Residential dynamics in Spain - Spanish housing market on the rise April 2015
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Residential dynamics in Spain
Spanish housing market on the rise
April 2015
This issue gives rise to Trebol´s publications
with a double objective: shed light on the trends
and prospects of the real estate market and reflect
the strategic line of Trébol as a business unit
within PwC.
Trébol News
• P ositive expectations and Challenges and opportunities
economic improvements reactivate
After the deep slump in the Spanish residential market, 2014 With this in mind, key drivers to investment success involve
the housing market since 2014
experienced a more optimistic scenario. Positive economic new housing practices, needs and demands brought on by
• Housing development remains prospects, the increase of mortgages granted, and a gradual rental growth; continued population aging; household size
very weak but financing and rebound in housing transactions and prices suggest a turning reduction; new family forms; and renewed attraction for city
demand are rebounding, as point in the residential sector since the beginning of the centres.
reflected by the increase in crisis in 2007. However, these emerging trends have yet to
transactions proliferate to address the mid and long term obstacles facing
the Eurozone; financial difficulties, high unemployment and
• Emerging and uneven demand population decline.
growth introduce new challenges
and investment opportunities
Main drivers of the residential sector
The strengthened economic recovery
The main economic indicators of the final quarters of 2014 Graph 1
showed steady improvements which boosted the real estate
Spanish GDP annual and quarterly variation
sector. The fourth quarter of 2014 saw Spanish GDP grow
3
by 0.7% and the average annual number of employed
persons rise by 434,000. However, recovery and growing 2
1,6
2
confidence must be more widespread to properly address 1 1,2
the challenges posed by the risk of euro-zone recession- 0,6
%0 0
financial obstacles, job insecurity and a declining labour
force, critical indicators for demand in the housing sector. -1 -1
-1,5
Graph 3 highlights the sharp contraction in the mortgage -2 2 -2,1
-1,7
-2,2
market and its moderate recovery by the end of 2014. -2,7
-3
2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Quarterly var. Annual var.
Source: INE (Office for National Statistics).
Graph 2 Graph 3
Spanish unemployent rate, active population and number of employed Change in the number and value of mortages granted in Spain
25.000 30 2.000.000 350.000.000
1.800.000
25 300.000.000
20.000 1.600.000
1.400.000 250.000.000
20
15.000 1.200.000
200.000.000
Number 15 Une- Number 1.000.000 Value
(k.) ployent 150.000.000
10.000 800.000
10 rate %
600.000 100.000.000
5.000 5 400.000
50.000.000
200.000
- - 0
‘02 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘08 ‘09 ‘10 ‘10 ‘11 ‘11 ‘12 ‘13 ‘14 ‘14 ‘07 ‘08 ‘08 ‘09 ‘09 ‘10 ‘10 ‘11 ‘11 ‘12 ‘12 ‘13 ‘13 ‘14 ‘04
Q1 Q4 Q3 Q2 Q1 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q1 Q4 Q3 Q2 Q1 Q4 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
Unemployment rate Labour force Working population Number of mortgages Value of mortgages
Source: INE (Office for National Statistics). Source: INE (Office for National Statistics).
Population decline and aging as the main Spain has recorded a population decline which, together with
demographic challenges for the residential decreasing birth rates, limits the potential growth of housing
sector demand in the mid and long term.
The once strong population growth seen up to the start of the
crisis as the result of the unprecedented arrival of international At the same time, population aging remains another major
immigrants, has come to a halt. What´s more, since 2013, residential challenge. From 1998 to 2014, the percentage
of the population over 65 has grown from 16% to 18.1%,
Graph 4 according to the Census figures. Thus, key to investment
decisions in the sector involves the specific housing needs
Population changes in Spain (absolute and relative figures) and preferences of the elderly in terms of location, size,
48M 2,5
amenities, and services.
47M 2
46M
1,5
45M
44M 1
%
Number
43M 0,5 Graph 6
42M
0
41M Population by age, gender and nationality in Spain.
0,5 2000, 2014
40M
39M 101 Spanish men Spanish women
-1
91 Men foreigners Women foreigners
‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14
81
Pop. increase Population 71
Age 61 2000
Source: Padrón de habitantes. 51
41
Graph 5 31
21
Birth rate evolution in Spain (births per thousand inhabitants) 11
1
20 -1 0 1
18
16 101 Spanish men Spanish women
14 91 Men foreigners Women foreigners
12 81
Number 10 71
8
61
6
Age 51 2014
4
2 41
- - 31
‘75 ‘77 ‘79 ‘81 ‘83 ‘85 ‘87 ‘89 ‘91 ‘93 ‘95 ‘97 ‘99 ‘01 ‘03 ‘05 ‘07 ‘09 ‘11 ‘13 21
11
Births per thousand inhabitants Lineal (Births per thousand inhabitants) 1
-1 0 1
Source: INE (Office for National Statistics). Source: Padrón de habitantes.
