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Real Estate

09 June 2015

Spain's Patchy Recovery 

The Spanish property market has come to symbolize the worst excesses of the pre-crisis era in Europe. By 2005, housing debt represented 105% of disposable income, double its level 10 years before.

The bust, when it came, was savage and prolonged, but the Bank of Spain has now confidently declared that the country's property crisis is finally over.

Economist José Luis Malo de Molina says that in principle, the "adjustment" in the housing sector is complete and that the market has already bottomed out’.

The news would be welcome, not least as a symbol of the end to a lengthy period of crisis in western Europe, but the evidence is mixed. On one hand, Spain’s National Institute of Statistics shows encouraging data from the mortgage market.

Property loans in the Balearic islands, for example, were 36.2% higher in February 2015 than a year earlier. Spain's residential property rental sector also appears to be improving, with average rents rising 0.2% in April.

However, sale prices are still falling, according to property valuation group Tinsa. Despite pockets of strength such as the Balearics, the property market as a whole fell by 3.6% over the 12 months to the end of May, although the rate of decline is slowing.

Tinsa says the sharpest price falls continue to be in big cities, while the market in coastal regions and especially tourist areas is more robust. This suggests the market is being supported by foreign purchasers, capitalizing on the weaker euro, rather than a recovery in confidence among domestic buyers.

Spain's property market continues to reflect the overall economic situation across the eurozone: Pockets of recovery exist, but a broad-based rebound remains elusive.