The real-estate industry in Spain has been affected by a bubble whose main impact affected the residential construction sector and loans to developers. In 2013, real-estate activity in Spain underwent an adjustment process to tackle the imbalances that had accumulated over the former years. Some of them have already been significantly corrected, above all those relating to the significant weight of residential construction as a proportion of the Spanish GDP, which has declined from its peak in 2007.
As regards construction, the number of housing starts in 2013 registered an all-time low with 31,400 units according to the latest available information in 2013, although there are already clear signs of it having bottomed out, thus completing the adjustment in residential construction. Consequently, the existing housing stock is expected to be absorbed and the balance sheets of financial institutions will finally be restructured. Proof of this is that, in 2013, sales, although weak and below the figures for the same period in 2012, exceeded the number of new finished houses within that timeframe.
The fact that sales have exceeded housing construction has contributed to a decline in the stock, which is easing pressure on prices. In fact, in those regions where there was less excess supply, residential depreciation is milder. In the third quarter of the year, prices have varied by geographical area, with slight increases in some markets, especially along the coast, while the adjustment continued in inland regions. At the end of 2013, prices had already been adjusted by 36% from their all-time highs, and the trend points to price stabilization in 2014.
Despite the fact that sales continue to be weak, there are elements in demand that suggest potential improvements in the medium and long term. One example is that cash purchases by Spaniards are increasing gradually. Moreover, at current prices, the Spanish market is becoming increasingly attractive for foreign investors, whose presence is increasing.
Overall, the residential real-estate sector has undergone a significant adjustment and the economic recovery that appears to have begun in Spain in the second half of the year 2013 should result in a gradual increase of demand, with prices stabilizing in those markets more geared to Spanish buyers.