Improving signs in the residential market
Housing development at historical lows But… towards demand recovery
After an intense phase of housing construction, typical of The weak household growth in recent years (effective
upward economic cycles in Spain, a downward trend has demand) together with the momentum of housing
lasted for five years. Excessive housing stock along with investment (investment demand) result in an incipient
weak demand have encumbered these figures and their yet fragile rise of housing demand. This fact is reflected by
expectations in the short and mid term. While in 2008 the an increase in the number of housing transactions: Until
number of dwellings completed exceeded half a million the fourth quarter of 2014, the annual number of housing
units, in 2014 the annual figure did not exceed forty transactions amounted to 365,594, which means 65,026
thousand dwellings. more acquisitions over the previous year.
At the same time, it is important to mention that such sales
are justified by the greater dynamism of the second hand
housing market compared to the stagnant new housing. In
fact, 85% of total registered transactions occurred in the
second-hand housing market.
Graph 7 Graph 8
Annual number of dwellings started and completed in the free market Number of annual transactions by type of housing (new housing/second hand housing)
600.000 in Spain
1.200.000
500.000
1.000.000
Number of 400.000
800.000
dwellings Number of
300.000 transactions
600.000
200.000
400.000
100.000
200.000
‘08 ‘09 ‘09 ‘09 ‘09 ‘10 ‘10 ‘10 ‘10 ‘11 ‘11 ‘11 ‘11 ‘12 ‘12 ‘12 ‘12 ‘13 ‘13 ‘13 ‘13 ‘14 ‘14 ‘14 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q
Q4 Q1 Q2 Q3 Q4 Q1 T2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14
Dwellings started Dwellings completed New Housing Second Hand cousing Total
Source: Ministry of Public Works. Source: Ministry of Public Works.
The price drop is bottoming out Therefore, this changing trend of prices is mainly based on
Demand recovery and low production levels are behind the the attractiveness of specific residential assets located in
slowdown in the decline of housing prices, both in the rental prime areas, coastal locations or areas with potential
and the home-ownership markets. However, it should be revaluation.
noted that the housing market is extremely segmented.
Graph 9
Quarterly variation of housing prices in Spain (rental market and home-ownership market)
0,5
0
-0,5
-1
%
-1,5
-2
-2,5
-3
‘08 ‘08 ‘08 ‘08 ‘09 ‘09 ‘09 ‘09 ‘10 ‘10 ‘10 ‘10 ‘11 ‘11 ‘11 ‘11 ‘12 ‘12 ‘12 ‘12 ‘13 ‘13 ‘13 ‘13 ‘14 ‘14 ‘14 ‘14
T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4
House to buy House to rent
Source: Ministry of Public Works.
Average free housng price per province (€sqm) 4Q2014 Average free housing price (€sqm) annual variation (%) per
province 3Q2013-3Q2014
2014 4Q Annual Variation
774 – 942 942 – 1120 1120 – 1274 1274 – 2701 -6,1 – -4,8 -4,8 – -2,5 -2,5 – 0,2 0,2 – 3,6
Variation (%) average housing
Provinces Average housing price (€ sqm) Provinces
price (€ sqm) 3Q 2013 – 3Q 2014
Guipúzcoa 2,702 Cantabria 3,6
Vizcaya 2,369 Sta. Cruz de Tenerife 2,5
Provinces with the greatest
Provinces with the highest price Madrid 2,033 Cádiz 2,5
positive variation
Álava 1,982 Baleares 2,4
Baleares 1,912 Málaga 2,4
Ciudad Real 774 Burgos -6,2
Jaen 786 Zamora -6,0
Provinces with the greatest
Provinces with the lowest price Cuenca 801 Ávila -6,0
negative variation
Teruel 802 Soria -5,8
Toledo 807 Segovia -5,8Housing effective demand trends: the growth opportunities for residential investments. As reflected in graph
of rental housing to the detriment of home- 10, the weight of households living in rental housing at market
ownership prices went from 10% in 2004 to 13% in 2013.
The challenges still posed by labor and financial markets,
the lack of confidence towards the property market and The question now is to determine to what extent these trends
the end of tax relief have shifted demand for housing will continue or, if access to the property will rebound, and if
ownership towards the rental sector. Consequently, the so, when and with what intensity.
weight of households living in rental housing has increased,
resurfacing a traditionally weak tendency, and presenting new
Graph 10
Distribution of households
4% 7% 3% 7%
by housing tenure in Spain.
2004, 2013 10% 13%
Home-ownership
Rental housing at market prices
Rental housing below market prices 79% 78%
Free transfer
Source: Survey of Living Conditions.
