An increase in sales by foreign buyers and institutional investors has led to predictions that unsold homes in Spain will shrink to 563,000 units in 2015, a 40% decline from 2010.
Spain's landscape has become well-known for being littered with unoccupied housing developments, neglected by an almost stagnant domestic market. Meanwhile, foreign investment in Spanish property has increased exponentially in H1 2014, rising by more than 31% over the same period in 2013.
According to the latest edition of the Pulsometer real estate report prepared by Spanish Realtors Association IPE, the uptick in sales by foreign buyers is eating chunks out the large supply, providing a boost to the property market.
Increased investment depleting housing supply
"The purchase of non-residents continues to rise, growing at double-digit figures," José Antonio Pérez, director of the real estate department of IPE said.
There is significant regional variance in terms of transaction volume with areas such as the Costa del Sol seeing 90% of sales to foreign buyers, compared to the 30% average across Spain, the report says.
In some areas that have seen little construction activity, the supply of available homes has been cut most significantly, driving up property prices albeit slowly.
Regional variation according to foreign buyer requirements
Madrid is expected to see its supply of unsold homes shrink to 12,000 properties in 2015, an 80% drop from 2009. The report forecasts more than 29,000 sales in Madrid in the next year, a return to 2008 and 2009 levels.
As a result of price stabilisation and increased interest from foreign and institutional investors, it is anticipated that certain localities with the most pressing supply shortages will see an increase in new construction commencing at the end of this year.
The IPE report has an extremely bullish tone with plenty of "buy" signals and references throughout. However, the overall decline in supply does not factor in half-built or poorly constructed properties in bad locations which have very little chance of selling.
Two thirds of property transactions in many areas are settled with cash which the reports interprets as a positive sign that investors are shifting funds into real estate. It also demonstrates the heightened dependence on foreign buyers who typically pay in cash and the overall lack of available financing.
Almost 70% of property transactions in cash
The decrease in the oversupply of homes spells good news for Spain's real estate sector although prices will have to start rising consistently with domestic sales picking up before that will translate to a recovery in the market.
In 2014, Spain has emerged as the economic darling of the Eurozone with consistently positive growth throughout the year. In contrast, former economic powerhouse Germany has shocked financial markets with a string of dramatically negative data emerging from its economy.
It is clear that Spain is out of hot water economically although heavily reliant upon foreign investment, particularly in its property market. In order to consolidate recent growth, Spain's domestic market also needs to see an increase in transactions and mortgage availability to underpin sustainable growth across the country.