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August 19, 2015

The catalysts of the Spanish property market

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The real estate sector in Spain continues its path to recovery thanks to increased sales of houses and apartments and a slight increase in prices. The financial corporation Bankinter has estimated in its last report that the catalysts of increased demand for real estate in Spain during this year and next one will be increased employment, lower financing costs and attractive investment in residential properties compared with other available alternatives.
The Bankinter bank estimates that this year will be sold 380,000 houses and apartments and next year, some 420,000 properties. However, it is contemplated that there is no possibility of a further sharp growth in real estate demand. The report published by the corporation Bnkinter lists the following factors that will enhance the demand for real estate in Spain in the near future:
1. Improvement of GDP and employment: Bankinter considers that Spain's economy will grow by 3% this year and by 2.6% in 2016. At the same time, this economic growth will provide better jobs to the active population, although this impact in demand for real estate will be limited by the high percentage of temporary contracts that do not provide enough stability to buy a house or an apartment. However, the experts of the bank Bankinter clearly see that job creation will be about 1 million new jobs between actual and next year, and they will be able to create a high level of confidence and to be a real  catalyst for the increase of demand for real estate in Spain.
2. The conditions of access to funding and liquidity: monetary expansion policy and program of buying of assets of CEB funding cause that the euribor rate at 12 months remains below 0.5%, and, thus, the interest rates on mortgage loans continue to fall. In addition, non-payment of mortgage loans reached its lowest rate in 2014 and now account for less than 6%, allowing the issuance of new mortgage loans. At the same time, the total volume of mortgage loans for the purchase of real estate reduced its rate of decline from -3.8% to -3.0% in the first five months of 2015.
3. The main attraction of investment in real estate construction and sharp adjustment in house prices in Spain have caused an increase in gross profit of rental housing. According to experts of the company Bankinter, this benefit is even more relevant if we consider that alternative investments such as government securities and shares or long-term bank deposits offer very low incomes.
For the Bankinter bank, the lack of investment alternatives (except for shares and securities) and the current environment of low inflation have established a market environment where investment in housing may provide a gross income of about 4.0 %, which will strengthen the demand property until any changes will occur in the current legislation that will create uncertainty for investors in rental properties.
Besides, the financial corporation Bankinter notes that the Spanish property market is again a good investment opportunity, but "most of the leading companies in the industry have high debt and a wide range of land and houses for sale". Therefore, the experts believe that the best alternative is to buy properties that are in the “elite” areas of major cities and tourist resorts of Spain, in order to achieve net profit of around 3%, with a minimum investment period of 3-5 years.

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