Dear friends,
By now you must have seen the “Keep Calm and Carry On” posters, t-shirts, coffee mugs, and accessories. The story goes that in 1939 the United Kingdom was preparing for the war and government planners were certain than Germany will perform destructive air raids on cities and industry. They designed and printed millions of these posters and were ready to put them on display if needed, to raise the morale of the British public. The air raids did materialize, however the poster was never displayed. A copy was discovered in a bookshop in 2000 by chance, it became popular, and now it’s everywhere. But then you might ask, what does this have to do with Spanish Real Estate? Let’s see.
Last year was a tumultuous one politically and economically. Bonds and stocks took huge hits, cryptocurrencies were annihilated, and inflation was eating into idle cash. Many analysts think that 2023 might be the same or worse. They also forecast that this year is the year that Real Estate prices will go down by a lot. The story goes that prices are too high, interest rates have made mortgages very expensive, rents are lagging, and banks have decreased their Loan-to-Value rations and ask owners to use more cash.
We will explain why we think this is wrong and why buyers should keep calm and carry on buying. Let’s examine the analysts’ claims one by one:
- High prices – prices of Spanish Real Estate have been rising since 2015 but are still below the 2008 peak. In the meantime Spanish GDP is higher, incomes are higher, tourism is higher. What is lower is the number of issued building permits. Therefore more demand and less supply can only lead to one outcome, even higher prices.
- High mortgage interest rates – while mortgage interest rates are higher, they are still standing in the 2.5-3% range, which is historically very low. Also inflation has been slowing, which means that the European Central Bank will not raise interest rates a lot more.
- Lagging rents – rents in Spain had double-digit growth in 2022 and will continue to move up. The economy is doing well, the number of multinational firms moving their operations to Spain is increasing, more startups are being created, and more digital nomads are moving to Spain as “work from anywhere” is now a thing. At the same time there are less newbuilt homes and hence renovated properties (like the ones that Artemis is investing in) are in high demand.
- Lower LTVs – since the 2008 crash, Spanish banks have learned their lesson and are giving LTVs of 70% maximum. This is already low, compared to France and the UK where 100% was the norm up to 2020. What that means is that people buying in Spain are using more cash anyway and are less likely to sell their homes or to be discouraged by a lower LTV, compared to northern European countries.
Do you agree? Contact us to start your project now. Do you disagree? Contact us to tell us why and we might surprise you.
Until the next one!
