Spanish Property Prices Lagging Behind Demand

Demand for Spanish properties is growing significantly, with recovery in both the residential and commercial markets making Spain increasingly popular with domestic and international buyers. However, so far prices remain relatively low, and are failing to rise as fast as the growth in demand might lead you to expect.

With affordable finance, improved employment rates and – crucially – the resurgence of Spanish homes as an attractive investment asset, demand for properties in Spain is predicted to grow significantly over the next couple of years. A report by Bankinter predicts that demand will reach a level of 420,000 homes this year and then further rise to 450,000 in 2017, whereas last year’s figure was just 367,000.

In the big cities – which of course are key markets and are therefore serving as some of the major focal points of this resurgence in demand – available supply of properties is limited. This situation of modest supply and growing demand obviously creates a perfect climate for price growth. Bankinter predicts that 2016 and 2017 will see average annual rises of around 3%, with some premium locations delivering a figure of 5%.

Price rises so far have been comparatively modest, and this has left Spanish properties deceptively affordable in terms of the demand situation. There are a number of factors believed to account for this. Firstly, while the Spanish market is definitely in recovery and demand is rising accordingly, things still remain in their early stages. The rise in sales is currently under 10%, and this is not yet enough to apply huge amounts of upward pressure to prices. Furthermore, bank sell-offs are still playing a role in the market. These properties are being sold at significantly discounted prices, and their continued availability is definitely holding back price rises for the time being.

One of the key points to note about rising demand in Spain is that it is relatively widespread. When the market first tentatively entered into recovery after years of tumbling values, things were very much confined to a few key city locations and coastal tourist spots. While it is not fair to say that things are booming throughout the country at this stage, the recovery has spread out significantly and is now evident in a significantly larger and more diverse range of locations.

The commercial sector is displaying trends similar to those seen in residential property at the moment. Positive trends are evident in both rental levels and occupancy rates, and these trends are expected to not only continue but to accelerate through this year and through 2017. Retail properties – both high-street and in major centers – and blocks of offices in core city business districts are expected to be the best performers of the Spanish commercial sector.

Political factors are the biggest danger to Bankinter’s predictions. If changes in the political climate impact on confidence in the property sector, this could hold back the expected positive changes in the Spanish property sector.

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