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PROPERTY

EXPLAINED: Will the price of properties drop in Spain?

With experts widely predicting a big drop in property prices across Europe, will they fall in Spain? And if so, by how much and when?

EXPLAINED: Will the price of properties drop in Spain?
Photo: Pixabay.

The market context

The European Central Bank (ECB) has warned that house prices are due to drop by as much as 9 percent across Europe over the next two years.

With inflation affecting economies across the continent, the ECB took the radical monetary policy move of raising interest rates and the Euribor, the rate tied to mortgages in Spain, has risen steeply since then.

READ ALSO: Why mortgage payments in Spain could increase by up to €120 a month 

The Euribor rate in September topped 2 percent, ending the month at 2.23 percent, which contributed to the highest annual increase in mortgage rates since 2000.

The 12-month Euribor rose from -0.50 percent in December 2021 to 2.50 percent today, with market forecasts esimating it could reach as high as 3.4 percent in the next 12 months. This could, in financial terms, mean an increase of over €350 per month for a new mortgage loan (€144,000 on average in Spain). 

Bank warning

In its latest quarterly report on the Spanish economy, the Bank of Spain has warned that the slowdown in housing investment experienced during the third quarter of 2022 will last for the rest of the year and in the first quarters of 2023.

This is due, the state bank suggests, to a rise in bank credit and interest rates, falling construction permits and general wholesale cost increases in construction materials.

READ MORE: What the Euribor rise means for property buyers and owners in Spain

With regard to house prices, the Bank of Spain explains that their steady rise was tempered slightly during the second quarter of 2022, though they continued to show notable year-on-year advances – an 8 percent increase according to the latest figures from Spain’s National Institute of Statistics, due largely to a combination of insufficient supply and relatively strong demand.

But with Spain’s property market remaining relatively strong, can we expect Spanish properties to fall in price as is expected across the rest of Europe?

Spanish exceptionalism

Although it is true that the ECB has forecast falls in property prices across the Eurozone, Spanish property market conditions are relatively unique to those of its European neighbours – particularly those in Northern Europe.

Experts believe the Spanish property market could better withstand the expected price drops across the continent, but this is not to say that property prices won’t fall at some point in 2023 or 2024 in Spain, but rather that they might not fall as much – 9 percent as suggested by the ECB – as its Eurozone neighbours. 

José García Montalvo, Professor of Applied Economics at Pompeu Fabra University in Barcelona, told Business Insider Spain that “what the ECB says does not apply to Spain. In other countries, prices are so high that the shock could be strong, but here [in Spain] we have hit the bottom.”

During the financial crisis of 2008 and beyond, it was southern European nations, led by Spain and Portugal, that felt the brunt of the the bursting real estate bubble.

As such, the Spanish property market never properly recovered or experienced a ‘boom’ as other northern European countries did. While it is true that prices have been rising in Spain, the property market has still not recovered itself and reached the levels of 2007 and pre-crash prices.

In fact, according to Spanish property search engine Fotocasa, housing on the Spanish market is still 34 percent below the pre-crash peak prices reached in 2007.

Simply put, the Spanish property market is better insulted from the oncoming price drops anticipated across Europe in the coming year or two precisely because it never recovered from the last property meltdown. The plummeting figures of 9 percent estimated by the ECB are therefore less likely to be seen in the Spanish market.

“It would be exceptional if we saw large declines when prices have not yet recovered from the previous crisis,” María Matos, spokesperson for Fotocasa, explained in the Spanish press.

How much could prices fall by?

So if the Spanish property market is expected to hold up better than other European economies, how much could prices fall by?

According to analysis from Bankinter, residential house prices in Spain are anticipated to fall by 3 percent in 2023 and then by another 2 percent in 2024 – an estimated 5 percent price fall over 2 years but almost half of the ECB’s European-wide prediction.

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PROPERTY

Spain considers banning tourist lets in residential buildings

The Spanish government has announced it's studying the possibility of prohibiting tourist apartments in residential buildings where property owners live.

Spain considers banning tourist lets in residential buildings

The Minister of Housing and Urban Agenda, Isabel Rodríguez, announced this Tuesday that the Government is studying a reform of the Horizontal Property Law in order to allow property owners to prohibit tourist apartments in their residential buildings.

In Spain, each building has what’s known as a community of neighbours, referred to La Comunidad or Comunidad de Vecinos in Spanish, and essentially the Spanish government is considering giving them veto power over tourist apartments in their buildings.

READ ALSO: ‘La comunidad’: What property owners in Spain need to know about homeowners’ associations

The announcement was stated in an interview on Telecinco, in which Rodríguez stated that this move comes as a consequence of recent supreme court rulings on tourist apartments in Oviedo in Asturias and San Sebastián in the Basque Country.

In the rulings, the magistrates concluded that the rental of housing for tourist use is an economic activity, and agreed that communities of owners in two separate buildings could ban tourist rentals in several apartments.  

“It will be the neighbourhood communities that will also be able to participate in these types of decisions, because this phenomenon, which is not exclusive to our country, affects the entire world and the main capitals in Europe,” explained the minister.

READ ALSO – UPDATE: Which cities in Spain have new restrictions on tourist rentals?

Recently, Rodríguez has criticised that the proliferation of tourist apartments causes problems for locals, that it stops them from being able to access decent housing and raises the price of rentals.

She praised the regions which have taken steps to try and put a stop to this and gave the recent example of Barcelona City Council, which announced last Friday that it would eliminate all tourist apartments by the end of 2028.

She believes this move in Barcelona “will benefit citizens who want to live in their city, who do not want it to be a theme park and who prioritise the right to access housing over economic interests”.

Spain’s Horizontal Property Law , which was modified once in 2019, already states that it “requires a favourable vote of three-fifths of the total number of owners who, in turn, represent three-fifths of the participation quotas”. This means that already owners have a big say in whether tourist licences can be granted to apartments in their buildings.

However, the particular wording of the law has been the subject of much legal controversy and judicial interpretation. The reason is because the wording of the law only mentions the possibility for communities to “limit or condition” tourist use, but they do not have the power to “prohibit” since the law does not expressly say so.

Several regions have their own rulings through regional courts, but this new announcement aims to make it universal across the board in Spain and ensure that there’s no room for misinterpretation.

Rodríguez is set to meet this afternoon with the governing board of the Spanish Federation of Municipalities and Provinces (FEMP) and the Housing and Tourism Commissions to address this matter and come to a decision. 

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