There is definitely more optimism around in the Spanish property market at the end of 2017 and heading into 2018. And that’s also true in the Costa Blanca region. However, it may be too soon to to be totally confident that everything is going in the right direction. Perhaps there is still a possibility that economic and political issues could make the market change course. One that springs to mind is the situation in Cataluña . If the economy slows there it may spill over and negatively affect national growth. Nevertheless, the statistics are looking good. According to Q3 2017 figures property prices rose an average 2.3% in the period, the 9th consecutive positive quarter. Over the first three quarters average prices rose 5.6% when compared with the same period in 2016.
Although these figures are undoubtedly positive there’s still a long way to go before the property market is out of the deep hole it’s been in for the last decade. So far, Palma de Mallorca is the only location in Spain where prices have reached pre-recession levels. Meanwhile, in most places prices are still anything between 20% and 30% below pre-crisis highs. And although some destinations show Q3 prices rising well ahead of the average, for example Madrid (12.3%) Barcelona (10%) and Balearics (9.1%) it’s was different story elsewhere. During the same period prices actually fell in Asturias (-0.3%) and four other regions were at 1% or below However, in our opinion, property buyers from overseas shouldn’t focus too much on national price trends. This is because Spain has two property markets and they operate completely independently of each other.
And even within the two markets there are further divisions between prime and secondary locations. Prices are growing in the prime areas but remain stagnant in the secondary ones. Average prices tell buyers much more about the domestic market. But 65% of all property purchases take place in just four regions. Unsurprisingly, one of those is Madrid while the rest are where the majority of foreign buyers head for, either for permanent living or second homes. One of those regions is the Costa Blanca.
The Costa Blanca is the 200 kilometre stretch on Spain’s eastern Mediterranean coast. Alicante is the provincial capital and Javea and Denia are the prime locations for overseas buyers. However, the Costa Blanca is also more loosely used to describe everything between Cataluña and Andalucía, that is, the provinces of Valencia, Castellón, which make up the Comunidad Valenciana, and Murcia. While it is true there are high-rise and high density resorts on this coastline it is also the location of some of Spain’s most stunning beaches. These range from unspoilt white sand beaches to small, rocky coves and in Valencia, one of Spain’s most beautiful and historic cities.
There are more foreign buyers in this region taken as a whole than anywhere else in Spain. The notarial returns for the first half of 2017 showed a total of 15,368 purchases made by buyers from overseas, compared with 23,771 during the whole of 2016. Although the second half figure won’t be available until Q2 of 2018 we can see that the region is on target to have the best result in a decade. However, this reports focuses on the Alicante region as it is the most active, at least in respect of overseas buyers. As a result, it is an excellent example of what is happening in the different sectors of the property market and clearly shows why we maintain that the overseas and domestic markets operate to different rhythms.The Costa Blanca is the 200 kilometre stretch on Spain’s eastern Mediterranean coast. Alicante is the provincial capital and Javea and Denia are the prime locations for overseas buyers. However, the Costa Blanca is also more loosely used to describe everything between Cataluña and Andalucía, that is, the provinces of Valencia, Castellón, which make up the Comunidad Valenciana, and Murcia. While it is true there are high-rise and high density resorts on this coastline it is also the location of some of Spain’s most stunning beaches. These range from unspoilt white sand beaches to small, rocky coves and in Valencia, one of Spain’s most beautiful and historic cities.
Alicante, along with the rest of Spain, has endured the worst economic crisis in Spain’s recent history. It’s true the unemployment rate is falling but at 16.4% it’s still the second worst rate in the E.U. Only Greece is worse. And in spite of the improvement the under 35 age group is still suffering disproportionally with an average rate of 38.2% unemployed. But we must remember that averages mask regional variations and it’s still above 50% in places. The grim reality is that at the end of 2017 five of the ten worst unemployment black spots in the EU were in Spain. As a consequence, purchasing power remains low in the domestic economy.
