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Real Estate Starts To Drive GDP Again After 7 Years In Decline

Posted by: In: Real Estate 06 Apr 2015 Comments: 0 Tags: , , , , , , , , , , ,
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6 April 2015 – El Mundo

On the demand side, household consumption and the recovery in investment in the construction sector are the components that drive growth. And, on the supply side, construction has reappeared on the scene again after seven years of harsh decreases. The same elements with which the crisis started in 2007.

In light of this data, the recovery is therefore bracing itself with identical components to those that led to two recessions, in particular the return of property.

The fact is that, although it is likely that errors from previous periods will not be committed, for example, the abolition of tax deductions, incentives for developers and easing of credit, housing has had an important impact both on the banking sector, as well as on the economy as a whole. For this reason, many analysts think that the production model of the Spanish economy should be more diversified and depend to a lesser extent on construction.

Most of the indicators suggest that the property market has been stabilising since 2014 and is now brimming with strength. The recovery in the gross added value of the sector is already materialising. After 24 consecutive quarters of negative growth, with annual decreases of more than 15% in 2010 and 2012, the sector recorded its first, albeit meagre, upturn (0.02%) in the third quarter of 2014 and bounced back forcefully in the fourth quarter, growing by 3.4%.

All of this has meant that construction at current prices (€53,829 million) accounted for 5.1% of GDP. It still only accounts half of what it represented at the start of the crisis in 2007 (10.1%). But experts expect a rapid acceleration.

In terms of investment in construction, possibly catapulted by the activation of public works in the face of new electoral commitments and also by the increase in building (activity), the sector recorded its first positive annual growth rate since the crisis (and the second quarterly increase) after 26 quarters of consecutive decreases. Therefore, the decline is deemed to have come to an end.

Specifically, residential investment increased by 0.4% in inter-quarterly terms during the last three months of 2014, whereby completing four quarters of gains. According to the Bank of Spain, all of this seems to mark “a change in the cycle for this component of demand”. Moreover, the indicators available from the first quarter (of 2015) point to a continuation of this trend in a context in which new building permits recorded a new upturn.

Meanwhile, the notarial statistics show that house transactions increased by 20% at the end of the year, with an average transaction volume of 30,000 homes per month. This recovery is concentrated in the segment of used homes and is continuing to benefit from the increase in purchases by overseas citizens. Now Spanish citizens have joined the drive to make house purchases.

Other indicators in the real estate market also show the same trend, with an increase in house sales and in house prices. Thus, in 2014, for the first time since the crisis started, the segment experienced a positive average annual increase (0.3%) following decreases of 10.6% and 13.7% in 2013 and 2012.

But, as Santiago Carbó and Francisco Rodríguez note in a report prepared for Funcas about the start of the recovery in the market, the real estate and construction sector “have unquestionable importance for the economic growth of Spain”. For this, they say that now that the economy is recovering “the role of (the) construction (sector) will become significant, sooner or later”. Above all, it is important for the generation of employment. In this way, construction contributed more than any other sector to the creation of more than 96,000 new Social Security memebrs in February; construction alone accounted for 26,000 jobs, i.e. more than a quarter of the total. The number of social security contributors has returned to one million (people); in 2006, there were 2.5 million. In terms of employment, the number of people has decreased by 62,000 with respect to the same month last year.

The emergence of the construction sector in (terms of GDP) growth will be more important this year and in the future. According to the Bank of Spain, the recovery of the added value of construction companies has continued during the first months of 2015. Meanwhile, Funcas indicates that, as a result of the more vigorous than expected behaviour of consumption and construction, GDP (growth) should reach 3%, versus the 2.8% that the Bank of Spain currently predicts.

Original story: El Mundo (by Francisco Núñez)

Translation: Carmel Drake

The post Real Estate Starts To Drive GDP Again After 7 Years In Decline appeared first on Aura Real Estate Experts.

Source:: AURA Real Estate Experts

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