEMAND variation
30%
20%
10%
0%
(10)%
(20)%
(30)%
(40)%
2005 2007 2009 2011 2012 2014 2016
Source: Spanish Development Ministry
Current housing demand, which is still a far cry from the levels recorded during the expansive phase of the property cycle (950,000 units per year in 2006), substantially improved y-o-y.
26 Key features of the Market and Residential Sector in Spain | CBRE Housing demand 27 FIGURE 12b FIGURE 12c HOUSING TRANSACTIONS (THOUSAND UNITS) DISTRIBUTION OF NEW-BUILD TRANSACTIONS BY PROVINCE (ANNUAL AVERAGE 2013-2016) TOTAL =51,879 Anual Average (thousands) Madrid 1,200 13% 1,000 Alicante 800
600 7%
400 Barcelona 200 Others 7% 0 56% 2004 2005 2007 2009 2011 2012 2014 2016 Málaga 5% New Housing Existing Housing Valencia 44% Almost half of Source: Spanish Development Ministry and Notary Publics 4% Sevilla the demand for Vizcaya 4% new housing concentrates in The lion’s share of housing demand is for existing properties, 4% pushing demand for new-builds down to almost insignificant levels. large metropolitan New-builds represented just 10% of the total transactions closed at Source: CBRE via the Spanish Development Ministry areas and the December 2016. The current lack of new-build housing supply is provinces of the main factor driving demand towards existing housing. However, Alicante and other factors such as location, price and property specifications are becoming increasingly important for new owners. Adding the tourist-based markets, such as the Mediterranean Malaga provinces (Malaga and Alicante =12%) and the islands (Canaries Effective housing demand is located in markets with greatest and Balearics =6%) to the prevalently urban markets, highlights that purchasing power: the metropolitan areas of the bigger cities metropolitan areas and coastal provinces with established tourism (Madrid, Barcelona, Valencia and Seville) and the provinces or sectors account for over 44% of new-build housing demand. regions with established tourism sectors (Malaga and Alicante).
Larger cities is where there is demand for new-build housing. In fact, the transactions completed in the 5 main provinces [Madrid, Barcelona, Valencia, Seville and Vizcaya] account for almost a third of all new-build transactions.
28 Key features of the Market and Residential Sector in Spain | CBRE Housing demand 29 3.2. Changes in household sizes and layout, as well as increased life expectancy are just a few of the factors that are impacting home EFFECTIVE DEMAND purchase decisions. The supply of new-build homes is adjusting to requirements of current trends, a good indicator of this is the increase PROFILE in the average size of new housing being built.
According to data published by the Spanish Development Ministry Various indicators suggest that current effective housing demand is regarding new-build permits, the average area approved in 2016 mainly the buyers looking to reposition. These buyers are generally (138 sqm) is over 17% larger than the average home size approved households with a purchasing power that requires little financing and in 2004. This trend of rising average spaces is true for both houses that are often seeking a property that meets their needs in terms of and apartments. space and/or location. FIGURE 12e Current housing demand is solvent, with buyers no longer so heavily reliant on bank financing to purchase a home. In 2016, AVERAGE BUILDING SURFACE mortgages were granted for around 60% of housing sales and PER HOUSING UNIT purchases (281,000). Meaning that at least 2 out of every 5 housing Avg. Size transactions were completed without any kind of financing. (sqm) 17% 210 198.3 average housing FIGURE 12d 190 surface increase for 159 HOUSING TRANSACTIONS / MORTGAGES GRANTED 170 new homes since 150 2004 Transactions and Mortgages thousands 130 117.1 102.4 1,600 110
90 1,400 70 1,200 50
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1,000
Single family Block 800 Source: Spanish Development Ministry 600
400 This effective and solvent demand is being met with a large and 200 varied supply, since the wide range of existing housing types available at affordable prices is broadening purchase options in terms of 0 location and space requirements. Faced with this, the new-build 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 development sector is competing by expanding spaces and improving Home Mortgages Housing transactions quality.
