- Engel & Völkers predicts that strong residential demand in a low interest rate environment will be the main engine of the market
- The highlight of the year will be the periphery of Madrid and Barcelona, medium-sized capital cities such as Valencia, Malaga and Alicante and premium tourist destinations for second residence
- The increase in new home constructions in top locations in large cities puts prices at historical maximums. In Madrid they will reach 15,000 euros / sqm
The economy's consolidation of the expansion cycle and the investors' appetite for low interest rates will maintain a positive scenario for the property sector throughout this year. In 2018, despite the price increases recorded in recent years, the market will continue to grow at a stable and sustained pace away from credit excesses and new bubbles.
The expectation that prices will continue to rise explains the demand for property investment in the main cities in an environment that benefits from low returns on many assets. In this context, the best locations and new constructions will take centre stage as the number of households with high purchasing power increases and international demand consolidates.
These are some of the conclusions that the Market Report of Spain and Andorra 2017-2018 has come up with. This report was prepared by the German firm, Engel & Völkers. The report foresees that, for the first time in the current expansion phase of the cycle, "many families who pay rent will opt for owning a home instead for two reasons: the banks' less strict requirements to grant mortgages and the high creation of employment ".
The report, which was presented today by Juan-Galo Macià, CEO of Engel & Völkers for Spain, Portugal and Andorra, states that "the rise in property prices will be more than 10% in an environment where sales will increase by 20%" . "Although the demand for improvement and investment will continue to be the main engines of the market, the number of properties purchased by first-time buyers ( mainly by young people) will begin to become significant," he adds.
If in 2017 the highest price increases were registered in Madrid, Barcelona and Palma de Mallorca, for 2018 Macià predicts that "the great highlights of the year will be the periphery of these cities, together with medium-sized capital cities such as Valencia, Malaga and Alicante and certain other areas that are used as holiday homes".
The reasons for the increase in prices should be sought in the two large cities, which, on the one hand, will cause an increasing number of families to favour buying a property in their own surroundings rather than rent in the centre. On the other hand, it will shift the investment towards medium-sized cities that have been placed in the spotlight like Valencia, Malaga and Alicante, by combining attractive offers and more moderate prices.
The new-builds will once again take centre stage before consolidating the promotion of houses in these demand-intensive markets that boast high volume of population and where a large part of the housing stock has been absorbed in recent years. The number of permits to build homes in 2018 will be close to 100,000 led by Madrid, Barcelona, Alicante and Malaga.
Madrid has four times more demand than supply
In 2017, the reduction in the supply of available homes in Madrid has boosted prices to double-digit growth, which, according to Engel & Völkers' forecast "will continue growing at around 11% in 2018, reaching 15,000 euros / sqm in prime areas ", estimates the general director of Engel & Völkers in Madrid, Paloma Pérez.
Perez expects that "purchases will increase by 13% throughout the year," although she warns that growth may be lower in the face of "the lack of supply and the financing limitation with the new mortgage law."
Retiro, Salamanca and Centro have maintained their hegemony as the most exclusive areas of Madrid in 2017, giving way to new fashionable zones that emerged outside the M-30 belt, such as Arturo Soria and Boadilla del Monte.
Photo: Paloma Pérez Bravo - Directora of Engel & Völkers Madrid
In Retiro and Salamanca, the majority of buyers are national, although there is an increase in the demand from Americans with high purchasing power, mainly Mexicans, Colombians, and Venezuelans. Although the middle-aged middle-class Spanish buyer is still the main customer for luxury housing (50%) in Salamanca, a new type of client with a more senior profile emerges more and more in a district where the highest average price is at 6,573 euros / sqm in the Castellana neighbourhood.
Buying a home in Centro is guaranteed to be profitable. In 2017, the average price increased by more than 10% to 4,450 euros / sqm, with Justicia as the most expensive area in the district. With a more affordable average price (4,415 euros / sqm) and greater supply, Embajadores has become the most sought after area.
