2016: A good year to invest in Spanish property?
Since the economic downturn of 2008, property prices in Spain have fallen around 30%.2016 looks set to be the year that the Spanish property market finally ‘bottoms’ out and sees a 2% rise according to the rating agency Standard and Poors. Central to this recovery, will be Spain's continuing robust economic recovery into 2017, which is seeing steady improvements in the countries desperate unemployment levels and rising middle-class household income. If 2015 will be remembered as the year when the Spanish economy finally started to see some light at the end of the tunnel, then 2016 - 2017 could well be the year that nation emerges from that tunnel, and finds itself on the path to stable economic growth. Before we get too optimistic though, we should be under no illusions that the Spanish economy still has significant structural problems, public debt remains stubbornly high and while market reforms and investment in innovation are increasing, there is still a long way to go before Spain’s economy can really declare itself on the road back to health. This being said, foreign investors, who once shunned the Iberian nation for its toxic mix of free falling real estate values, debilitating unemployment levels, and troubled banking sector, appear to be staging a return!
Good signs from International buyers
The Spanish property market has always been heavily influenced by international buyers, with an estimated 18% of the market believed to be from overseas investment. In some regions such as Marbella and Alicante the figure is over 50%. Spain's recent economic woes have been compounded by a reduction in overseas investment in recent years, but 2015 saw transaction numbers, mortgage approvals and prices all move in the right direction. While certainly, there is now room for optimism, the market does remain fragile, as a reduction in mortgage approvals and transaction towards the end of 2015 revealed. Even the most pessimistic of analysts out there though, are likely to concede, that in all likelihood, the property market has at the very least, bottomed out.
Clearly breaking down the regional variations provides more of an insight into exactly what’s going on within the Spanish property market. Last year the majority of property transactions in Spain occurred on the Mediterranean coastal regions, the Canaries, and the Balearics with overseas buyers accounting for 30% to 60% of all purchases. Even within these regions there is significant variation in terms of the pace in price change. For those looking for an investment opportunity with a slightly smaller budget though, and a greater degree of flexibility on location, areas to the north and south of Valencia are proving an increasingly attractive option. Along with being located near three stunning coastal locations, the recent opening of Castellón airport makes this region all the more accessible. Should more airlines connect with this airport (and there is no conceivable reason why they wouldn’t!), its well within the realm of possibility that prices in the region will rise.
Spanish property still a good investment?
When looking at the Spanish property market from an investment point of view. The fact prices have finally ‘bottomed’ out and are on the rise again after all those years, should be weighed up against the price fall from peak of 30%. Assuming Spain remains a desirable destination for tourists and foreign investment, and assuming the Spanish economy can maintain a stable growth rate, there is real potential for capital growth in the market. 2015 proved an impressively strong year for rental yields, particularly in high end, furnished properties located on prime coastal locations, where seasonal occupancy was at 100%. It’s worth remembering, that while the property and location is of course important, it should not be the sole focus of your thought process when considering investment opportunities. Assessing whether long term or short term lets will present more opportunity in terms of higher yields, will also be influenced by the region. It may well be, that the best option for optimizing returns on your investment, is short term holiday lets, which take advantage of strong seasonal demand. However, some regions have now legislated against short term holiday letting (Barcelona) due to pressure from hotel lobby groups and unhappy locals. With region like Andalusia (where returns on investment have traditionally been impressive), potentially set to follow, be advised to do all your research on this issue beforehand!
Forex volatility set to continue in 2016
The pound has been up and down like a yoyo against the Euro since the start of the year, complicating life for all those would be British buyers of Spanish property. So dramatic has this volatility been, that Sterling has already surrendered the gains that it enjoyed last year against the Exchange Rate. There is a number of reasons behind the volatility we are seeing, with an increasing spectrum of global pressures continuing to dominate the markets. Falling commodity prices, the collapse in the price oil and the Chinese stock markets crashing all in the first few weeks of 2016 have sent the currency markets into turmoil. With the uncertainty of the UK’s European Union referendum coming up this year as well, expect a sluggish performance from Sterling, at the very least over the short term.
Overall, the tide does appear to be turning for Spain's real estate market. The encouraging signs of recovery appear to be instilling confidence once again in those all-important foreign buyers. How long this confidence lasts though, will depend on how long the recovery lasts, and while there is plenty room for optimism, the challenges that lay ahead for Spain, should not be underestimated.