Source: Spanish Development Ministry and Spanish Statistical Office
30 Key features of the Market and Residential Sector in Spain | CBRE Housing demand 31 Despite Spain’s declining population, the number of households 3.3. continues to rise. The studies carried out by the Bank of Spain forecast a net average y-o-y increase in the number of households of between OVERSEAS DEMAND 63,000 and 238,000 over the next decade, as a result of changing social dynamics (smaller household sizes and people leaving home at Overseas housing demand has spiked in recent years, with a total a younger age). Bearing this trend, housing production forecasts and of 74,000 sales completed in 2016. This means that, at the national the improving jobs market in mind, CBRE’s 2017-2019 forecasts for level, 1 out of every 6 housing purchases in Spain involves an new-build demand stand at between 120,000 and 140,000 units per overseas buyer. year.
To a certain extent, housing needs for new households are now being FIGURE 13
pushed towards renting, given the increased supply of housing to let. % OF HOUSING TRANSACTIONS INVOLVING AN OVERSEAS BUYER OUT OF However, the continual growth in the number of households expected 1 6 1 out of 6 housing over the coming years poses a challenge to the sector. % of transactions with overseas buyer purchases in Spain involves an 18% 16% overseas buyer 16%
14%
12%
10%
8%
6%
4%
2%
0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Spanish Development Ministry via General Council of Spanish Notaries
The lion’s share of these buyers look to purchase property in provinces with an established tourist infrastructure. Five provinces, Alicante, Malaga, Tenerife, Las Palmas and the Balearic Islands, accounted for more than half of the annual average number of transactions carried out by overseas buyers between 2006 and 2016. In these markets, overseas buyers also represent a significant share of the overall market total, accounting for up to almost a third of completed transactions in some areas, such as Alicante.
32 Key features of the Market and Residential Sector in Spain | CBRE Housing demand 33 FIGURE 14a A considerable number of overseas buyers come from the United OVERSEAS DEMAND Kingdom. The new political landscape formed following the formal (ANNUAL AVERAGE 2006-16 = 54,500) start of the UK’s exit from the European Union in March 2017 could Alicante have a negative impact on this segment of demand.
22% Heavy fluctuations in the Sterling versus Euro exchange rate in recent months have caused the purchasing power of these normally Others solvent buyers to effectively decline by almost 20%. Meanwhile, the uncertainty over the legal status of British citizens residing in EU 33% countries is another factor slowing down decision-making.
Up until now, there have been no indicators to quantify what the
Málaga direct impact would be of these buyers potentially no longer forming part of the overseas buyer pool. That said, as with domestic demand, 11% UK buyers’ account for a significantly reduced share of new-build transactions [1,600 new-build purchases in 2016].
Since Q1 2017, the growth in demand from the UK has ebbed Tenerife Barcelona slightly. It would come as no surprise if the number of homes purchased by British citizens continued to fall throughout the year. 6% Murcia 8% Madrid Nonetheless, the number of overall transactions completed by 6% Baleares overseas buyers remains relatively high, suggesting that buyers from 8% other countries are increasing their weighting [Denmark, Sweden and 6% Norway].
FIGURE 14b % HOUSING TRANSACTIONS COMPLETED BY OVERSEAS BUYERS (ANNUAL AVERAGE 2006-16 = 54,500)
Spain
Almería 12%
Tarragona 12%
Murcia 17%
Las Palmas 20%
Málaga 24%
Girona 24%
Baleares 27%
Tenerife 30%
Alicante 35%
0% 10% 20% 30% 40%
Source: Spanish Development Ministry
34 Key features of the Market and Residential Sector in Spain | CBRE Housing demand 35 4.1. HOUSING PRICES
Up until now, the market recovery has not put housing prices under any significant pressure. The information published over recent quarters indicates a slight upward trend, largely due to spiking new- build prices.