The rental market has gained strength in Madrid, where the investors are attracted by the high profitability of buy to lets - around 6%. The Centro area, with an average price of 20.66 euros / sqm and Salamanca, with 20.55 euros / sqm, are the most expensive in the capital, although the maximum price of 67 euros / sqm that can be paid in Chamberí stands out. In 2018, the capital will experience a year of consolidation in the rental market with a price increase of 5%.
Moderate price growth in the centre of Barcelona
The housing market in Barcelona in 2017 was marked by the political uncertainty experienced in the last quarter of the year. As explained by Oriol Canal, CEO of Engel & Völkers Barcelona, "the fall of 2% in Barcelona's property prices in the last three months of the year slowed down the rise of 20% year-on-year, which was experienced in the three previous quarters so I have come up with a figure of 14% increase in housing prices."
This fall was caused by the drop in demand from international customers, with a decrease of 32% in the last quarter of the year, while the demand for the main residence from the national customer remained steady. Thus, in 2017, the demand from home buyers in Barcelona was divided among 62% of national customers - two points more than in 2016 (60%) - and 38% of foreigners from 47 different nationalities.
Looking to 2018, Canal notes that "the forecasts point to an increase of 4% in the asking price of homes and an increase of 3% in purchases in Barcelona, which will rise to 14% and 11%, respectively, in its metropolitan area. "
With regard to the rental market, at the end of 2017 prices had been consolidated after the strong appreciation of prices recorded in previous years and the forecast is that in 2018 they will maintain the same trend in Barcelona with moderate increases in the metropolitan area of the city.
The most sought after areas are the districts of Sarrià-Sant Gervasi, Les Corts, Eixample, Ciutat Vella and Gràcia. Also Diagonal Mar, which has transformed into one of the most premium areas of Barcelona presents an average price of 12,000 euros / sqm which is thrice as much as Vila Olímpica and Poblenou.
In Zona Alta, the most sought after neighbourhoods are Turó Park, Santa Amelia and Galvany. In Turó Park every type of property that goes on sale is immediately snapped up, which has made it one of the most expensive areas in Barcelona with an average price of 7,500 euros / sqm.
Valencia, on the way to breaking a record
Valencia's property market is on its way to break the 2007 record due to its attractive prices compared to other cities in the country and its position as a safe haven for investors who are fleeing the uncertainty in Catalonia. In 2017, the price of properties for sale in Valencia increased by an average of 10%, and in the opinion of Miguel Ángel Cantos, CEO of Engel & Völkers in Valencia, this is an increase that "will continue throughout 2018."
Similarly, the rental market will start the year with sharp increases of "up to 15%," notes Cantos, "mainly due to the completion of many tenancy agreements signed before the modification of the Law of Urban Leases (LAU) in 2013 " The strong demand for rent in the city of Turia already boosted prices by 6% in 2017.
Photo: Miguel Ángel Cantos - Director of Engel & Völkers Valencia
It is worth highlighting the greater presence of Spanish buyers in the city, which in 2017 increased by 20% to account for 73% of cases compared to 27% of foreigners. However, this situation was very different in the rental market, where the number of tenants were almost equal between national and international customers.
The most popular area of the city is the centre, where the Pla del Remi neighbourhood records the highest average price (3,394 euros / sqm). However, the Alameda-Costa area has an important growth potential due to the offer of amenities and current prices. In the area of Pla del Real, City of Sciences or Patacona, with average prices of 3,000 euros / sqm, maximums of 5,500 euros / sqm have already been reached.
The exclusive destinations in Costa Brava
Catalonia is a very attractive investment destination for foreign clients, both in the main cities and on the coast, where Costa Brava holds the greatest interest. The investment focuses on the most exclusive destinations such as Cadaqués, where the average price stands at 6,000 euros / sqm as well as the most premium areas of Platja d'Aro, among which is one of the top areas of the Costa Brava so is the urbanisation of La Gavina.
Located in the municipality of S'Agaró, the prices of the exclusive homes in La Gavina narrowly range from a minimum of 8,500 euros / sqm to a maximum of 10,000 euros / sqm. With an average price of 9,250 euros / sqm, it has become one of the most exclusive destinations in Spain.
