Spanish real estate market - 2020 in review
Spanish real estate market - 2020 in review
Check how Spain is going through the pandemic and what you can expect in 2021
Spain 2020 in review
High uncertainty remains everywhere. If the Pfizer and Moderna vaccines work, how well will they work, and for how long? How many shots can be administered and how long will it take to cover the population? How badly will the economy have been damaged by the time we exit the period of lockdowns and limitations?
And for real estate investors, of course, what's going to happen to property prices? Re-entering lockdown wasn't in the plan back in July; now, Spain's already under curfew and the state of emergency has been reimposed. We do have stats that show the market had, in fact, started to recover a little in July, August and September. However, they're tricky to interpret, because of time lags and a very low level of transactions during March and April.
AEV, the Spanish real estate valuers' association, says mortgage appraisals for the second quarter were down 45%, despite a 14.5% increase in renovation projects. Lockdown meant no one was initiating transactions - properties weren't coming on to the market, and no one was making offers.
The market has recovered from that to some extent. For instance, CaixaBank's economists say that total residential property transactions were up 20% in July, month-on-month. But that still represented a 26% fall in volume year-to-date. Even so, prices were still up 5.8%.
TINSA's figures show transactions up to August. Though they do show a fall in prices, it was less than 1% year-to-date. However, the pain in Spain has been mainly on the Costas, with an average fall of 4% on the Mediterranean coast and islands since March. Major cities, on the other hand, have been far more resistant to price weakness. That's partly due to the fact that coastal properties tend to be more driven by foreign buying - and with few people able to travel, most sales this year have been to domestic buyers.
Does it mean recovery? Or not yet?
The Association of Spanish Notaries says that even September's recovery leaves transaction volumes down 20% year on year. While August saw an 8% rise in completions, and September 5.4%, compared to the same month a year ago, almost 100% of that rise represented sales that had been delayed by the lockdown and were now being completed - they weren't new sales. So, the level of 45,000 sales that was achieved in September isn't necessarily a good guide to future transaction volumes.
In fact, the Spanish market was mildly negative in terms of transactions even before covid, so it's probable that if it does get back to 'normal', that normal is going to be stable to mildly down.
National statistics body INE has similar figures, but they're interesting for investors because they show a regional breakdown as well as a breakdown between new and resale properties.
August and September showed strong sales in new properties, again representing a timing shift rather than a real increase. Building sites were mothballed during lockdown, so completions were delayed; now that developments are being built out, off-plan sales are being finalised. On the other hand, resale properties showed a marked slowdown - and this is probably more typical of the 'real' market.
For the whole year to date, the regions most popular with foreign investors have really suffered - Malaga, Alicante, the Balearic Islands. (In areas like Marbella, 95% of some developments is sold to foreign buyers.) Alicante was down 27%, Valencia 26%, Malaga 25% in terms of volume. In September, though, things caught up with the big cities too - Madrid saw sales drying up with a 10% decline and Barcelona was also hard hit.
So, volumes are way down. But what hasn't happened is a wholesale collapse in prices. Compare this year with the credit crunch and things look very different. In Marbella, for instance, the credit crunch saw prices fall by a third over 5 years. There was a huge oversupply of new development, and developers going bankrupt leaving huge half-completed projects. That's simply not happening this time round.
Thus far, statistics. But what's happening on the ground?
In foreigner-orientated markets like Ibiza and the southern coast, the mid-market appears to have been hit worst. Some of the ultra luxury projects, above EUR 2m or so, are still doing well; at this level, there are limited new properties available, and the ultra-rich aren't too bothered by having to quarantine for a couple of weeks. Epic Marbella, for instance, claims it's been selling well.
On the other hand, resale properties have been selling at discounts of 20%, and in some cases as much as 40%, to the asking price. Some sellers really need to sell - particularly as seasonal rental income has completely dried up - and canny buyers can get good deals.
We also hear that while as a whole Spain doesn't have a big oversupply problem, some local markets have issues. For instance, Estepona has a lot of new mid-market developments; they were already selling rather slowly, and the further shrinking of the market could present a problem.
Developments which are now coming to completion are probably going to do well, as are further phases of existing resorts. But finance has become more difficult to get, with banks wanting to see not just a strong contribution from equity finance, but also high commercialisation levels before they agree to debt-finance a project.
That means newer projects are less likely to be bank financed and more likely to be crowdfunded, or funded by private funds and investors who are charging significantly higher rates. Higher interest rates - and we're talking 8-9% instead of 2-3%, for instance - ratchet up the risk.
Banks are also beginning to get very choosy about mortgage lending. That's not going to help the market recover. And while currently the government is helping individuals pay the bills, if jobs disappear or wages are cut, that will eventually factor through to lower rents in the cities, and that, in the end, will reduce prices for residential real estate. (Of course, the foreigner-focused markets may see a somewhat different experience.)
That's led the most pessimistic of the forecasters, Forcadell, to predict a 16% fall in property prices during 2020 and 2021 - still some way short of the credit crunch. Consensus, on the other hand, is for a fall in prices of 6% this year - though some areas will be hit much harder, with the Andalucian coast down by as much as 18%. And the Bank of Spain has warned that recovery will not be complete till we know how we exit the pandemic. So this certainly isn't a market without risk.
Considerations for 2021
Given the data we have so far on 2020, the jury's out on what's going to happen in Spanish property. But there are a few good pointers for successful investment, even so.
• Make sure that a 20% fall in prices wouldn't put you in an untenable position. If you're buying for long term investment, you need to be sure the next couple of years won't break you.
• Do intensive research on the exact zone and the type of property you're interested in - data on the Spanish market as a whole is going to be of limited use this year and next.
• Don't buy offplan in early stage developments. Look for well advanced developments that either are complete, or will complete soon, and have a majority of units already reserved or sold.
• If you want a bargain, look for resale properties from motivated sellers and make sure you have your finance ready (or be ready to pay cash).