While the property recovery is well underway in Spain a warning has been issued that another housing bubble could be on the horizon between 2018 and 2020.
According to a leading economist the risk factor is that the real estate market could be seen as too good an investment and demand could push up prices. Some Spanish estate agents are also concerned about this kind of scenario.
Ignacio de la Torre, economist and head of the investment firm Arcano, told a recent industry conference that before the economic crash in 2007 easy credit and the mistaken assumption that real estate was a one way bet led to a buying spree.
The logic was that prices would always rise, in a classic bubble dynamic. The more people invested, the more prices rose, so the more people invested, and so on, until the bubble burst.
Currently property is cheap and interest rates low and de la Torre said it is easy to understand why more and more Spaniards are opting to invest in local real estate, many of them using mortgage financing that has never been so cheap.
However, he believes that the attractiveness of property as an investment could inflate another bubble in the next two years. ‘Speculative money will go to the residential sector in search of yield and prices will rise further than expected and further than salaries. It will all happen sooner than we think,’ he said.
He believes such a scenario could be a averted if the European Central Bank was able to stop banks lending more than 60% LTV.
But Mark Stucklin, of Spanish Property Insight, believes that this is only true of some real estate hotspots in the big cities and on the coast, and not all over Spain, as happened last time around. He pointed out that in many parts of Spain the property market is still depressed.
The Association of Spanish Property Agents (API) has also warned of another bubble in the making, and called on the Spanish Government to take measures to head it off. It wants increased market transparency and consumer protection to make the market safer and more stable and avoid a repeat of the disastrous consequences of the last boom and bust.
Diego Galiano, president of the association, claims that the bad practises so common in the last boom are starting to appear again, making Government intervention necessary, including tightening up mortgage lending.
‘The API association has a vested interest in exploiting fears of another bubble to call for more regulations if it means more members and fees for the association, and less competition. But I have to agree that regulation is necessary,’ said Stucklin.
‘Almost anyone can set up as a broker in Spain, so professional standards can be dismal, especially when it comes to selling property to foreign buyers. In the last boom some of the biggest companies in the business were nothing more than unscrupulous hard-sell operations, and I hear that some of the key players from those companies are back in business preying on unsuspecting buyers in the new cycle. When sales boom, and especially when bubbles form, unsuspecting foreign buyers walk into a minefield,’ he added.
