Spain, the Property Market and Coronavirus (10 Things to Consider)
6% decline in Spanish property prices, opportunities for buyers and investors.
Our clients are asking us, How will the coronavirus pandemic affect property prices in Spain? What if I need to sell my Spanish property during the corona virus lockdown?
Below we have some thoughts, ideas and insights into how the Spanish property market looks today (May 7th), post Covid 19.
Some estate agents in Spain are claiming that the economic disruption caused by the coronavirus pandemic might be minuscule, others think the sky is falling, somewhere in between the two lies the truth.
1. This Real Estate crisis in Spain is not 2008.
Spain will never forget the credit crisis, and subsequent property market crash of 2008- 2010.
Some people make the assumption that the current Covid 19 crisis will trigger the same repercussions on housing in Spain. Those analysts remember that property prices in Spain dropped by around 40% – 50% and in some areas are still 20% below those boom-time prices. The big difference is back then we were dealing with a bubble, a dangerous thing in any market. Today in Spain, both the property and the financial markets are a lot healthier. The banks are solid, and interest rates are historically low.
We do not expect similar price drops as a result of the coronavirus on the Costa Blanca, or anywhere else in Spain. Sure, the economy in Spain is in shutdown mode right now and a recession looms. To compare both crises in terms of their effects on property prices in Spain is an error we believe. Remember: What was good about Spain before we heard of Coronavirus (just two short months ago) is still true!
2. What will be the Impact of the Coronavirus on Property Prices in Spain?
Prices in Spain will probably initially remain relatively unchanged for the next few weeks- I mean people can’t sell so what is the market doing? Well, it is doing nothing.
When we see the back end of the crisis, property prices will drop slightly depending on the area and the urgency of the seller. I spoke to a builder in Benidorm today, who says there will be no impact on his high priced new build property. There will be freebies (yes the free flat screen TV is back!) and enticements for buyers, but prices he says, will not budge.
For the cities a price decrease in the range of 6%-8% is very possible. For holiday homes on the coasts, things might be different. We envision a situation in which the demand drops but so too will the people looking to sell. Who wants to sell up and move back to the UK right now?
3. When will this crisis be over?
People in the property sector are saying that we will be back to normal in a few months, but we’re not sure. The extent to which the Spanish government and European Union will be able to provide liquidity to the banks will be decisive in determining the effect of this health crisis on the economy. This is a real estate, economic and medical emergency. The impact will be harder in the very short term and if handled properly, we should see a positive growth in property transactions in 2021.
4. Coronavirus in Spain will create opportunities for investors.
Buyers in Spain are becoming younger and young people across the world tend to buy sooner, during and right after a crisis.
If you are solvent, have a decent job, preferably a location independent job, you will be able to get an interest rate lower than you have ever seen in the Spanish banks. Young investors from the UK and northern Europe, buying houses in Spain will also be able to lock in favorably low rates for 20 or even 30 years. Our property buyers will be able to pay back the capital to the bank, and have to pay very little interest on the loan. This financial leverage, at a nearly irrelevant cost, is huge for the market. Compare this to the economy in Ireland where young people are priced out of the market.
These younger buyers will be able to invest their own limited funds, say 50,000 euro or less, to buy an apartment in an excellent location, overlooking the sea, with excellent wifi for those Monday morning ZOOM calls and with upward future price potential.
These opportunities will not just depend on location, but the quality of the estate agent, their ability to source deals for buyers, and of course they will the personal situation of the seller- many of whom we know personally in the Alicante/ Murcia regions.
Clients with a need to sell, will unlikely drop their prices publicly. You won’t see price drops on Right Move but discounts will have to be fought for in a negotiation, and a qualified estate agent who understands the needs of buyer and seller will help there.
Will there be opportunities in Spain post Covid 19? Absolutely, but act quick, the deals won’t continue forever and maybe even not even into 2021.
5. What about law offices and estate agents in Spain?
There will be fewer transactions, fewer buyers and fewer sellers in Spain for this year. Sellers and developers may suffer more than buyers who time it right. Prime locations in Cabo Roig and other sought after areas will still attract money. Many of the less established or flexible real estate agencies will disappear. Maybe that’s good for the market? Opportunities will exist for those savvy buyers that look beyond the current crisis and investors will become younger- that can be enough to keep the conveyancing experts busy- we need them too. Buyers, sellers and law offices will have to adjust to the new scenario, the new normal.
6. What’s my house in Spain worth Post Covid19?
Answer: What is someone willing to pay for it. That is what it’s worth.
In the blink of an eye it feels like real estate activity has fallen to nearly 0% in Spain. This really has never happened before and probably never will again. This activity will pick up again once the health crisis has improved, and when it does, maybe the floodgates will open?
