There is a sudden thud, as the landing gear hits the tarmac.
The plane has just touched at Malaga airport, located in Southern Spain. The passengers start clapping, in appreciation of the pilot´s soft landing.
Clap, clap…clap…clap, clap.
Yet these are no ordinary claps. You see, Malaga is one of the homes of the flamenco dance, and a place where clapping is an art form.
I arrive in the height of this touristy area’s summer season, which means that the airport and roads are busy.
My final destination is Marbella, a white coastal town about 60 km from the airport. During the summer months, the city more than doubles its population.
The city used to be an old fisherman’s town, yet it has completely changed in the last 60 years.
The area saw a golden period starting in the 1960s, with the increase in tourism. Considered a luxury destination, Marbella became a gathering spot for celebrities, yachts and Ferraris.
By the early 2000s, the area — and Spain — saw a property bubble. Between 2002 and 2007, property values rose six times higher than the average salary. An increase in foreigners purchasing property, low interest rates and excess credit combined to spur prices.
Yet it all came crashing down in 2008.
The Aftermath of the Property Bubble
If you have ever questioned how bad the aftermath of a property bubble can be then, unfortunately, Spain provides us with a great case study.
Property values fell then by about 45% and many lost their homes to the banks. The slow down meant that long term unemployment increased. Unemployment in 2013 reached a whopping 27%, and youth unemployment increased to 55%.
10 years on and the economy has recovered slowly. In the last couple of years, the economy has been growing at pre-crisis levels.
Since my last visit to Marbella last year, there seems to be more tourism and optimism.
Yet, dig a bit deeper and things don´t look as good under the hood.
The latest unemployment figures show there is an unemployment rate of about 15%, and youth unemployment is sitting at 33%. High unemployment rates has meant that wage growth has been non-existent.
And while wages have stayed the same, costs of living have been increasing.
10 years after the property bust, property is booming again. Except that this time it´s not property sales…but rentals.
You see, while property sale prices have pretty much stayed the same, rentals have been soaring in recent years.
In fact, that is one of the constant complaints I hear during my visit. According to property portal Idealista, in 2016 rental prices saw an increase of 15.9%, and a rise of 18.4% in 2017.
Why are Rental Prices Booming?
Well, because long-term rentals are in low supply, and short-term rentals are booming.
According to DataHippo, there are about 230,000 properties in Spain on portal Airbnb, with 30,000 of those properties located in Malaga.
You can see the concentration of short-term properties for rent in Malaga on Airbnb in the map below.
In contrast, a quick search on Idealista shows that long-term property rentals listed in this portal amount to only 4,704.
This trend is not only happening in the touristy southern coast, but all over Spain.
Many of the owners putting up their properties as a short-term rental are owners looking for income to pay the mortgage and avoid losing it to the bank. High unemployment and a drop in property prices have meant that selling isn´t an option.
Yet, as El Diario reports, many of these short-term rental properties are also at the hands of professionals and large corporations.
In Madrid, Spain´s capital, according to DataHippo and courtesy of El Diario, hosts with more than five properties advertised in Airbnb make up 4.7% of all hosts. Yet they hold over 30% of the total property stock on the portal.
In Malaga, as you can see in the table below, hosts with two or more properties make up almost 58% of the rental stock in the portal.
Source: El Diario
The result is that long-term rentals have gone up massively.
Don´t get me wrong, this is not a dig at Airbnb, but a look at what the aftermath of a property bubble could look like.
The thing is, this isn´t a small problem.
Spanish love property, yet the property bubble in the early 2000s priced many out of owning a property. The high unemployment and slowing credit that came after meant that many are still priced out of owning a home.
And, with no new construction on the pipeline, high unemployment and self-catering tourism have meant that rentals have become the new bubble.
With property prices now slowing in Australia, could Spain be giving us a glimpse at the future of property in Australia?
Editor, Markets & Money
PS: Author and economist Harry Dent thinks the next big crisis is at our door step and has a daunting warning for Australian property. If you want to learn more about Harry’s worrying forecasts, click here.