Spain and Portugal in particular suffered a dramatic collapse in property prices at the height of the worldwide economic downturn. The threat of contagion weighed heavily on investor sentiment which led to the economy grinding to a halt, unemployment exploding and many property owners defaulting on their loans. While there has been some interest from commercial buyers, looking to take properties off the books of struggling banks, so far we have not really seen any recovery in prices.
However, there are signs that 2015 may well have been the bottom of the market with the Tinsa index of Spanish residential properties showing an increase of 1% during 2015. So, is it now time to revisit your Spanish property exposure?
It is difficult at this moment in time to say with any great confidence that the Spanish market is set for significant growth in the short to medium term. The likelihood is we will see some consolidation in the short term and a significant variation on price performance across the country. Over the last 12 months the average increase in the price of Spanish residential property averaged 1% but when you bear in mind regions such as Catalonia, Madrid and the Balearics grew by 2% over the period, this reflects the challenge for investors.
During the final quarter of 2015, 21 Spanish provinces and 15 provincial capitals saw an increase in property prices. However, when you bear in mind we saw falls of over 5% in 19 provinces and 10 capitals over the same period, it really is Russian roulette as to where you should look to invest your money in the short term.
Hope for the future?
It is interesting that the increase in the Tinsa Spanish residential property index was the first positive annual move since 2007. Of course this is the period just prior to the US mortgage collapse which led to a worldwide recession. There are other indexes which have shown higher growth over recent years but it is interesting to see at least some signs of life in the market. There is also the issue of foreign buyers who, while not exactly flooding back to Spain, are showing interest in selective property.
The love which UK investors have for Spanish property is likely to continue in the longer term and indeed any strengthening of the UK currency will strengthen this trend. Looking at the overall Spanish property market it is hard not to agree there is long-term value but then again you could have said this a few years ago and any money you invested would have been “dead money”.
While there are signs of life, under the surface it is difficult to see the Spanish property market showing any significant growth for some time to come. There will be areas of the country that will post impressive growth in the short to medium term but overall the market is still struggling. High unemployment, a challenging economy and the European Union/Euro situation which is still unresolved in the longer term do not help with the uncertainty.
There may be value in Spanish property in the longer term but, as we mentioned above, you could have made the same argument two years ago, four years ago, etc. Sentiment is the key to a medium/long-term recovery in Spanish real estate and will likely recover prior to any significant increase in property prices.