FIGURE 15 4 HOUSING PRICE. INDEX 100=2007 HOUSING PRICES Index 110
100
90
80
70
60
50
40 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
New Housing Existing Homes
Source: Spanish Statistical Office
36 Key features of the Market and Residential Sector in Spain | CBRE Housing prices 37 According to statistics published by the Spanish Statitical Office, new- According to regulated valuations (tasaciones) completed by the build prices in Q4 2016 were up 13.7% on the all-time low recorded Spanish Development Ministry, in cities such as Barcelona and in Q2 2013, whilst the prices of existing homes climbed by 10.9%. Malaga, the price of new-builds is up 29% and 20% respectively, versus all-time lows. In other cities, such as Palma de Mallorca and However, the subdued variations in prices at the national level do not Bilbao, price increases compared to all-time lows are in line with the reflect the upturns that are being seen in some local markets, where national average calculated by the Spanish Statitical Office. demand is thriving and supply, especially of new-build housing, is very scarce. In contrast, the variation in existing housing prices, remains in line with national housing price growth levels. With the exception of In our view, housing price growth could gain traction during 2017, Barcelona, where existing housing prices have grown by 18%, in increasing by between 4% and 6%. Madrid (10.9%), Malaga (9.2%) and Palma de Mallorca (12.9%), price increases are on a par with those registered across the rest of Spain (10.9%). FIGURE 16a NEW-BUILD HOUSING PRICES BY CITY (€/SQM) In any event, price increases at a local level appear to be strongly (2010-2016) governed by a lack of new-build housing supply in some specific 4,000€ markets. Forecasts for new-build production over the coming months 3,500€ suggest that prices could well continue to trend upwards. However, these increases are expected to be less intense and are not expected 3,000€ to reach the levels seen during the peak of the last cycle. The current 2,500€ 29% profile of home buyers, the muted growth in the number of mortgage Prices of new-builds 2,000€ loans and the present level of housing accessibility, discount any 1,500€ possibility of excessive growth over the next few months. in Barcelona have 1,000€ increased since the 500€ all-time lows 0€
Palma de Madrid Barcelona Valencia Sevilla Málaga Zaragoza Bilbao Mallorca Q4 2016
Source: Spanish Development Ministry (Via Regulated Mortgage Valuations - Tasaciones)
FIGURE 16b EXISTING HOUSING PRICES BY CITY (€/SQM) (2010-2016)
4,000€ 3,500€ 3,000€ 2,500€ 2,000€ 1,500€ 1,000€ 500€ 0€
Palma de Madrid Barcelona Valencia Sevilla Málaga Zaragoza Bilbao Mallorca
Q4 2016
Source: Spanish Development Ministry (Via Regulated Mortgage Valuations - Tasaciones)
38 Key features of the Market and Residential Sector in Spain | CBRE Housing prices 39 4.2. Despite a decline in recent years, the accessibility rate has been steadily growing since the start of 2013, when 6.39 was recorded, as HOUSING ACCESSIBILITY a result of wage cuts and the slight increase in housing prices. AND FINANCING TERMS In absolute terms, the accessibility rate is still at relatively high levels, which forces an important segment of buyers out of the housing AND CONDITIONS market (single parent homes, first-time buyers, etc.).
In contrast, the achievable mortgage effort rate stands at much Housing accessibility indicators and the mortgage effort rate more reasonable levels than during the expansive phase, despite have adjusted considerably over the last 5 years, reaching more the elimination of income tax deductions (2013). Current interest sustainable levels than during the expansive phase of the cycle. rates for mortgages, combined with a reduction in financing being provided by banks, has driven this ratio down over the last 3 years (100bp since January 2013). 6.7 Years is the current FIGURE 17 Mortgage rates in recent years, as well as the shift among buyers accessibility rate in ACCESSIBILITY RATE AND MORTGAGE BURDEN towards financing that is less exposed to the volatility of financial Spain markets, confirm that the market is moving towards a more Mortgage payment / Home Price / Disposible sustainable model. Gross Income (%) Income (Years)
70 10 FIGURE 18
60 9 AVERAGE MONTHLY MORTGAGE RATE
8 Mortgage Rate 50 (%) 6,7 7 6.0 40 6 30 33,4 5.0 5
20 4.0 4
10 3 3.0
0 2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2.0
Mortgage burden (Left) Home accesibility rate (right) 1.0 Source: Bank of Spain
0 2009 2010 2011 2012 2013 2014 2015 2016
The accessibility rate, expressed as the number of full years’ salaries Land Registers BoS required to pay for an average home stood at 6.7 years at the Source: Spanish Statistical Office and Bank of Spain end of 2016, versus the almost 9 reached during the boom years. During the same period, the mortgage effort rate, expressed as the difference between the monthly mortgage repayment before deductions and gross household income, stood at 33.4% of gross disposable income, compared to more than 50% in 2008.