Things will be different post coronavirus though. Making decisions based on previously held knowledge will very likely lead you to make a very bad decision right now. If you need to sell your property, find out from our team how many enquiries they are getting and if you need to drop, do it. If you are happy to hang on, prices will rebound. Adapting your strategy to accommodate those changes and the new normal. This is crucial. You need to not just reassess the Spanish property market but the financial climate and your personal situation. Maybe Spain is the right place for you to live right now?? There will be business and employment opportunities here like you’ve never seen before!
So, what’s my house in Spain worth after Coronavirus?? It depends on where it is, what it is, how badly you need to sell it and it depends on how good your estate agent is. If you are trying to sell privately, the market will not be kind to you.
7. A Buyers market in Spain, post Coronavirus?
Many of our property sellers will wait and see, maybe change their mind totally or simply take their property off the market. Maybe will be in less of a rush to convert their home into cash.
However, nervous owners and the British economic recession will urge numerous owners to sell, or so we think. These sellers will have to adjust their price expectations and take what the market tells them the property is worth. Those who have a second residence or rental properties in Spain will be easy to deal with, so too will investors who need money in the short term.
A reduced number of buyers in the Spanish market combined with hungry investors means that sellers with an urgent need to sell have to adjust their asking price, that is just economics. A common challenge we see is that many owners tend to think that their property is the best in the street, more valuable than their neighbor’s property.
Sometimes just because you have a conservatory or a garden shed, it does not make your property more sellable and some hard conversations are going to be had with our sellers! If you need to sell your property, take advice from an expert like our own Adam Cook, and price your property accordingly. Sellers need to keep in mind that in a bear (buyers) market if you don’t sell early on, there is a solid chance that you may lose your window.
8. What do the banks think about the property market in Spain post Coronavirus
Swiss banking giant UBS, and the Spanish lender Bankinter, have published reports about how the market will look after Covid 19 in Spain. Both forecast a 6% average decline in Spanish house prices in 2020.
The two banks have recently released their forecasts for Spanish house price declines. The numbers are in the light of the coronavirus pandemic, of course, and very different to the forecasts compared to January this year.
UBS, firstly makes the point that price falls in Spain will be above average in less desirable Spanish locations. Prime locations, especially in city centres and beach front, will fare better due to the fact the clients who had enough cash to buy a one million euro property in Spain pre Covid 19, probably still do. There will be opportunities in the sector up to 150,000 euro especially.
Bankinter on the other hand warns that sales involving foreigners will be the hardest hit. We struggle with this belief somewhat. “We expect transactions involving foreigners” they said “to be much reduced in the coming quarters” (this is due to) “some limitations on international movement”. What they are saying is that clients cant travel here to Spain so can’t buy houses- Will they just not come here a few months later we wonder?
“ for the first six months of 2020 real estate transactions should be close to zero whilst the Spanish Government maintains the actual lockdown measures,” says Bankinter. “These measures will directly affect purchases for three months.”
UBS also forecast similar trouble in commercial property in Spain, and big problems in tourism-related property- rental properties etc. Price declines will be swift, they say.
Bankinter warns the Covid-19 will bring massive disruption for the residential market, and the ability of Spanish people to buy property.
A certain segment of the market is left without any purchasing power.
Bankinter forecasts sales of property in Spain will end up down 35% this year to around 325,000 transactions. That is the lowest level since 2014.
On a positive note, Bankinter argues Coronavirus will bring housing costs more in line with salaries. This can rebalance housing affordability in hot markets like Barcelona and Madrid. What about development land? Well, according to the bank, Residential land prices are forecast to drop by close to 20%.
9. Why will buyers look to Spain?
The usual attractions to Spain still stand- The sun, the cost of living, the social scene, even from 6 feet away!!
More and more people are seeing the benefits of location independent work however. It is just as easy for people to work 9 days in Spain and fly to the city for a bi-weekly meeting as it is to commute from a suburb to the city centre office daily. Why live in a wet, dreary empty town on the outskirts of a smoky, loud city? Instead, move to Spain- That is what our potential clients are telling us!
10. When will we see a Recovery?
What about the recovery post Coronavirus in Spain?
UBS say that in the greater Spanish economy, consumption and investment will start recovering this summer, 2020. Tourism and leisure will start later followed by a prolonged recovery in the housing market spread over 2021 and 2022.
Bankinter expects a recovery underway in 2021- good news for the Spanish property sector, but not necessarily for buyers who are slow to act. There will be a better balance between supply and demand for housing in Spain with strong rental demand driving attractive rental yields for investors and buyers looking to move to Spain for the first time.
The outlook is hardly terrific, but it’s hardly terrible either. Of course if you need to sell today, you will have to take a hit. We can speak to you about how to minimise your deductions. If you are looking to buy in Spain, maybe this is the time to do so? Developers are giving incentives to our buyers. You can get yourself a deal, and we can help.
Please tell us your opinions on the property sector in Spain or if you have any questions for us, please just ask.
We’re here to help!