With the market stronger than before, the current Iberian real estate cycle will be long term, says the Chief Economist at Spanish investment bank Arcano, Ignacio de la Torre. The reason? Because both countries are not relying on foreign loans.
The responsible was the keynote speaker of the panel «Why Portuguese and Spanish Real Estate Markets will keep rising» at an event organised by the Portuguese Association of Real Estate Investors and Developers (APPII). Dismissing fears of another looming recession or property bubble in the Iberian Peninsula, during its intervention, Ignacio de la Torre explained that both Portugal and Spain are now in a stronger, more balanced situation financially concerning their housing markets than many other countries worldwide.
Arcano’s Chief Economist says that when looking at both housing markeys, many people focus on the returns and how much property goes up. But, too often they forget about the associated risks with returns.
«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 explained.
Looking at both markets today, they are growing in line with available income. In Portugal, wages are growing at around 3% while in Spain at 2.2%, with employment growth at 1% in Portugal and 2% in Spain.
«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.
De la Torre stresses that people and investors are now looking to finance their investments from savings rather than relying on foreign funding. Looking at the private sector in both Spain and Portugal, both corporations and families are saving. The total amount of leverage is coming down, which is healthy.
Original Story: Portugal Resident | Chris Graeme
Photo: Photo by Alfonso Romero in FreeImages.com
Edition: Prime Yield