40 Key features of the Market and Residential Sector in Spain | CBRE Housing prices 41 FIGURE 19b The difference between the effective mortgage rate (according SPREAD BETWEEN FIXED AND VARIABLE to Property Registry entries) and the average mortgage loan rate MORTGAGE RATES granted to households to purchase a home according to the
information presented by banks to the Bank of Spain, highlight a Morgage rate (%) 100bp gap that has remained virtually unchanged since 2013. This would suggest, among other things, that the banks are exercising 8.0 caution when it comes to valuing credit risk and granting mortgages to households. 7.0
The amount of fixed interest mortgage loans has significantly grown 6.0 since 2015, now accounting for 38% of all financing granted. The considerable narrowing in the gap between the interest rates for 5.0 these loans, compared to variable rates is fuelling this trend. 4.0
FIGURE 19a 3.0 TOWARDS FIXED-INTEREST MORTGAGE LOANS % of Total 2.0 Mortgage Signed 1.0 45 40 38.3 0 2009 2010 2012 2013 2014 2015 2016 2017 35
30 Fixed rate Variable rate 25 Source: Spanish Statistical Office (Via Land Registry) 20
15
10 According to Property Registry figures, the credit market for housing 5 purchases is now favouring minimising risk. The shift towards fixed- 0 rate products reduces exposure to monetary market volatility and a 2012 2013 2014 2015 2016 2017 possible reversal of the ECB’s expansive policy. The new products launched by the banking sector in recent months offer rates of between 1.4% and 1.9% for 10 and 30-year mortgages respectively. Source: Spanish Statistical Office (Via Land Registry) The narrowing of the gap between fixed-rate and variable-rate products (22bp on average between March16 and February 17) suggests, among other things, stability in terms of mortgage interest rates over the coming months.
Forecasts do not suggest there will be any major variations in accessibility levels over the next few months. This said, financial effort rates may be affected by a hardening in financing terms and conditions. The recent European court rulings with regard to the mortgage floor clauses and deposits are hardening access, still just 38% moderately, to mortgage loans. Mortgages granted are on a fixed- interest rate
42 Key features of the Market and Residential Sector in Spain | CBRE Housing prices 43 5.1. RENTAL MARKET
Although Spain remains a more home-owner based market, the rental segment is growing steadily. The number of households renting (as a rental market tenant or via assignment) rose from 19.5% in 2007 to more than 22% in 2016. Nevertheless, the number of households renting in Spain remains very low compared to neighbouring countries. Therefore, there is still significant upside potential for the rental market and its establishment as a go-to 5 option. FIGURE 20a RENTAL HOUSING RENTAL MARKET
% of housing AND THE RESIDENTIAL to rent 23 22.2 INVESTMENT MARKET 22 21
20
19
18
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Eurostat
44 Key features of the Market and Residential Sector in Spain | CBRE Rental housing and the residential investment market 45 FIGURE 20b FIGURE 21a % OF HOUSING TO LET VS. TOTAL IN THE MAIN AVERAGE RENTAL PRICES IN MADRID AND BARCELONA EU COUNTRIES Avg. monthly rent (€/sqm)
19 Germany 48.1% 17.9 € 18 United Kingdom 36.5% 17 16 France 35.9% 15 14.4 € Eurozone 33.6% 14 (19 countries) 13 Italiy 27.1% 12
Portugal 25.2% 11 10 Spain 21.8% 2010 2011 2012 2013 2014 2015 2016
Source: Eurostat Madrid Barcelona Source: Idealista
Household mentalities towards renting have changed due to greater job mobility and the elimination of tax incentives for purchasing FIGURE 21b homes. However, above all, renting has provided an alternative % RENTAL VARIATION FOR THE CENTRAL DISTRICT (MADRID) to homeownership, especially for population groups with low- AND CIUTAT VELLA (BARCELONA) purchasing power (first-time buyers, single people and single-parent families) who during the last expansive cycle found themselves forced Y-o-Y Var % out of the homeownership market. 25% Rental housing supply has increased significantly during the last 20% few years due to regulatory changes. Modifications to the Spanish Landlord & Tenant Act (LAU - Ley de Arrendamiento Urbano) to 15% simplify the eviction process have reduced the perception of risk that landlords traditionally associated with renting. However, banks have 10% fuelled this increase in supply via their management strategies for foreclosed properties. Mortgage default negotiations and the deed 5% in lieu proposals for foreclosed homes explain why banks such as 0% CaixaBank, Santander and Sabadell are among the largest landlords in Spain. (5)%
During the last 18 months, strong demand for rental housing and (10)% other higher yielding renting alternatives such as tourist letting have 2011 2012 2013 2014 2015 2016 2017 been putting upward pressure on rents in major cities. According to figures published by Idealista, in 2016 the average rent in Madrid Ciutat Vella (Barcelona) Central disctrict (Madrid) and Barcelona increased by 15.6% and 16.5% to €14.4 and €17.9 Source: Idealista per sqm/month respectively.
