Sustained demand predicted despite rising Spanish mortgage rates

A fresh report conducted by the Spanish Mortgage Association (AHE), forecasts that the European Central Bank (ECB) will raise Spanish mortgage interest rates during the course of 2006, in an attempt to cool the country's housing market.

The ECB recently raised rates from 2% to 2.25%, yet the AHE does not expect further rates hike to dramatically affect demand for Spanish property. This is because of the high number of Spanish citizens eager to get a foothold onto the Spanish property ladder, while Spain itself remains popular with foreigners seeking a second home.

The AHE report reveals that by October 2005, Spanish mortgages had reached €705.3bn, up 25% from the month prior.

Both the Bank of Spain and the European Central Bank believe that Spanish house prices are currently overpriced by as much as 35%.

Chinese house prices rise 6.5% in fourth quarter

In the fourth quarter of 2005, house prices in 70 major Chinese cities rose 6.5% year-on-year, according to the Chinese National Bureau of Statistics. The growth rate was 0.4% higher than that of the previous quarter. In December alone, the growth rate of house prices was 6.2%, which was 0.6% lower than that of November 2005. During the same period, the house rent price grew 1.6% year-on-year, which was 0.5% lower than that of the previous quarter.

Meanwhile, Shanghai has seen two very distinct trends in its property market. The residential sector is in sharp decline with steep price falls and fewer transactions. At the same time international property funds have begun to plough money into the commercial building market.

In spite of the construction boom of the last decade, there is still a relative shortage of prime office space, especially with so many multinationals choosing the city as the location for their Chinese - and sometimes Asian - headquarters. Property companies say that in some office blocks rents have risen 20% over the last year and the vacancy rate for high quality office buildings is as low as 5%.

The market will witness a big increase in supply in 2007 with the expected opening of the 101-storey World Financial Centre in Pudong, which will briefly be the tallest building in the world. However, at least until then, analysts expect the rise in office rents to continue.