The real estate sector's activity in 2019 will undoubtedly be marked by the mortgage crisis that is beginning to emerge, as well as by inflated prices in major cities and the control of rental properties. These will be key factors in determining whether it is a good time to invest in Spanish real estate stocks. The year will unfold with considerable uncertainty due to other factors affecting the overall economy.
On the other hand, it is of particular importance that the slowdown in the Spanish economy, confirmed by the European Central Bank (ECB), somewhat alleviates the specter of a new bubble , in this case, the real estate bubble. This scenario raises serious concerns among small and medium-sized investors, beyond other technical considerations regarding the stock market values ​​that represent this important sector of the Spanish economy.
However, it's also important to consider other aspects that will give us some indication of how real estate transactions will unfold . These transactions are carried out through various strategies, ranging from buying and selling shares in this important sector of the Spanish stock market to simply investing in real estate. That is, buying apartments with the intention of generating returns in the short term. This doesn't preclude other alternative investment options in this financial asset, which is so popular among small and medium-sized investors.
Real estate sector: mortgages
The number of mortgages registered on homes reached 30.356, a 20,4% increase compared to October 2017, according to the latest figures from the National Statistics Institute (INE). The average mortgage amount was €126.926, a 4,6% increase. The average mortgage amount registered in property registries in October (originating from previously executed public deeds) was €138.171, 5,8% lower than in the same month of 2017.
Meanwhile, another key piece of data from the INE (National Institute of Statistics) is that the value of mortgages taken out on urban properties reached €5.594,4 million, 13,5% more than in October 2017. For residential properties, the capital lent amounted to €3.853,0 million, representing a 25,9% year-on-year increase. Furthermore, the report also highlights that, during this period, for mortgages taken out on all types of properties in October, the average initial interest rate was 2,57% (4,3% lower than in October 2017), and the average term was 23 years.
Changes in mortgage loans
62,4% of mortgages are variable-rate and 37,6% are fixed-rate. The average initial interest rate is 2,35% for variable-rate mortgages (3,5% lower than in October 2017) and 3,06% for fixed-rate mortgages (9,1% lower). Of the 5.355 mortgages with changes to their terms, 46,3% were due to modifications in interest rates. After the changes, the percentage of fixed-rate mortgages increased from 10,0% to 15,1%, while the percentage of variable-rate mortgages decreased from 88,7% to 83,4%.
The Euribor is the benchmark rate for the largest percentage of variable-rate mortgages, both before (76,4%) and after (77,5%) the change. Following the modification of terms , the average interest rate on fixed-rate mortgages decreased by 1,0 percentage point. The rate for variable-rate mortgages also fell by 1,0 percentage point. All of this data demonstrates that there is strong demand for this important financial product, which still offers a fairly competitive interest rate for borrowers. However, the first signs of an increase in the European benchmark index, the Euribor, are already visible, having risen for several months after trading at historic lows.
Rent through the roof
Another investment option is renting out properties, which has yielded very positive results for landlords . It's worth noting that this type of real estate occupancy is highly profitable, outperforming other financial assets. In this regard, a key statistic is that rental prices rose by just over 15% in the third quarter of 2018. This represents the highest price reached in the last 10 years, a period that includes the economic crisis.
As a result of this upward trend in rents, landlords are currently seeing a return of around 15%. This percentage, however, does not generate any returns on financial products, neither fixed nor variable income. It's worth remembering that the main banking products (fixed-term deposits, bonds, or high-yield accounts) barely exceed levels around 0,5%. This is due to the decrease in the cost of money, which has led to their profitability being at historic lows for several years now.
Is there a risk of a real estate bubble?
One of the most significant fears among financial and economic agents is that the much-discussed housing bubble could burst in the coming months or years. In this regard, experts in the sector believe that the conditions for such a bubble to emerge are not currently in place, at least not in the short term, which is of primary interest to investors. What is emerging in the housing market, however, is that housing prices are overheating , particularly in major Spanish cities.
From this general perspective, it cannot be ruled out, but opinions point in another direction, only warning of the risk that housing prices will continue to rise month after month . Indeed, there will come a point when this trend will have no choice but to moderate. This is a very specific problem present in Spain and not in other countries in our immediate vicinity. It is an aspect that could undoubtedly end up affecting the value of the construction sector in the national stock market.
Purchase and sale of apartments
These transactions have increased by 13% in the past year, although slight variations are possible from now on. In this regard, various studies and industry reports indicate that housing prices will rise in 2019, from the current average of €1.650 per square meter to approximately €1.800 per square meter. In any case, this appears to be a less significant increase than in previous years. The question now is whether this year will mark a turning point in the buying and selling of homes.
On the other hand, many small and medium-sized investors also want to invest their savings in Spanish equities . This can be a good idea, but it carries significant risk, namely the performance of these financial markets this year. It's important to remember that the Ibex 35 fell by more than 15% last year. Therefore, the risks are quite real, to the point that you could lose a considerable amount of money.
Dividend distribution
On the other hand, some of these listed companies distribute a generous dividend to shareholders, with yields ranging from 3% to 6% . This provides a guaranteed, fixed income every year, regardless of stock market performance. It's a highly original strategy for creating a fixed income within a variable income portfolio, circumventing the weak margins currently offered by various savings and investment products. This medium- to long-term strategy is aimed at a very specific investor profile: a defensive investor who prioritizes preserving their savings above all else.
At least in the short term, which is the one that investors are most interested in. What on the contrary, if it is appearing in the brick market is that the price of housing is overheating, especially in large Spanish cities. Beyond other technical considerations and also from the point of view of its fundamentals. In what is the X-ray of this important sector of the Spanish economy and one of the favorites by a good part of the users of our country at this precise moment.
These transactions have increased by 13% in the past year, although slight variations are possible from now on. In this regard, various studies and reports from the sector indicate that housing prices will rise in 2019, from the current price of €1.650 per square meter to approximately €1.800 per square meter.