Buying cash: speculation in the wake of the mortgage company debacle

Buying or renting a property in Spain is becoming an almost impossible mission: its affordability and availability have significantly worsened in recent years. Rising prices for both purchase and rent, inadequate land policy by public management bodies, and increasing demand against insufficient supply, especially in the rental market, paint a worrying picture. As a result, access to housing acts as a catalyst for social inequality. The Spanish real estate market is under strain: a decrease in property purchases to a level of50,000 per month, as well as a reduction in the number of mortgages to an average of32,000 transactions and an average amount of142,000 euros, show that the majority of buyers are looking for the cheapest offering on the market. In this context, it is particularly striking that six out of ten real estate transactions in Spain are paid in cash and without the use of a mortgage. The National Institute of Statistics (INE) confirms this situation: from January to October2023 (the latest available data),832,756 residential properties were sold in Spain, but only323,998 were purchased using a mortgage, which represents38.9%. Indeed, the number of mortgage transactions for residential properties has decreased by19% over the past year, although the number of purchases has not decreased to the same extent. These data raise many questions and suspicions: where does the money come from? Have Spanish citizens really saved so much? Is it true that some people resort to their savings, but they do not represent the majority. Not everything is reduced to just that. "There are many factors explaining this phenomenon," notes Alejandro Inurrieta, an economist specializing in housing. From this "multitude of factors," one stands out: high-purchasing power foreigners and high liquidity, who purchase property in Spain in cash as an investment. According to the latest data published by the College of Registrars of Spain,14.9% of residential properties sold in Spain in the first six months of2023 were purchased by foreigners. This is the second-highest percentage in history, and the trend continues to grow. Inurrieta explains this clearly: "To a large extent, cash payment is explained by foreign investments that come to Spain; these are people who are not residents and come with savings to buy property on the coast, for example. Also, the presence of investment funds, almost all of them foreign, especially from Latin America, with large sums of money in their pockets, who prefer to pay in cash, as they thus reduce their tax bill. These are money that comes from Mexico, Colombia, Brazil, and Venezuela, mainly."In addition, Inurrieta adds that in recent months, banks have severely restricted the granting of loans. Interest rates have risen, and this has also led to a decrease in the number of mortgage transactions.

Inurrieta explains that many Spanish buyers, using inheritance or family loans, decide to buy an apartment without resorting to the bank. But the fact remains: the proliferation of foreign buyers has a significant impact on the Spanish real estate market, especially on price increases. Economists Santiago Carbo and Francisco Rodriguez confirm this trend in their latest article published in the journal Cuadernos de Información Económica, published by Funcas: "Price growth is primarily due to wholesale demand and non-resident demand, and not to residential retail demand," they write. There is a second factor that also has a significant impact: the majority of purchases without a mortgage are concentrated in tourist areas, even within major cities, and it is usually secondary housing, intended for rent or renovation and sale. Again, foreigners are the main buyers in this segment. Real estate is once again becoming a profitable investment in Spain, and foreign capital knows it, especially those who are sheltered in investment funds. According to Alejandra Hasinto, a lawyer specializing in housing and former representative of Podemos in the Madrid parliament, the ability to pay in cash indicates that "speculators, usually non-resident investors," as she explains on her X account. Thus, contemporary speculation has a different origin than the one the country suffered during the previous construction boom: now it is more elitist, driven by people with resources and a large amount of money in their pockets. Although this speculation comes from economic elites, the consequences remain the same: prices are rising everywhere. "In Madrid, investment funds first entered the richest areas, such as Salamanca or Chamberi, but now they are already in more popular areas, such as Canillejas, Pueblo Nuevo, or Puente de Vallecas. In this area, there are many foreign investments that buy entire buildings for reconstruction. In Puente de Vallecas, half a million euros are already being paid for a penthouse," explains Inurrieta. In light of this situation, some voices, such as Alejandra Hasinto's, demand restrictions on the purchase of housing for non-residents. Inurrieta does not consider this proposal feasible: "In Europe, there is freedom of movement of capital. It is impossible to prevent a French, German, or Dutch person from buying property in Spain." In this context, Inurrieta proposes a measure that some countries, such as the Netherlands or Denmark, have already adopted: to prohibit the purchase of housing if the resident does not intend to live in it. This measure works: in the city of Utrecht,78% of residential properties sold in the last two years were purchased by residents, while investors bought only11% of the housing on the market. "We could say to a foreigner 'yes, you can buy a property in Spain, but only if you intend to live in it,'" says Inurrieta. However, the economist puts forward another solution, although it is currently a kind of utopia: "More public housing. But this is difficult now," he admits.