It is true that bank repossessions decreased 42% in the third quarter of 2017 compared with the same quarter of 2016 but, at the same time, population has decreased because of emigration. This is due to other nationals returning to their countries but also because Spaniards are being forced to look for a job abroad. The bad news is that those Spaniards are the most skilled and best educated. Statistics like these help explain why the domestic property market is still much weaker than the international one.
On the other hand, the overseas property sector experienced continued growth during 2017 on the Costa Blanca. Attracted by the Mediterranean climate and wonderful beaches, overseas buyers are also being drawn by prices still at levels last seen back in 2002. In the first two quarters of 2017, Alicante province had more foreign buyers than any other region in Spain, a total of 9322 transactions, with Málaga second place with 7,254 purchases followed by Barcelona (3,869), Madrid (3,458) and Santa Cruz de Tenerife (3,013). Compared with the same period in 2016 international purchasers increased in Alicante province by 15%. And while across Spain overseas buyers accounted for approximately 19.4% of the total property market in Alicante province during the first two quarters of 2017 overseas purchasers represented an astonishing 46.27% market share. In 19 municipalities in Alicante there are more foreign inhabitants than Spaniards.
We believe the most reliable way to compare prices in different regions and locations in Spain is to look at the price per square metre. With asking prices all over the place this is a much better way to check if you are paying the right price for current market condition.
So, the average paid in the first three quarters of 2017 was €1,250 per square metre against €2,000 at the peak of the market in 2007. And there has been very little upward pressure on the price per square metre since 2013. This means prices are still about 38% below the pre-crash peak. As a result, of all areas that attract large numbers of international buyers the Costa Blanca represents one of the best buying opportunities in 2018, with potential for significant capital growth in the medium term. However, in the most prime locations on the Costa Blanca per square metre prices are already well above the average; €1,844 in Altea, €1,822 in Calpe and €1,623 in Denia. As a comparison to show how affordable the Costa Blanca still is prices per square metre in Andalucía are at least 30% higher and even more in the most prime locations.
My conclusions are very similar to last year’s since the main factors affecting the property market on Spain’s eastern coasts are unchanged, or changing only very slowly. As regards the domestic market I believe it is going to remain flat or may even fall slightly for two main reasons. Firstly, unemployment remains around 17% of the active population. A recent report suggested it take an average of six years for a young person to find a job. There are signs of improvement but many new jobs are on temporary or part-time contracts and there’s been a big increase in the number of self-employed. And inevitably, many jobs are seasonal in an area with a large tourist economy, such as the Costa Blanca.
Secondly, although the banks are making encouraging noises that might lead one to think the mortgage drought is over, that’s all they are really, encouraging noises. A buyer will need a large deposit as bank valuations remain low relative to the price agreed. In addition, banks are are scrutinising the status of buyers as never before. So, while offers of 80% LTV give buyers hope, the subsequent low valuation often means they have insufficient funds. And the recession and housing crisis seems to have changed attitudes to home ownership in Spain, particularly among young families, and many now see renting as an alternative.
On the other hand, my expectations for the overseas market in 2018 are very positive. Spain is on course for another record-breaking year as regards tourism and the predictions are excellent on the Costa Blanca. According to the Ministry of Housing statistics, there was an 15% increase in the number of property purchases made by foreigners in Alicante in the two first quarters of 2017, compared to 2016. In my opinion, this trend will continue in 2018. Finally, as far as prices are concerned I believe quality properties in prime locations will start to rise as increased buyer numbers come up against shortage of good stock. This may be as much as 5,5%, but in all other sectors, that is, secondary locations and average quality stock, the situation is different. In these places I think the best scenario is one of prices stabilising but with the possibility of further falls. Nevertheless, the Costa Blanca remains a top location, one of the most affordable on the Mediterranean coast and very competitive compared with other regions. Bear in mind that the average price for a second hand property is €119,000 and €224,000 for new constructions. But prices like these are not going to remain for much longer, certainly not in the prime areas that most overseas buyers head for.