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Engel & Völkers Licence Partner Madrid > Blog > The housing market sees no signs of bubble burst

The housing market sees no signs of bubble burst

One of the most dreaded words in the world of property market is the 'bubble'. Up to a decade ago, this situation destroyed one of the main engines of the Spanish economy. What's more, the recovery has been slow and costly so it makes sense to be cautious. Experts in the real estate field warn that home rentals in the capital are rising quickly, but they cannot say the same about the property sales market.

It seems evident that house prices in Madrid are growing gradually and steeply. In fact, according to data provided by the Ministry of Development and Íñigo de la Serna in the SIMA (International Real Estate Exhibition of Madrid), the average price per square metre is currently set at 1,525 euros, which is a 2.2% year-on-year growth. These data seem to clash with the ones given by the capital's College of Property Registrars, which confirmed an increase of 4.1% compared to the previous quarter and 7.7% in the interannual rate.

The figures from Tinsa IMIE General index and Large Markets were more prudent with an increase of up to 1.8% during the last quarter. However, this source places special emphasis on the increase in prices of real estate located in large capital cities. In fact, when analysing the data related to the archipelagos, particular attention is drawn to the 6.1% rise in the Balearic Islands and 4% in the Canary Islands.

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Taking into account these data, it is not surprising that the fear of a possible new real estate bubble is sprouting. However, the main players of the sector confirm that there is no reason to be fearful about the property bubble as these figures are due to the reactivation of the market and nothing else. In addition, it is believed that they are due to the updating of prices, which, due to the crisis, were far below their true figures. As a further point to note, it is worth mentioning that at this moment in time, property prices are at similar levels to those recorded back in 2004. This is far from the level that was reached in 2008 when the bubble burst.

The other major concern is the lack of consistency in the price increases. While it is true that in the entire Spain, the average price increase has been 4.01% as per the data provided by Felipe Rufino, this increase has been concentrated in strategic locations in the Spanish territory. According to this source, Madrid, for example, has revealed a growth of 5.05% while Valencia has experienced a 7% increase and Barcelona boasts an outstanding 11.59% in price increases.

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Regarding the capital of Spain, the neighbourhoods with the highest price increase include Tetuán, with 12%, Centro, with 12.7%, and Hortaleza, with 14%. Let us not forget that at this moment in time, the situation with the mortage interest rates, which are close to zero, is another encouraging factor for the consumer when buying a home. However, banks know full well what happened a few years ago and are now more cautious when granting mortgages to borrowers as they request for collateral and more guarantees before approving their loan application.

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