The Spanish and Portuguese real estate cycle will be much longer than the traditional 12-years and despite a generalised slowdown, Spanish property markets will keep on rising, predicts Ignacio de la Torre, Chief Economist at Spanish investment bank Arcano.
When it comes to housing markets, what sets Portugal and Spain aside, is that they are not relying on foreign loans, he said at an event organised by the Portuguese Association of Real Estate Investors and Developers (APPII).
“If you compare both markets before the crisis, house prices were rising sharply but didn’t factor in the risks. Both countries’ systems were servicing huge current account deficits and relied on a lot of debt versus GDP. When you rely on debt over GDP, sooner or later you will create a big problem,” he said.
Spanish property prices rose by 2.4% in February, representing the 14th consecutive rise under 5%. However, the Spanish market is growing in line with wages; wages in Spain are growing around 2.2% while employment grows at 2%.
“Risks are critical. Both Portugal and Spain, for the first time in 40 years, are enjoying an equilibrium in their current account balances. We are not building houses relying on German loans. If you analyse how much the total debt-to-GDP growth ratio is, nominally speaking (families + corporations), we have healthy growth (above 1% is dangerous; both were at 3% by 2006). Today both Portugal and Spain have an intensity below 0% which is very healthy,” says the economist.
Both Portugal and Spain are deemed stronger and in a more financially balanced state than many other countries worldwide – ruling out the formation of another property bubble.
“A big crisis or Great Recession like we had in 2008, which led to a real estate, financial, sovereign debt and economic crisis, only happens once every 50 years.
We had one in 1929 and then in 2008 – it’s not going to happen for a long time. The origin of this type of crisis is when you have a sharp increase in private debt, meaning corporate and family debt. We are not in this situation either in Portugal or Spain,” he concluded.