46 Key features of the Market and Residential Sector in Spain | CBRE Rental housing and the residential investment market 47 The tourist districts of Madrid’s city centre and Barcelona’s Ciutat The changing face of this market, along with the robust demand and Vella are experiencing the most upward pressure on rents. Rental rental increases is pushing up yields. The average yield of a rented prices in Madrid have been rising sharply for the last 18 months, home traditionally stood at around 2.5-3%. However, according while in Barcelona signs of upward pressure on rental prices started to figures released by the Bank of Spain, at the start of 2017 the to emerge 6 months earlier. average gross yield came in at 4.3% y-o-y, well above conservative alternative investments, such as the stock market (IBEX35) or sovereign debt (10-year bond). FIGURE 22 GROSS YIELD: RENTAL HOUSING VS. ALTERNATIVE As a result, housing has entered onto the radar of small investors INVESTMENTS who traditionally perceive it as a safe asset class, one that today even produces attractive yields. A large share of the buyers looking to % Yield % Y-o-Y Index variation purchase housing are likely highly drawn by the potential yields that housing can generate as an investment option. 7.0 50 Nevertheless, the rental housing segment poses significant challenges 40 6.0 for the upcoming years. On the one hand, the management and 30 regulation of new forms of leasing; short-term leases, holiday 5.0 4,36 20 lettings- etc. As previously indicated, these segments are putting 4.3% upward pressure on rental prices, mainly in cities’ tourist districts. 10 4.0 Some City Councils have started to regulate this business activity in Average annual 0 order to protect certain areas. In our view, this business activity should gross yield for 3.0 -10 be aligned at the national level, both in fiscal and regulatory terms, rental housing at with other existing hotel activities in order to protect not only the free -20 2.0 market, but also free competition. the start of 2017 -30 1.0 -40 In addition, the Spanish rental market is an extremely fragmented and a very non-professional sector. The number of property owners 0 -50 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 with large rental housing portfolios is relatively small; the vast majority of stock belongs to individuals or small rental property Gross profitability housing (left) 10 year Spanish bond (left) IBEX 35 (Right) companies. Furthermore, the service infrastructure in this sector (agents, managers, brokers, maintenance services, boards of Source: Bank of Spain arbitration, etc.) is still limited.
