As we predicted in last year’s report there weren’t any fundamental changes in the property market during 2016 in the Costa Blanca region specifically or in Spain more generally. By the beginning of 2015, with recovery underway in some regions, there were many confident predictions from various sources and analysts claiming that the market had bottomed out and prices were about to rise. It didn’t happen. I was, and remain, more cautious.
Firstly, I will review the main statistics for 2016 prices and transaction numbers according to the College of Notaries and other reliable sources. Secondly, I will describe the special characteristics of the Costa Blanca market and how these numbers apply to it.
Then, as a conclusion, I will offer my predictions for 2017, always trying to avoid following the self-interested voices that are shouting from the rooftops that the real estate crisis is over and property prices can only go one way and that is up. On the contrary, I will be as realistic as possible and where there are glimmers of hope I will try to analyse them, to judge whether they are real or just more delusions.
The Costa Blanca
The Costa Blanca is the 200 kilometre long stretch on Spain’s eastern Mediterranean coast with Alicante as the provincial capital and the prime locations for overseas property buyers of Javea and Denia, but it is often more loosely used to describe a much larger area encompassing the coastal provinces of Valencia, Castellón and Murcia. While it is true that there are some high-rise and high density resorts on this coastline it is also the location of some of Spain’s most stunning beaches, ranging from unspoilt white sand beaches to small, rocky coves and in Valencia, one of Spain’s most beautiful and historic cities.
The focus of this report is on the Alicante region as it is the most active, at least in respect of overseas buyers, and provides an excellent example of the differences between what is happening in the various sectors of the market because, like everywhere else in Spain, the property market is behaving very differently in the domestic and overseas spheres.
Domestic versus International
Alicante, along with the rest of Spain, has been facing the worst economic crisis in its recent history. It is true the unemployment rate is falling but it remains stubbornly around 20% overall and just below 50% for those under 35 and that means purchasing power in the domestic economy has fallen dramatically. There are 700.000 households in Spain in which everyone is out of work and 80% of the population under 30 years old are still living with their parents. It is true that bank repossessions have decreased 19%, indicating that people are struggling less but, at the same time, population has decreased because of emigration. This is due to other nationals returning to their countries but also because Spaniards are being forced to look for a job abroad. The bad news is that those Spaniards are the most skilled and best educated. Statistics like these help explain why the domestic property market remained flat during 2016.
On the other hand, the overseas property sector experienced continued growth during 2016 on the Costa Blanca. Attracted by the Mediterranean climate and wonderful beaches, overseas buyers are also being drawn by prices still at levels last seen back in 2002. In the first three quarters of 2016, Alicante province had more foreign buyers than any other region in Spain, a total of 12,438 transactions, with Málaga second place with 7,252 purchases followed by Barcelona (4,855), Madrid (3,997) and Balearic Islands (3,873). Compared with the same period in 2015 international purchasers increased in Alicante province by 17,5%. And while across Spain overseas buyers accounted for approximately 19% of the total property market in Alicante province during the first three quarters of 2016 overseas purchasers represented an astonishing 46.7% market share and 19 municipalities in Alicante have more foreign inhabitants than Spaniards.
As regards prices, €1,200 per square metre was the average paid in 2016 against €2,000 at the peak of the market in 2007 and there has been very little upward pressure on the price per square metre since 2013. This means that prices are still about 40% below the pre-crash peak and of the areas that attract large numbers of international buyers the Costa Blanca represents one of the best buying opportunities in 2017, with potential for significant capital growth in the medium term. However, in the most prime locations on the Costa Blanca, per square metre prices are already well above the average; €1,745 in Altea, €1,765 in Calpe, €1,704 in Javea and €1,541 in Denia.
My conclusions are very similar to last year’s since the main factors affecting the property market on Spain’s eastern coasts are unchanged, or changing only very slowly. As regards the domestic market I believe it is going to remain flat or may even fall slightly for two main reasons; unemployment and restricted mortgage accessibility
Firstly, unemployment remains around 20% of the active population and a recent report suggested it takes an average of six years for a young person to find a job. There are signs of tiny improvements but many of the new jobs created are on temporary contracts or part-time and there has been an increase in the number of self-employed. Inevitably, in an economy with a large tourist sector many jobs are seasonal.
Secondly, although the banks are making encouraging noises that might lead one to think that the mortgage drought is over that is all they are, encouraging noises and nothing very concrete. Anyone hoping to finance a purchase is still going to need a very large deposit as bank valuations of properties remain low relative to the price agreed and the ability of borrowers to meet repayments is scrutinised as never before. So, while offers of 80% LTV may look hopeful potential purchasers are being excluded because the valuations are coming in so low that their deposit is insufficient. And the recession and housing crisis seems to have changed attitudes to home ownership in Spain, particularly among young families, and many now see renting as an alternative.
On the other hand, my expectations for the overseas market in 2017 are very positive. Spain is on course for another record-breaking year as regards tourism and the predictions are for 20% growth on the Costa Blanca. According to the Ministry of Housing statistics, there was an 17,5% increase in the number of property purchases made by foreigners in Alicante in the first three quarters of 2016, compared to 2015, and in my opinion, this trend will continue in 2017. Finally, as far as prices are concerned I believe quality properties in prime locations will start to rise as increased buyer numbers come up against shortage of good stock, perhaps by around 3%, but in all other sectors, that is, secondary locations and average quality stock, then I think the best scenario is one of stabilisation of prices but with the possibility of further falls.
This report will be updated throughout 2017 as new data becomes available so do check back for the lastest information and follow us on Twitter and Facebook by clicking the buttons at the top of the page, for all the property market news as it happens.