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Business Week - Real Estate - Is the next bubble in Spain threatening?

26 Jul 2017
Business Week - Real Estate - Is the next bubble in Spain threatening?

by Stefanie Claudia Müller

Despite empty flats and houses, prices are picking up again in the big cities, also because many Spaniards want to improve their meager wages with real estate. Is the market overheating?

Alejandra López is a single mother in a suburb of Madrid. The 41-year-old has a monthly income of around 2000 euros. She comes as a freelance graphic designer just about the rounds, yet she wants to buy now an apartment, although she already has one: "Interest rates are still at the lowest level and there are still bargains in the market, at the same time rents rise again. "López does not understand much about economics, but she can put one and one together:" No matter how people complain about the real estate bubble 10 years ago, rental income is still the most stable income one can have in Spain. "

Economic sentiment and labor market help with the sale of real estate

She is right. While unemployment in Spain is still very high at 18 percent and wages remain low compared to other European countries, rents are rising by 7.1 percent this June to June, up 1.3 percentage points, according to a study by the Spanish housing portal Idealista than in the same period last year. This is also more than currently dropping 10-year Spanish government bonds. But López has to hurry, because even the purchase of apartments is more expensive. In the second quarter of 2017, new and used real estate increased by just under 3 per cent compared to the same period of the previous year, according to the Spanish estimation company Tinsa. The biggest increase in value was in Madrid and Barcelona.

Employment and business. Feelings that help the sale of real estate

Increasing rents and prices have also aroused the interest of the incumbents, who have since the beginning of the year relied increasingly on Spain according to a study by the communications agency Kreab. Kreab expects further increases in the investment totals this year. Growing interest in Spain's economic outlook is also buoyed by the country's second largest bank, BBVA, which expects 3.3 per cent GDP growth and 2.8 per cent growth in 2018.

Before the big Spanish real estate crash in 2008, 90 percent of the Spaniards had a home, then dropped the ownership rate to 79 percent. Now more Spaniards want to buy a property again, often to let it on.

The foreigner is stimulating the market again

Also foreign private investors and funds buy. Holiday real estate is mainly bought by British (14.5 percent of all buyers), French (just under 10 percent) and Germans (just under 8 percent). And the Spaniards themselves, like López, enter the rental market. The Madrilenian has no money for an apartment by the sea, but she has been renting a room in her terraced house in Aravaca near Madrid to tourists or students for some extra income. For many, Airbnb has become a second-tier employer in Spain, much more lucrative than traditional firms, which often pay academics as much as 1500 euros net per month.

Spaniards dare to borrow money again

For this reason, Spaniards increasingly conclude with the subsequent motive of renting mortgages. Therefore, the Spanish estimation company Tinsa believes that the still 340,000 vacant properties in the country could be sold by 2020. It helps that the banks are generous thanks to the good economic sentiment: Bankia, formerly Caja Madrid, which was rescued in 2012 and has to follow a tightened risk scheme because of the state owner, is once again experiencing a veritable mortgage boom. By June 2017, it had claimed 6800 housing loans totaling EUR 900 million, 108 percent more than in the same period last year