48 Key features of the Market and Residential Sector in Spain | CBRE Rental housing and the residential investment market 49 5.2. In 2016, the estimated amount of real-estate investment in the THE RESIDENTIAL REAL residential segment hit €2,100 million, up over 300% y-o-y. Two transactions (the SOCIMI Merlín Properties’ acquisition of ESTATE INVESTMENT MARKET the Creta portfolio as part of the merger with Metrovacesa and Blackstone’s acquisition of Banco de Sabadell’s Empire portfolio) Housing is now seen as an attractive investment option, even by accounted for 75% of the market’s total investment volume. institutional investors. The uncertainty of sovereign debt and stock market volatility has pushed many investors to diversify their portfolios Discounting these two transactions, in most cases residential investors into the residential real-estate segment. Yields are higher compared are formal vehicles (SOCIMIs or rental property portfolio companies) to those of other alternative assets and the potential value uplift, that are Spanish (60% of investment volume in 2016) and looking for although still moderate, remains very attractive. an asset that generates immediate returns, but that has medium-term value uplift potential. Transactions are small-medium sized (between All of this has greatly spurred residential real estate investment €10 million and €15 million). Sellers are generally Spanish and either among investment funds and other investment vehicles, as shown by banks, small property companies or private owners. the growing number of transactions and the rising investment volume seen over recent months. As mentioned previously, the housing rental market is still a fairly non-professional sector and the interest being shown by major 75% international funds (with the exception of Blackstone) has not FIGURE 23 Two transactions translated into any major deals or the creation of large portfolios. RESIDENTIAL INVESTMENT IN SPAIN Therefore, the residential investment segment holds many accounted for 75% of the market’s € millions opportunities yet to be explored. total investment 2,500 € volume
2,000 €
1,500 €
1,000 €
500 €
0 € 2013 2014 2015 2016 Q1 2017
Source: CBRE
50 Key features of the Market and Residential Sector in Spain | CBRE Rental housing and the residential investment market 51 6.1. MADRID
Madrid’s housing market has hit cruising speed, and its effect is rippling out to the rest of the city. The Rising demand in areas with the greatest purchasing power following the drop in prices has been a major factor in reactivating the city’s housing market. Since 2009, the number of housing sales has jumped considerably in the neighbourhoods of Salamanca, Chamberí and Retiro. This demand currently remains at relatively high levels (between 2,200 units sold per year in Chamberí and 1,800 units in Retiro), indicating just how buoyant these micro markets are.
6 FIGURE 24a MADRID HOUSING DEMAND IN DISTRICTS WITH MARKETS IN THE HIGHER PURCHASING POWER
Average anual MAIN CITIES transactions
2,000
1,500
1,000
500
0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Salamanca (Madrid) Chamberi (Madrid) Chamartín (Madrid)
Source: Statistics from Notary Publics
52 Key features of the Market and Residential Sector in Spain | CBRE Markets in the main cities 53 FIGURE 24b FIGURE 24c MADRID HOUSING DEMAND IN DISTRICTS WITH LOWER HOUSING PRICES BY DISTRICT (MADRID) PURCHASING POWER (2007-Q3 2016)
Average anual Average price (€/sqm) transactions 6,000 € 1,400
1,200 5,000 €
1,000 4,000 € 800
600 3,000 €
400 2,000 € 200 1,000 € 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
0 € Villaverde (Madrid) Vicalvaro (Madrid) Retiro Usera Latina
Barajas (Madrid) Tetuan Centro Barajas San Blas Vicálvaro Hortaleza Chamberí Villaverde Moratalaz Chamartín Fuencarral Salamanca Arganzuela Carabanchel Source: Statistics from Notary Publics Ciudad Lineal Villa de Vallecas Villa de Vallecas Moncloa-Aravaca Q3 2016 Puente de Vallecas
Since 2014, demand has rippled out to other areas of the city. In the districts with Source: Statistics from Notary Publics a lower purchasing power (Villaverde, Vicálvaro and Barajas), housing sales have also grown significantly over recent quarters. However, activity in these areas is considerably lower (Barajas and Vicálvaro registering 600 transactions per year). Prices (both for new-build and existing housing) have increased notably in districts where the demand is greater, and which are traditionally more expensive in any case. In districts such as Salamanca and Chamartín, which are traditionally the most expensive, housing prices in Q3 2016 stood midway between the maximum and minimum of the last 10 years.
According to notary publics figures, demand in periphery districts, such as Puente Vallecas, Villaverde and Usera does not, for the time being, look set to raise prices significantly. Other sources, such as Idealista, also confirm that prices, as a result of the amount of supply on the market, edged up in these districts through Q4 2016.
Nevertheless, since the beginning of 2017, strong demand has started to drive up the price of new-builds. In districts such as Hortaleza (Valdebebas) and Villa de Vallecas (PAU de Vallecas) prices are rising significantly and are likely to continue doing so.
