thespanishbrick.co.uk
The Bank of International Settlements (BIS) has recently released the conclusions of an investigation about how ageing affects the future of house prices in 22 developed countries including Spain. And the conclusion was… What a forecast!!!! … By 2050 Spanish property market prices will drop by 75%.
One of the key data for the BIS forecast is that the Spanish population will be the oldest in the EU in 2050: 36,5% will be above 65 years old age, according to Eurostat.
This is the conclusion of the BIS’ paper work explained in a very simple way:
- if property prices have risen by 230% during the last 30 years (after the baby boom of the 70s), from now on the house prices in the lovely Spain will shrink by 75% in the next 40 years given a no growth population that is getting older.
Economic theory suggests that ageing affects asset prices negatively, which is widely accepted. But apart from the ageing effect in the property market in Spain, there is a huge over supply -more than 700,000 unsold brand new units, and a few more factors.
That is why the BIS analysis needs to be implemented with market facts.
The key factors that have boosted the market
But there are four factors in the last 15 years period that boosted the market of property in Spain beyond the potential demand that demography could generate:
- expansion of credit since 1999
- low interest rate
- Property assets become an easy and profitable market where to invest for no-professional investors
- a tricky legal framework that encouraged to build new property developments like “mushrooms growing in the forest”
These factors are, from my point of view, the reason why between 2005 and 2009 a total of 2,753,600 properties were built up in Spain according to the Ministry of Housing.
Do not rely on immigration
So, Spain is getting old, which mean less and less people will be able to buy the large stock of 700,000 new and unsold units because they are more dependent on active population.
In the case ten years ago authorities had any hope that immigration could slow down the ageing rhythm of Spain, now such expectation have been ruined by the economic climate. Foreigners who moved to Spain by economic reasons are moving back to their countries. In a quarter of year there are less than 100,000 immigrants in the country.
Migration trends and city markets
Cities are still a reliable market for residential. Spanish urban population has grown since 1970 until 2000 from 66% to 78% and currently the rate is slightly above 80%. It means that property in cities will always offer a good exit strategy to the investor in Spain. Nevertheless, second residence, top end investment and luxury will have a good market but it needs different networks and different marketing strategy for investors.
Prices
Demography, migration flows, offers, demand, location, bla, bla, bla… all together comes to the main point: price.
It is known that prices have dropped an average of 12% in the cities and certainly a further fall will come. Prices performance not only varies depending on rural and urban area, but also depending on the region.
So far, the highest prices fall per region (-16%) have been in the provinces where the new property developments was higher during the property bubble, increasing the stock by 30%: Guadalajara, Toledo, Huesca, Alicante, Málaga, Las Palmas y Murcia (according to the Dr in Economies Julio Rodríguez López).
CONCLUSIONS
On the bases of demography, stock and trends, the Spanish property needs new inputs from market players and regulators. Here we have a list of six conclusions