Recovering Economy is Good News for the Costa del Sol

By | September 16, 2014

sunny-costa-del-sol The property market of the Costa del Sol has been improving for months on the strength of growing foreign demand, and now good news from the wider Spanish economy should help to consolidate the recovery by increasing local demand.

New data from the Bank of Spain suggests Spain’s economy is growing at its fastest rate in six years. The economy grew by 0.5 per cent in the second quarter, compared to 0.4 per cent in the first quarter, prompting the bank to up its forecasts for Spain’s growth in the next two years.

The bank now predicts Spain’s economy will expand by 1.3 per cent in 20014 and 2.0 per cent in 2015, compared to earlier forecasts of 1.2 per cent and 1.8 per cent.

The bank’s quarterly report is based on estimates, but the positive outlook will be welcomed by the property industry, which is eagerly looking for signs of a resurgence in the domestic market. Unemployment numbers due out shortly are expected to show unemployment remains above 25 per cent, but the GDP is expected to grow by 1.2 per cent this year, after falling in 2013, Bloomberg reports.

Spain broke the recession trend in the third quarter of 2013, when it posted slight but positive growth.

Booming tourism

In the first half of 2014, a record-breaking 28 million tourists visited Spain, a 7.3 per cent increase from a year ago.

Leading the charge were visitors from the UK, with 6.5 million tourists in the six months, up 5.8 per cent from the same period a year earlier, suggesting that the British infatuation with Spain is far from over. But the British were not the only ones flocking to Spain. Visitors from Germany were up 8.8 per cent in the first half, while arrivals from France were up 10.3 per cent.

This is undoubtedly good news for Spain’s second home market, as tourism remains the best promotion for Spain property. In June, Spain attracted 6,582,941 international tourists, a 4.5 per cent increase from the same month a year earlier, which also set a record.

The most popular destinations were the Canary Islands, Catalonia and Andalusia.

Increasing property sales

The Spanish property market increased by 6 per cent in May compared to the same month last year, according to the latest data from the National Institute of Statistics. This looks like drawing a line under years of declining sales.

There were 25,306 home sales (excluding social housing), up 14 per cent in a month and up 4 per cent compared to two years ago.

Regional there was a clear trend towards rising sales in coastal areas where foreigners tend to buy. Sales were up 43 per cent in the Costa del Sol, and 41 per cent in the Balearics, increases no doubt driven by foreign demand. On the other hand, some local property markets in the interior of Spain are still contracting; even Madrid fell by 6 per cent.

Stabilising house prices

Home prices in Spain fell by 3.9 in the second quarter, an improvement from a 6.7 per cent drop year-on-year in the first quarter of the year, according to the pricing index published by Tinsa, a valuations company.

The data reflects the growing consensus that the price declines are slowing and may hit a bottom in the next year. The drop compared to an 8.3 per cent decline in the fourth quarter of 2013. Two regions – Extremadura and Galicia – reported increases in prices in the second quarter, according to the company’s sales reports. Prices were up 2.8 per cent compared to the same quarter a year earlier, while Galicia prices ticked up a slight 0.1 per cent.

Tinsa labeled the latest data as a continuation of the “property price stabilization process initiated in 2013.” But many of Spain’s biggest markets still experienced sharp drops, including a 9.9 per cent drop in Madrid, 7.6 per cent in Valencia and a 4 per cent slide in Catalonia.

Housing stock stops growing

The stock of housing in Spain is no longer growing, and is even trending towards decline, according to the latest data from the Ministry of Development.

At the end of 2013, the supply of residential homes stood at 25,441,306, a mere 58,891 more than the previous year, a slight 0.23 per cent increase, the Ministry estimates. That is the smallest increase since the Ministry starting publishing this data in 2001.

The glut of available homes, the result of massive over-building from 2001 to 2009, is regarded as a key element to any recovery in the property market. Consultancy RR Acuna de Asociados recently estimated there are more than 1.7 million houses for sale in Spain.

The latest data suggests that the supply may finally be stabilising, with few new homes under construction.

So for the first time in years there is some good news to report from the Spanish economy and housing market, which brings closer the day when Spaniards will feel confident enough to buy holiday homes again.

Now the bad news

The bad news is the national government in Madrid has announced plans to remove tax breaks for vendors who have owned their homes for many years, which could put added downward pressure on the market in the second half of the year. That could delay a wider recovery by another six months or more.

From the 1st of January 2015, Spanish capital gains tax reductions on properties owned since 1994, and inflation relief on properties owned since 2008, could disappear overnight if the Spanish Treasury gets its way. This will burden some vendors with thousands more Euro in tax, giving them an incentive to drop their prices now in order to sell before the end of the year.

But otherwise, the news from the Spanish economy and housing market is showing undeniable signs of improvement.

Courtesy: Mark Stücklin (Costa Del Home)

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