54 Key features of the Market and Residential Sector in Spain | CBRE Markets in the main cities 55 FIGURE 25b 6.2. BARCELONA. HOUSING DEMAND IN DISTRICTS WITH LOWER BARCELONA PURCHASING POWER Average anual In Barcelona, unlike Madrid, demand is more spread out across all transactions the city’s districts. 2,000 There is a strong effective demand (average in terms of transactions) 1,800 in districts such as Eixample (Ensanche) and Ciutat Vella (Centro), 1,600 with the number of housing sales constantly increasing since 2011 1,400
1,200 FIGURE 25a 1,000 BARCELONA. HOUSING DEMAND IN DISTRICTS WITH HIGHER 800 PURCHASING POWER 600
Average anual 400 transactions 200 4,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 3,500
3,000 Ciutat Vella (Barcelona) Nou Barris(Barcelona) 2,500 Sants-Montjuïc (Barcelona)
2,000 Source: Statistics from Notary Publics
1,500
500 In other districts (Sarrià, Gracia, Sants and Nou Barris) demand is 0 ticking up at a more moderate rate and at much lower levels (at Q3 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2016 Sarrià = 1,100 and Nou Barris = 1,426 units per year).
Gràcia (Barcelona) Sarrià-Sant Gervasi (Barcelona) The more uniform nature of Barcelona’s market is reflected in Eixample (Barcelona) housing prices from area to area and their performance throughout the cycle. At Q3 2016, prices in Barcelona’s most expensive districts, Source: Statistics from Notary Publics Sarria and Eixample, stood halfway between the maximum and minimum for the 2007-2016 property cycle.
56 Key features of the Market and Residential Sector in Spain | CBRE Markets in the main cities 57 FIGURE 25c HOUSING PRICES BY DISTRICT (BARCELONA) 6.3. (2007-Q3 2016) MAIN CITIES 7,000 €
Housing demand is beginning to gain traction in Spain’s main cities. 6,000 € However, for the time being the healthy demand has not put any upward pressure on prices.
5,000 € In cities on the Islands, such as Palma de Mallorca, Santa Cruz de Tenerife and Las Palmas, the y-o-y increase in the number of sales and purchases (31%, 25% and 23% respectively) is a sign 4,000 € that effective housing demand is bouncing back. Cities on the Mediterranean coast, such as Malaga (16%), Alicante (19%) and Valencia (23%), have also experienced a considerable increase in 3,000 € demand. Figures suggest that the market will perform positively, likely spurred by robust overseas demand.
2,000 €
1,000 € FIGURE 26a HOUSING TRANSACTIONS IN THE MAIN CITIES
- € Transactions
Gràcia 10,000 Les Corts Eixample Sant Martí Nou Barris 9,104 Ciutat Vella Sants Andreu
Sants-Monjuïc 9,000 Horta Guinardó Q3 2016 8,000 Sarrià-Sant Gervasi 6,796 Source: Statistics from Notary Publics 7,000 5,990 5,523 6,000 5,306 5,000 4,586 Prices in Barcelona’s most peripheral neighbourhoods, Nou Barris, Sants and Sant Andreu, may not have reached high levels, but they 4,000 3,625 have broken above the cycle’s lows, indicating demand has turned a 3,000 2,604 corner and is impacting prices. 2,000 1,159 Since the beginning of 2017, prices have risen sharply across all 1,000 districts. 0 Málaga Sevilla Zaragoza Palma de Las Palmas Santa Alicante Valencia Bilbao Mallorca de G.C. Cruz de Tenerife
2014 2015 2016
Source: Statistics from Notary Publics
58 Key features of the Market and Residential Sector in Spain | CBRE Markets in the main cities 59 According to figures released by the Spanish Development Ministry, as yet the increased demand has not put any upward pressure on prices. Not one of the three cities registering the highest growth in terms of demand (Palma, Alicante and Valencia) have seen any upward movement in prices.
It is possible that segmentation criteria applied to the Ministry’s statistics for new-builds - housing less than five years old - does not reflect the upturn seen in terms of new-build housing since H2 2016. Our market view does not coincide with this trend. CBRE’s hands-on experience in sales-marketing of developments in Valencia, Alicante, Zaragoza and Bilbao shows that there have been significant spikes in new-build housing prices, particularly sharp in some cities [Valencia and Alicante].
