The Rise and Fall of the Spanish Economy
Spain has suffered a long period of economic uncertainty over the last nine years, but research has shown the country’s economy is bouncing back, with levels of gross domestic product set to exceed that of pre-2008.
Following the launch of the single currency in 1999, Spanish money became incredibly easy to borrow, with interest rates artificially reduced. This ‘cheap’ money led to excessive borrowing, record housing starts and inflated real estate prices.
This extremely high leveraging left Spain highly exposed to the impacts of the global financial crisis, leading to a major crash in the property market, and many construction projects left unsold or incomplete. This along with a shortage of property financing contributed to a steep decline in property prices.
However, since 2014 Spain has been on an upward trajectory, with sustained economic growth – in 2016 it experienced a growth of 3.2 %, outperforming that of other European countries.
The property market is also recovering with average selling prices and demand increasing over the last three years, and transactions are up too, particularly in terms of existing stock. New housing starts also saw a 70% annual increase in 2016, to approximately 85,000 units.
As well as a growing demand for property, we are also seeing an improved appetite from banks to lend in the region, thanks to sustained growth in property prices in prime investment regions such as Madrid, Barcelona, Marbella and the Balearics. This coupled with a healthy yield and increasing ‘occupier demand’, is enticing offshore banks to invest in lending platforms to accommodate existing and prospective clients looking to buy there.
Despite a rise in prices, Spain remains an attractive investment option in comparison to other Western European markets, except Portugal, and is indeed back on the radar of international investors.
On a macro-economic level, European economic recovery and record low-interest rates provide a level of security for international investors, and a stream of cheap credit makes Europe a lot more attractive an environment for investors. Spain’s beautiful climate and increasing domestic investment in property development are flooding the market with new properties providing a large supply to the ever-increasing demand.
The residential property market in Spain has certainly benefited from investment from foreign as well as domestic buyers. Furthermore, several institutional investors internationally have bought property developers, bringing professionalism, as well as capital, to the sector.
Because of the above changes, banks that have previously restricted their activities to more secure and less volatile countries such as France and Germany are increasingly considering Spain as a good area of credit investment.
In conclusion, banks are opening up to larger loan amounts, on competitive fixed and variable interest rates and on an increasingly interest only basis.
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