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Even with interest rates at their lowest point in history, most people either can’t afford the current prices or don’t want to take on more debt.
Even with interest rates at their lowest point in history, most people either can’t afford the current prices or don’t want to take on more debt.

Spain Growth Primed for Another Property Bubble

Of the 1.7 million job contracts signed in December last year, over 92% were for temporary jobs

Spain Growth Primed for Another Property Bubble

After spending the last few years groggily getting back onto its feet following the collapse of one of the most spectacular—and destructive—real estate bubbles of this century, Spain’s economy is once again being primed for another property boom.
In the last quarter, prices registered a year-on-year rise of 4.5%. Rents are also surging, though the country is still home to over half a million vacant properties. The cost of renting in Madrid and Barcelona, which between them account for 16% of those vacant properties, has reached historic highs, according to a new study by the online real estate market place Idealista. In Madrid, rents have risen on average by 27% since 2013; in Barcelona they’ve surged over 50%, MarketWatch reported.
This trend is being driven by two main factors: the recent explosion in tourist rentals, as well as a general shift in consumer behavior, as more and more people choose (or have little choice but) to rent rather than buy property.
While rents soar, Spain’s mortgage market, the biggest source of profits for the nation’s banks, is also showing signs of life. In 2016 the number of mortgages issued rose by just over 10% to 281,328. But that’s merely a fraction of the 1,324,522 mortgages signed in 2006, just before the bubble burst.
The banks would like nothing better than to issue more and bigger mortgages, but even with interest rates at their lowest point in history, most people either can’t afford the current prices or don’t want to take on more debt.
Government Subsidies
Spain’s fragile coalition government is determined to change that. In its latest budget announcement it revealed plans to set aside billions of euros in 2018 for publicly funded mortgage subsidies. Young people under the age of 35 who are earning gross incomes of less than €1,600 ($1,759.6) per month will be eligible for payments of up to €10,800 to help them buy their first home. There will also be rental subsidies for people under the age of 35, for up to half the price of the rent.
The government also unveiled subsidies to help the most vulnerable among the country’s elderly to pay their rent and utility bills, as well as provide much-needed funds for evicted families, many of whom still owe the banks tens of thousands of euros for the insanely over-priced houses they no longer own.
But the prime target of this initiative is the country’s downtrodden youth, which after years of internal devaluation and depression-era unemployment levels has been priced out of both the mortgage and renting markets.
In Spain today there are roughly two million fewer people under the age of 40 in full-time employment than there were in 2006, due to a variety of factors: demographics (i.e. there are now fewer people under the age of 40), rampant job destruction, and the mass exodus of young Spaniards to greener pastures. Even for many of those that chose to stay behind and actually found work, the reality is still alarmingly bleak: according to the Spanish daily ABC, of the 1.7 million job contracts signed in December last year, over 92% were for temporary jobs.
If Spain’s new, dwindling generation of 'workers' cannot afford to leave home, who will buy or rent the properties sitting idle on the balance sheets of the banks, “bad bank” Sareb, and the global private equity firms that piled into the market a few years ago. And the banks cannot exactly dump all the properties they own onto the market at one time, since it would push prices down, leading to balance sheet mayhem, though it would make prices and rents more affordable and would thus help solve the affordability issue.

 

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