FIGURE 26b FIGURA 26C AVERAGE PRICE OF NEW-BUILD HOUSING (€/SQM) MAIN CITIES AVERAGE PRICE EXISTING HOUSING (€/SQM) MAIN CITIES
Average price Average price (€/sqm) (€/sqm) 3,000 2,500
2,500 2,000
2,000
1,500 1,500
1,000 1,000
500 500
0 0 Alicante Zaragoza Valencia Las Palmas Málaga Sevilla Palma de Bilbao Alicante S. C. de Valencia Zaragoza Málaga Las Palmas Sevilla Palma de Bilbao de G.C. Mallorca Tenerife de G.C. Mallorca
2014 2015 2016 2014 2015 2016
Source: Spanish Development Ministry Source: Spanish Development Ministry
The forecasts for these cities also suggest that current demand will experience further growth. There are no signs to suggest a significant upturn in existing housing prices in areas further out from city centres. Prices of new-build housing could spike further, if supply in city centres remains at current limited levels.
60 Key features of the Market and Residential Sector in Spain | CBRE Markets in the main cities 61 CONCLUSIONS
The housing market has changed dramatically in recent the urban landscape of cities, hence why it is important to satisfy a years, and this has allowed the market to correct some of the good proportion of current demand with a higher percentage imbalances caused by the last expansive cycle. The market’s of new-build properties. current supply and demand dynamics are proof that this correction is indeed taking place and that the recovery is in full On the other hand, accessibility to housing could be affected by swing. the price increases being seen in certain markets and by the hardening of financing terms and conditions. Public housing The new players entering the real estate development policies have focused strongly on rental housing in recent years and market are less dependent on mortgage financing this market would benefit if they were to turn their attention back and this is allowing them to acquire large banks of serviced towards homeownership. development land. These players also appear to be adjusting their product type to suit the effective needs of today’s buyers.
Current effective housing demand is also less dependent on mortgage financing, indicating that buyers now have a greater understanding of the risks involved in taking out a mortgage. Meanwhile, the growing rental market has provided an alternative solution for buyers unable to get a foot on the property ladder.
These processes suggest that the market is starting to grow amid a more sustainable environment, and that the imbalances caused by the market slowdown seem to have been confined to the past.
Housing has now become an attractive investment option. Higher yields on rental properties in the last three years have been driven by the significantupswing in demand. Housing as an investment option, is not only now catching the eye of small-scale owners, but it is also drawing in institutional investors (Funds and REIT) who are beginning to diversify their portfolios in favour of this asset class.
However, the residential market will face various challenges over the course of the next few years. On the one hand, new-build housing production is currently at extreme lows. Housing construction renews both housing supply and
62 Key features of the Market and Residential Sector in Spain | CBRE Conclusions 63 Para más información puedes contactar con:
Javier Kindelan Samuel Población Lola Martínez Vicepresidente CBRE Director Nacional de Directora de Research de CBRE [email protected] Residencial y Suelo de CBRE [email protected] [email protected]
64 Key features of the Market and Residential Sector in Spain | CBRE
Madrid Bilbao Edificio Castellana 200 Edificio Torre Iberdrola Paseo de la Castellana, 202, Planta 8 Plaza de Euskadi, 5 (15 planta) 28046 Madrid, España 48009 Bilbao, España Barcelona Sevilla Edificio Alta Diagonal Avda. Eduardo Dato, nº 69 Avenida Diagonal, 640, 8º Edificio Galia Nervión, Planta 6ª 08017 Barcelona, España 41005 Sevilla, España Valencia Marbella Edificio Green Building Edificio Golden Calle Pintor Sorolla, 11, Planta 5ª Avenida Ricardo Soriano, 72, 46002 Valencia, España Planta 1ª, Portal B 29600 Marbella, España Palma de Mallorca Avda. Alejandro Roselló, 34 1ª 2 Málaga 07002 Palma de Mallorca, España Plaza de la Solidaridad, 12, Planta 5ª Zaragoza 29006 Málaga, España Paseo de la Independencia, 22, Planta 4ª 50004 Zaragoza, España
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