Graph 11
Percentage of households renting at market prices per region. 2004, 2013
30
25,3
25
20 19,9
17,9
16,5
% 14,0 14,7
15 12,9 13,8 13,2
13,0 12,7 12,9
11,3 11,5 11,9 11,5
10,0 10,9
10,1 11,0 11,7 10,5 10,0
9,3 9,8 9,7 8,9 9,2
10 8,7 7,9 7,1 7,0 7,6 7,2
6,4 5,6 6,3
5,2
5
-
Nacional Andalucía Aragón Asturias Illes Canarias Cantabria Castilla y Castilla Cataluña Valencia Extremadura Galicia Madrid Murcia Navarra País Vasco La Rioja Ceuta0
Balears León La Mancha
2004 2013
Source: Survey of Living Conditions.Housing affordability indicators in steady
decline
Since the beginning of the crisis, housing affordability
indicators have fallen in response to lower prices and declining
mortgage interest rates. However, these favourable conditions
are still affected by the tough requirements to access credit as
well as households’ economic and employment difficulties.
Nonetheless, as financial conditions improve, access to home-
ownership is expected to increase slightly.
Graph 12 Graph 13
Spanish housing affordability indicators evolution (first home)* Average mortgage interest rates (over 3 years) to buy in the free housing market and
Euribor evolution
35
30 5
25 4
% 20 % 3
15
2
10
5 1
ene/jul ene/jul ene/jul ene/jul ene/jul ene/jul ene/jul ene/jul ene/jul ene/jul ene/jul ene/jul ene/jul ene/jul ene/jul ene/jul
2009 2010 2011 2012 2013
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Price/income ratio Housing affordability (1st home) Averatge mortage interest (over 3 years) Euribor
Source: PwC analysis, Survey of Living Conditions, Spanish Mortgage Asociation and Bank of Spain. Source: Spanish Mortgage Asociation (AHE).
* Data refers to 1st January of each year.Emerging forms of living: smaller and diverse composed by one person, single parent families and couples
household typologies without children.
Demographic, labor and social changes are reflected in the forms
of cohabitation, in such a way that, household size is increasingly This transformation of household typologies, to the detriment
smaller and household composition increasingly diverse. of the traditional nuclear family, is of great relevance for
planning future residential developments and for processes
Therefore, households which have gained greater importance in of rehabilitation and renovation that are already taking place.
recent years are one and two person households. These patterns This is because household changes involve new and growing
are clearly in line with the increase of new family forms, demands that affect tenure, dwelling size and amenities not just
related to the interior space but also to the environment where
it is located.
Graph 14 Graph 15
Number of households by number of people living in them in Spain Changes in household typologies in Spain. 2001, 2011
45
6.000 39,1
40
35,0
5.000 35
30
4.000 23,2
% 25 21,0
20,3
% 20 17,3
3.000
15 11,5
2.000 9,4 8,2
10 8,1
1.000 5 2,8
1,0 1,4 1,9
-
2002 TIV 2005 TIV 2008 TIV 2011 TIV 2014 TIV One person Unrelated Non nuclear Lone parent Couple without Couple with 2+households/
household persons... family family children children other...
1 2 3 4 5+ 2001 2011
Source: EPA. Source: Census 2001, 2011Residential trends, expectations and
opportunities
What?, Who?, Where?, How much?
he Spanish labor market and subsequent financial difficulties still raise significant challenges to the real estate sector.
T
However, the path to economic recovery and its gradual strengthening draw an incipient turnaround that stimulates demand
and residential investment. This is reflected by an upturn in transactions and a recovery of housing prices.
lthough further measures are required in the long-term, the economic recovery could help counteract residential real estate
A
Background setbacks arising from population decline.
he imbalance between housing supply and demand, generated by excessive production, restricts the possibilities of new
T
residential developments to attractive locations in major cities or along the coast line.
Urban rehabilitation and renewal will remain the main areas of action over the coming years.
pain´s aging population introduces new investment opportunities that require implementation of strategic mechanisms to
S
understand and respond to these changes. Housing renovation and mobility caused by growing appetite for more suitable
services are now common demands among the elderly.
Supply
I n the short term, a slight increase of housing demand is expected due to the increase in the number of households, the rise of
an effective demand constrained by the crisis and a surge of investments. However, in the mid and long term, strong demand
growth is not expected due to continued population decline.
ersistent difficulties of households have boosted a weakened rental market, leading to a wider range of investment
P
opportunities previously uncommon in Spain. As access to credit improves in the coming years, an upturn in housing demand
for purchase is expected. However, it will be a slight increase given the factors that are driving growth in the rental market:
tax relief suppression, increased labour mobility, and the emergence of new family forms and their respective residential
needs.
ging population, diversification in the forms of living and gradual reduction of household size imply major changes in
A
housing demand and residential preferences. According to these changes, smaller housing suited to needs and located in a
central area are gaining relevance.
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Trébol Team – Contact persons
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Leader Partner Research
+34 915 684 400 +34 915 684 400
enrique.used.alonso@es.pwc.com almudena.martinez.del_olmo@es.pwc.com trebol@es.pwc.comYou can also read
