The secret of the robustness of the Spanish residential market
The record figures for 2022 are due to the good performance of second-hand and not new housing, which avoids the risk of repeating the ills of 2008.
Although the coming months will see the economy cool down, the residential sector is demonstrating its ability to adapt to this new scenario, where the increase in the price of money and structural inflation has also led to a change in the savings and investment cycle, demonstrating the robustness and professionalism of a market at the international forefront.
Undoubtedly, this process of professionalization that real estate has undergone over the last decade, accompanied by a growing interest on the part of the end client as a result of a higher level of information, has allowed the residential market to experience an encouraging present and a promising future.
2022 was a record year for the residential market in Spain, with more than 600,000 sales and purchases, according to INE data at the end of November, which made last year the most active in the residential sector since the public body began its series in 2007. Undoubtedly, these record figures are due to the good performance of second-hand housing, which experienced an outstanding year last year, compensating for the slowdown in new construction, still far from the figures of the real estate bubble fifteen years ago. Herein lies the big difference with respect to 2008, which averts a risk of collapse for the sector. At the height of the construction boom, it ended up being absolutely impossible for demand to absorb a supply that was growing day by day, a very different scenario to the current one where the available stock of new construction is still insufficient to meet demand. To put this into context, five times fewer new homes are being built now than 15 years ago, when more than 600,000 approvals were granted in a single year, compared to 100,000 at the end of 2022. Moreover, there are no serious signs of overheating in the market. The ratio of formalized mortgages to sales transactions remains below one, with a high percentage of fixed-rate loans and a rate of effort to purchase a home that, in the third quarter of 2022, stood at 34%, compared to 55% in 2008.
However, the residential market has already discounted that this year will see an adjustment within expectations, given that, beyond the economic circumstances, it is difficult to maintain the pace of a previous year in which several elements came together, related to a buying frenzy and accumulated savings, typical of a post-pandemic scenario, as well as the economic tailwind that was still very favorable.
The robustness of the residential market is consolidated by the cross-cutting nature of a business segment in which the traditional residential market is intermingled with those who continue to see housing as the best investment and with other models such as the so-called build-to-rent, buildings that are built completely to rent out flats, student residences, tourist flats, and senior living. In short, a wide range of alternatives that demonstrate the capillarity of the Spanish residential sector, its professionalization, and its adaptation as a business model with a future.
This work by the entire sector over the last few years has allowed the residential market to consolidate and boost. The experience at a local level, having an extensive database to carry out the best valuation of properties and having the best and most accurate analysis of all relevant market data, allows faster and, above all, more efficient transactions, which improve the experience of buyers and sellers. The aim is to speed up decision-making, maximize the purchasing process, and reduce the risks in each operation. For example, knowing before competitors which areas are experiencing an increase in demand is a crucial factor for companies when it comes to offering the best product to the customer.
The residential market in Spain is going through one of its best moments, with a stabilization that allows it to overcome any economic cycle and consolidates its role as a spearhead within the real estate sector, one of the fundamental pillars on which the economic growth of our country will be based in the coming years. If we work well in the regulatory field, to provide maximum certainty to individuals and investors, real estate will be one of the great catalysts of the Spanish economy in the future and a mirror in which other countries will be able to look at.
Óscar Larrea is Senior Vice President of Evernest Spain.