Spain’s upcoming general election and what it could mean for the property market
After the PSOE’s disastrous results in the recent local and regional elections, the President of Spain and leader of the PSOE announced a snap election on 23 July. Despite stating he wouldn’t bring the elections forward from November, Pedro Sánchez is now taking the country to the polls almost six months earlier than expected.
General elections play a fundamental role in a country, and a change of political colour usually has profound effects on many sectors of society. They can include the property market, so in this blog post, we consider what the upcoming election could mean for real estate in Spain.
Who’s going to win?
First, the million-dollar question and currently the most difficult one to answer. Since the arrival of Vox on the far right and Podemos on the far left, Spanish politics has left its clear-cut PSOE Socialist party and PP conservative party division behind in favour of coalitions. As a result, predicting the outcome in July is a challenge.
Recent elections a clue
If the May local and regional elections are anything to go by, the PP could emerge as a likely winner. This right-wing party became the most voted across most of Spain and has consequently taken power in many regions and cities.
However, this rise to power comes with a caveat because, in key parts of the country, such as the Comunidad Valenciana, the PP has to rely on Vox to keep a majority. This coalition, already in place in Castilla-León, has led to national controversy on several issues such as agriculture and abortion.
Not for nothing did President Sánchez state that his aim in calling a snap election was to force Spanish voters to decide between the left or the PP in a national coalition with Vox.
Arrival of Sumar
Another recent surprise in Spanish politics came in the announcement of the coalition of all left-wing parties (other than PSOE) under the umbrella of Sumar. The current Second Vice-President, Yolanda Díaz, leads this wide-reaching group, whose results are unpredictable.
It remains to see if Díaz manages to convince left-wingers to vote for Sumar, rather than abstain. This factor currently constitutes one of the wild cards in the Spanish elections.
Polls are notoriously unreliable – those for the Brexit referendum are a classic example – and possible results vary wildly during election campaigns. However, polls can provide an insight into which direction voters might take, so we’ve included some of the most recent, all from mid-June.
DatosRTVE – this poll forecasts that the PP will be the most-voted party, gaining 138 seats. It would have an ample majority in coalition with Vox (42 seats). PSOE would end up with 101, which in coalition with Sumar (31 seats) and regional parties, would not give it a majority.
Sociométrica – this poll gives the PP the most seats (135, its highest since 2019) and Vox 46 seats. Between them, they could make up an easy majority. PSOE would have 94 seats and Sumar 34, well below half of Congress.
40dB – predicts 136 seats for the PP, which, together with the 38 for Vox, would almost be a majority. PSOE would end up with 94 seats and Sumar with 34, again a long way short of the majority.
CIS – the poll from the state polling house is the only recent one showing a slight margin for the PSOE over the PP. It forecasts 31.2% of the votes for the former and 30.7% for the latter. However, the PP could still form a majority in coalition with Vox.
As well as looking at which party might win at the end of July, we need to examine each party’s housing policies. Sky-high rents and rising mortgage payments have been at the top of political agendas on all sides of the political spectrum. However, their ways of tackling the housing problems vary greatly.
The current ruling party proposes facilitating more social housing, through refurbishing abandoned properties in city centres and turning unused public buildings into homes.
It also tried to tackle the regional imbalance in the recent housing law. However, the law includes regional regulations that many PP-government regions have already said they will not implement.
Possibility of implementation? High if the PSOE returns to the government.
The current opposition party wants to encourage more buy-to-let options for social housing by offering an 80% reduction on rental payments, reimbursed if the tenant buys the home after ten years. It also plans to implement financial incentives to reduce municipal taxes and incentivise mortgages for young people.
Possibility of implementation? High if the PP wins.
This party advocates the declassification of all land in Spain except for that of national interest (e.g. military land) and massive reductions in building taxes and fees.
Possibility of implementation? Low even if Vox are in the ruling coalition because developers would be wary of a policy that could saturate the market with supply and thereby reduce their profit margins.
This group proposes dedicating a third of new development to social housing. It also aims to provide public housing for all low-income families so that they spend a maximum of 30% of their income on rent and utilities.
Possibility of implementation? Relatively low. Analysts believe this measure could be a challenge as it directly affects the open market and private property.
Current state of the Spanish property market
In deciding how much the next elections will affect the Spanish property market, it’s also worth examining its current trends to ascertain whether these would change with a new government.
House prices in Spain are currently on an even keel. The latest figures from Tinsa show a 4.8% annual rise in property values in May. The figure is slightly ahead of the inflation rate in April and May but below it for the other ten months. Analysts predict a similar pattern for the rest of the year.
Would this trend change with a new government? Unlikely since the current price contention has its roots in the rise in interest rates and subsequent drop in demand.
Since the European Central Bank raised interest rates at the beginning of last year, Spain has seen a gradual drop in mortgage applications. In March (latest figures), they fell by 16.6% in the year.
Would this trend change with a new government? Very unlikely since interest rates depend on the ECB, not Spain. However, if the PP wins and introduces mortgage incentives for young buyers, home loan applications could rise slightly.
Lower demand automatically equals fewer sales and in Q1, they dropped by 5.9% in the year. However, the rate is still higher than in 2019, and analysts believe 2023 will see more sales than four years ago.
Would this trend change with a new government? Unlikely, since the factors affecting sales (demand from foreign buyers and higher mortgage rates) are outside the Spanish government’s control.
What will change in the next few months?
As we’ve seen, polls for the upcoming election seem to point to a PP win in coalition with Vox. However, their housing policies would appear to have marginal effects on the Spanish property market.
In addition, the current trends are mostly influenced by external factors over which the Spanish government has little influence. However, are some elements that could change.
Lower property taxes in some parts of Spain
Buying property in Spain involves paying considerable taxes on top of the purchase price. Transfer tax (ITP in Spanish), levied at 6 to 10% depending on the region, makes up the lion’s share of these costs.
Right-wing governments in Spain tend to reduce taxes, so it’s reasonable to expect a lower ITP in those regions now with a PP majority. They include the Balearic Islands and Comunidad Valenciana, whose respective 8 and 10% ITP tax could come down to 6% as it is in Madrid or 7% as it is in Andalusia.
Abolition of recent housing law
In May, the Spanish parliament approved a housing law that included national and regional regulations. Among those affecting Spain at a national level are a cap on rental rates and changes in eviction laws, while most of the others are in the hands of regional governments.
The PP and a large part of the property sector criticised both the national measures. It, therefore, seems probable that if the PP wins the next elections, it will revoke the recent housing law.
Since most of the current real estate trends have their roots in external factors – principally, ECB interest rates and foreigners’ love affair with Spanish property – significant changes in the property market seem unlikely.
We believe a drop in mortgage rates, perhaps in the pipeline for late summer, would have more effect. Buyers in some regions could benefit from lower property purchase taxes, but, in others, such as Andalusia, they’re unlikely to drop further.
And, of course, some factors remain constant. The Costa del Sol offers good-value property, year-round sunshine, first-class infrastructure and worldwide connections. All four will remain in place regardless of the colour of the ruling party.
Each political party’s housing policy https://cincodias.elpais.com/economia/2023-05-23/el-problema-de-la-vivienda-recorre-la-campana-electoral-del-intervencionismo-al-libre-mercado.html