Andalusia, high demand from foreigners
In 2017, foreigners accounted for 54% of home purchases in Malaga, with properties that rose by 11.5% to an average price of 2,872 euros / sqm. The most popular homes are the penthouses and single-family houses and the most sought after areas are La Malagueta and the historic centre, both with the highest average price in the city (3,000 euros / sqm).
The centre is experiencing a boom in the face of the massive influx of foreign investors looking for a second home, while rentals have picked up momentum in Malaga thanks to less supply and more demand. This explains why the average price of a home for rent has gone up by 20% to 12 euros / sqm.
In addition, foreigners make up the majority of the demand in Costa del Sol. Marbella boasts the most expensive properties and the average price has reached 6,500 euros / sqm in Puente Romano and 6,000 euros / sqm in Gualdamina Baja, Los Flamingos , Las Chapas and the Bay of Marbella. Same price as one of the most exclusive places in Puerto Banus such as La Zalageta.
Northwest zone: the re-emerging Galicia and consolidation of San Sebastián
Interest in the property market has resurged strongly in La Coruña, doubling the number of investors in 2017 compared to 2016. The average price of flats increased in the city by 10.5% to 2,430 euros / sqm, with Centro Ensanche, Real Street, San Andrés and Orzán being the most expensive areas.
For its part, Vigo has experienced a reputation for selling homes as an investment given the high profitability offered by rental properties. The most popular areas of the city are concentrated in Centro-Areal, where the average price of housing reaches 4,500 euros / sqm.
One out of every three people who bought a house in San Sebastián did it for investment purposes and paid an average of 5,540 euros / sqm, which is 10.8% more. The city has two of the most exclusive areas in the country: Miraconcha with an average price of 9,000 euros / sqm and the Romántica Area with an average price of 8,450 euros / sqm.
Canary Islands and Balearic Islands
85% of buyers in El Puerto de la Cruz, Tenerife, are pensioners - mostly foreigners. With average prices of 1,500 euros / sqm for flats and 1,100 euros / sqm for houses, Santa Úrsula and El Sauzal make up the most expensive areas, with an average price of around 2,000 euros / sqm.
Last year the Balearic Islands witnessed its return to the property market. The investors were mostly Spanish and with the increase in the purchasing power of customers, they had a higher spending potential. Nowadays, the challenge for the islands is to find quality flats and pied à tèrre in Palma de Mallorca to cover the demand, something that has also happened in Menorca, in the towns of Ciudadela and Mahón, as well as in the city of Ibiza and its old town, Dalt Vila.
The Mallorcan capital will maintain its dynamism in 2018 with new price increases with Playa de Palma / El Arenal as one of the areas with the greatest investment potential since the average price for a villa is still below one million euros.
The increase in new-build homes
The demand from the international client has driven the average prices of new-builds in the most prime areas of the big cities up to historical maximum levels. In Madrid, where the lack of land regulation law and the scarcity of new developments -mainly in Centro, Salamanca and Retiro- mark the behaviour of a segment that does not fulfill the high demand so prices have skyrocketed. Thus, the average price of a new-build in the capital was between 6,000 and 15,000 euros / sqm in prime areas and it goes down to between 4,000 and 5,000 euros / sqm in the rest of the areas.
For its part Barcelona has seen an increase in new-builds in the city centre, mainly in the districts of Ciutat Vella, Eixample, Gràcia and Zona Alta, but highlights the increase in constructions developed in places where there is more land such as Baix Llobregat, Vallès and Badalona. The highest price for a new building in Barcelona was reached in Sant Gervasi with 11,000 euros / sqm.
The new-builds have seen a spectacular takeoff in Valencia throughout 2017. The investors showed eagerness, something that proved the rapid commercialisation of the newly built properties that go on sale in consolidated areas that, in spite of the high prices are reserved within a few weeks. Engel & Völkers starts with this flat in the centre of the city, near the river and on the beach with an average price of 2,000 euros / sqm, which can reach up to 3,500 euros / sqm in the prime area.