DOOM OR BOOM?

In his 10th anniversary message, Olive Press Property Insider, Adam Neale, asks how the Spanish real estate market is likely to develop in 2023

MOST buyers and sellers I speak to these days keep mentioning the possibility of a downturn ahead. How could they not?

Just look at the news and there are daily reminders about economic headwinds, including in the real estate sector.

I’m sure you know the drill: inflation and rising interest rates, a looming recession, war in the Ukraine and tensions with China.

Yet, at the same time, there remains a lot of optimism in the Spanish property market and in the economy more generally that current problems are short term and temporary. Which version of reality is true and what does it mean for the Costa del Sol housing market?

Should we be optimistic or pessimistic?

Let’s start with the bad news. Inflation has risen due to a number of factors.

Some arising from Covid and the damage to supply chains after restrictions were lifted. Others from inflationary spending during attempts to stop economies from tanking and people going bankrupt.

Of course, there’s also the effect of the war on fuel costs and to try to rebalance the economy, central banks internationally have raised interest rates repeatedly this year.

Whether it works or not, interest rate hikes have a significant impact on the real estate market, in particular as they depress demand by raising the cost of borrowing.

There is more bad news when you begin to look at the Costa del Sol customer base, for example Sweden which represented 14% of Malaga province buyers.

THE CASE OF SWEDEN

In Sweden, 10-year mortgage rates are now between 4.44% and 4.9%.

On a €200,000 loan that means €1111/ month in debt payment.

A big jump in a year when the same mortgage could be had for 1.5%, giving payments of under €800/month.

And Swedish interest rates are still rising and rates are expected to reach 3.5% to 4% at the very least.

With the premium that banks charge on top of the prime rate, there could be mortgage rates of 6% before the increases end.

As a result Swedish home prices and sales are plunging in response. Prices for homes have declined by over 11% since March. The Riksbank predicts that the price declines will continue, indeed to 19.9% by late 2023 from their peak.

The reason is clear: Swedes are deeply in debt with a ratio of just over 200% debt to net income. In fact, all the Scandinavian countries have very high debt to net income ratios.