Predicting the year ahead in real estate markets is never easy as so many factors are involved but to help make a forecast for the Barcelona market in 2017 I’ll first review the main trends in 2016.
Finally, following eight years of adjustment and in spite of continued political instability, 2016 turned out to be a good year for the real estate market, which remained very attractive for investors and consolidated the trend towards normalisation. All the indicators showed that the worst is over. For example, the banks were lending again, prices stabilised, historically low interest rates and a healthier macroeconomic scenario provided an improved environment for growth in the property market. However, I expect the recovery to be slow, moderate and uneven.
Looking back, I would highlight three important features of the Barcelona property market in 2016:
- The upward trend in prices that started in 2014 was maintained with Barcelona experiencing double-digit price growth in 2016 of 12,7%, well above the national average.
- Barcelona is a two speed market. One the one hand, the wealthiest areas and those with increased tourist influx were very buoyant while in less affluent locations price rises were more modest.
- Buyers were a mix of people with higher than average incomes and those waiting out the end of the economic crisis, people upsizing and national and international investors
What’s ahead in 2017?
The fundamentals that impact the level of demand in the real estate market, all of which improved in 2016, will be even stronger in 2017:
- Employment will continue to grow.
- More accessible credit with low interest rates will keep the financial cost at historic lows.
- Economic growth will increase available wealth.
- Less economic uncertainty and more optimism about the future.
- Stock market instability and low yields in conservative mutual funds
As it has done throughout the recession Barcelona will continue to perform much better than the rest of Spain in terms of employment. Even at its worst in 2012 Barcelona’s unemployment level was 14.33% while in some parts of Spain it was more than double that figure. In December 2016, Barcelona posted an unemployment rate of 9.68% while nationally it was running nearly twice that level at 18.6%. Barcelona’s rate is still well above the low of 6.36% in 2007 but the trend is in the right direction.
However, as in the rest of Spain, a high percentage of the new jobs created are temporary and low paid and young people on this kind of labour contract can’t buy houses but as more people get access to credit demand should be affected positively.
2016 was the year of the fixed-rate mortgage. Fixed-rate loans were never that popular in Spain and they disappeared altogether in the banking crisis but in 2016 almost 30% of all Spanish mortgages were fixed-rate for up to 25 years. The Eurozone monetary policy will continue to be a key catalyst for the property market in 2017. The combination of a close to 0% Euribor rate and easier lending criteria will continue to support increased housing demand. Higher levels of competition in a healthier financial sector, mortgage defaults below 5% for the first time since 2013, will provide further stimulus to higher demand for loans.
In the context of low interest rates, credit access conditions will continue to improve during 2017. Mario Draghi, the President of the European Central Bank, is on record as saying that interest rates will remain low for the foreseeable future and that the asset purchase programme will not end abruptly.
So it seems reasonable to say that there have never been better financial circumstances in which to buy property, although the banks will ask for at least a 20% deposit. And if you are an international buyer that deposit may rise to 30% or even 40%. In addition, high buying costs of around 10% of the purchase price and a loan limit of 35% of income will continue to exclude many young people from the market.
Economic growth: increase in available wealth
The government is maintaining its growth forecast for 2017 at 2.7% although several external factors that have underpinned recent growth may not continue to be so favourable – the downward cycle of oil prices seems to be ending and the forward trend is upward, monetary policy may tighten and what is ahead for the Euro is uncertain. However, the forecast for Catalonia remains positive at 2.7%, well above the Eurozone average of 1.5%.
Demand in Barcelona
If credit continues to flow and the current low interest rates remain, price rises, which until now have been restricted to the areas of Ensanche and the city centre, will ripple out to other locations in Barcelona. If employment continues to grow 2017 should see the numbers of properties sold rise to 450,000 – 470,000 nationally, approximately 20% up since 2015.
Foreign demand in Barcelona: a key factor in what happens in 2017
According to statistics from the notaries international buyers made up 19.7% of the total market in the first half of 2016 and in some parts of Spain, notably Mediterranean coastal areas, the Balearics and the Canaries, it’s much higher.
As always, it’s the British out front with 19% share of the overseas market, way ahead of the French (8%), Germans (7.8%) and Italians (6.5%). This statistic raises the obvious question about the effect, if any, that Brexit will have on the evolution of the property market in 2017. It’s a difficult issue but clearly one risk factor is the depreciation of the GBP£ against the Euro, coupled with a fall in the GDP forecast. Some analysts in the sector predict reduced capacity for overseas property purchase by the British which may feed through into the Spanish market.
Within Barcelona itself, there is a sense that international buyers are in charge of the market, especially in the central districts of Ciutat Vella and Eixample and in neighbourhoods near the coast such as Poblenou. The prediction for full year 2016 is up 22% on the previous year with a total of more than 2,200 foreign buyers in the city, 15% of the total market.
Chinese buyers were the most numerous group, no doubt encouraged by the Golden Visa scheme, followed by the British, up 40% on the year, something of a surprise in view of Brexit, with German numbers also rising. However, there were lower numbers of French and Russian buyers.
Supply in Barcelona
I see no slowdown in property price increases. As demand rises the lack of inventory is becoming a big factor in determining prices. House building has been in a state of virtual paralysis in recent years and although new building licences are on the rise the construction sector is 90% smaller than it was in the building boom.
At the end of 2016 the average price in Barcelona was €3,888 per sq.m, a level last seen in 2004. This helps explain the high level of interest from overseas investors, given the potential for significant capital growth in the medium term.
There have now been three consecutive years of price increases with 2016 showing 12.7%, against a national average of about 3%.
But, as already mentioned, price growth is not the same everywhere and in Barcelona the focus in on the most centrally located districts of Eixample, Gracia and Ciutat Vella.
So, for 2017 I am predicting:
- Economic expansion already underway will continue over the next 2 years eat about 3 – 3.5%.
- Continued growth in the number of mortgages granted.
- Continued stock market uncertainty will push funds towards the real estate market.
- Prices in Barcelona to continue rising, in the range 6% – 9%.
- Nationally, the market will grow to above 450,000 units sold.
- 25% growth in the number of new developments, up to 90,000 in 2017