Property Markets and Political Shifts
Property prices for both purchase and rental saw a higher year-on-year rise in the Balearic Islands than anywhere else in Spain during the month of September. The Property index, published monthly, indicated a rise of some 16.9% over September 2016. Interstingly the Catalonia region came a close second. Here property prices went up by 10.6% during September and house prices in Barcelona showed increases exceeding 20% in some areas of the city, which had never been seen before. The figures, of course, reflect the period prior to the events of October 27th when the regional parliament, led by Carles Puigdemont, and made up of Catalan separatists in the majority, declared independence.
Recent events in the Catalonia region have undeniably turned the spotlight on the Spanish Government and its reaction to political upheaval. Madrid reacted swiftly by imposing direct rule on Catalonia, sacking Mr Puigdemont, dissolving the parliament and calling local elections for 21st December this year. Puigdemont fled to Belgium with a few of his staunch supporters but an EU arrest warrant, issued by a Spanish judge, prompted the defectors to hand themselves in to Belgian police, with Puigdemont insisting he will not return to Spain unless he is guaranteed a fair trial. The former Catalan leader, and four of his ministers were freed, under house arrest, by an investigating judge in Belgium during the first week of November.
Any effect on the Spanish economy in general and the property market in particular, resulting from this challenge to the established authorities, may not become clear for some time, but, in the interim, it is worth considering the buoyancy of the property market prior to last month’s distractions. The bid for independence appeared to have been be a bolt from the blue when viewed from outside, but years of frustration put the spark to a relatively short fuse. In many ways the situation in the Balearic Islands bears a resemblance to that in Catalonia six years ago, when no one would’ve imagined a parliament with a pro-independence majority. Back then there were 14/135 pro-independence seats; now there are 72/135, a 514% increase.
The Balearic Islands currently stand at 12/59; making their parliament more pro-independence now than the Catalan parliament was six years ago. That means a sinilar rate of increase would result in a fully pro-independence parliament in a shorter time period. The Balearic Islands, however, are not a single entity, although they are often grouped as one, and have been for some decades, each island has its own history and different political affiliations. In fact, Menorca, which has close historical links to France and the UK, almost became part of Catalonia instead of the Balearic Islands autonomous community when they were first created. The islands’ close proximity to Barcelona and links to the Catalan people would no doubt have affected the popularity of the Balearics had independence struggles proved more protracted and widespread, as witnessed in Eastern Mediterranean and North African holiday destinations, which were severely hit by political events. As things stand, however, it seems that markets have been reassured by the actions of the Spanish Government and have confidence in the relative autonomy granted to the Balearic Islands.
Foreign Investment To Boost Spanish Property Market
Growth in the Spanish property market during 2018 will be driven by foreign investment and development initiatives from new sources. These were the conclusions reached by “The New Home Industry” conference held in late November which was organised by the Spanish national newspaper El Mundo. The paper reported on the meeting between industry leaders, all of whom head companies responsible for the recovery of the Spanish residential sector. Subjects included: the current state of the market, its opportunities and the issues and challenges it faces, both in the short and medium term. Discussions between industry leaders and interested parties were published in El Mundo‘s property supplement and in the financial broadsheet Expansión.
Juan Antonio Gómez-Pintado, president of Via Célere and Juan Velayos, head of Neinor Homes, agreed that new companies offering alternatives to bank financing provided the main change to the current status of property development. Gómez-Pintado described this as: “capital from investment funds that allows us to buy land with our own resources”. He also commented that the new home industry has been granted a “higher business profile” and recognised that “there’s a lot more pressure because of the level of competition”, which he believes is “very positive”.
For his part Velayos said that he views the market with “optimism” because the economic conditions for growing demand are in place. He also said he was pleased to see that new companies have joined the sector managed by “people with high expertise and know-how, which means we all have to up our game”. Both agreed that newcomers currently being enticed into the market will provide a sound foundation for future development. Sergio Gálvez, Strategy and Investment manager at Aedas Homes commented on the changing face of potential clients. He said: “the buyer has become the central point of the whole value chain, forcing companies to use new technology such as big data and consumer opinion systems”.
The Manager of Research at property portal, Fotocasa, Beatriz Toribio, however, argued that price remains the principal consideration for well informed investors; “the property they want must fit their budget”. Toribio said she believes that cost has become the main deciding factor; “more important even than location,” she pointed out. Ms Toribio added that, as the average price of a new home is 270,000€ compared with an average resale price of 172,000€, in order to make them more affordable; “the main players in the sector should release more homes on the market as soon as possible”.
Mr Gómez-Pintado said it was regrettable that in some locations a shortage of land and subsequent high building costs have caused foreign developers to be conspicuous by their absence. Foreign investment in Spain’s construction industry is expected to represent some 15-20% of the overall market with capital earmarked for the promotion of housing for sale and rent in cities like Bilbao, San Sebastián, Valencia, Malaga, Seville and Madrid. As highlighted by Juan José Pedrinho, Managing Partner of Grupo Ibosa, however, that still leaves 80% on the open market, and his counterpart in Quabit, Javier M. Prieto, added, “There is room for everyone, even if the locations have been reduced.”