Future of new buildings market in Spain
Contents
Fewer construction licenses. Is Spain facing a new construction shortage?
How are real estate prices changing and what to choose during the pandemic?
When will the market recover? Expert forecasts
1. Fewer construction licenses. Is Spain facing a new construction shortage?
According to the Spanish Ministry of Labor and Social Security, 1.25 million people were employed in the construction industry in October 2020. This is only 2,404 fewer than in October 2019, despite living in global coronavirus pandemic conditions for more than six months. Not too bad. And Paloma Vasquez, secretary of the Spanish Labor Fund for the construction industry, reports that nine out of ten builders in the country managed to keep their jobs.
News about a shortage of new housing that threatens the country in the near future has increasingly appeared in the Spanish press. One of the first to sound the alarm was the newspaper El Pais. According to the publication, from January to July 2020, Spain issued about 46,513 permits for the construction of new buildings. This is 32.1% less than during the same period last year. In other words, due to the consequences of the pandemic, Spain is now losing every third new construction project. This is especially evident from the statistics for July — traditionally one of the most active months of the year: only 6,143 licenses were issued, which is 48.7% less than in 2019.
“Simply put,” explains Daniel Cuervo from the Spanish Association of Construction Developers (APCE), “this means that 106 thousand homes were started in 2019, while in 2020 there will be about 70 thousand.”
2. How are real estate prices changing and what to choose during the pandemic
In spring, when it became obvious that the pandemic would last a long time, most experts predicted a sharp drop in housing prices. However, subsequent events had the opposite effect: on June 9, a Royal Decree “On combating the consequences of the COVID-19 epidemic in the field of labor” came into force in Spain. Now all workers on construction sites must be provided with antiseptics, masks and gloves, maintain social distancing and follow other rules. Developers calculated that due to these measures, construction costs increased by 7%, and work pace decreased. This factor, together with the reduction in the number of construction licenses, led to an increase in prices for Spanish new construction — they reached a maximum for the last ten years: 2,472 euros per square meter. This is reported by Idealista citing researchers from Appraisal Society.
Juan Fernandez-Aceituno, director of Appraisal Society of Spain, explains this trend as follows: “During the epidemic, people again realized the paramount importance of safe housing. Investors believe that in conditions of an uncertain future, real estate remains a reliable sector for investment.” The expert also adds that Spanish families in 2020 are increasingly spending savings on buying housing for their children so that they feel more confident against the backdrop of the pandemic, as many are now forced to work from home. Thus, demand for new construction among local residents remains consistently high, and prices continue to rise. Spanish real estate is in demand not only among Spaniards, but also among foreigners, as it provides an invaluable bonus — Mediterranean climate and lifestyle.
Another factor: with the beginning of quarantine, demand for properties with open space — terraces and private pools — sharply increased. Market experts are confident that such types of real estate will not become cheaper. Overall, analysts note that now is a suitable time to buy new housing: soon there may be a shortage of worthy offers from developers (again due to the reduction in the number of construction licenses), and for now buyers still have the opportunity to purchase housing at pre-quarantine prices and receive keys to a new home in 2021.
As for secondary housing, here, on the contrary, one can benefit from price reductions. The fall in secondary real estate value after the first wave of Covid-19 is estimated at 6.1% and continues gradually. According to many specialists, in this situation one can conclude a deal at a price below the average market price and catch luck by the tail. For example, look at inherited apartments put up for urgent sale, and other properties requiring renovation (some owners and investors are now seeking to get rid of assets requiring additional investments).
3. When will the market recover? Expert forecasts
At the moment, there is no unified opinion on this issue. Most experts agree that Spanish real estate is currently becoming cheaper, and the consequences of the pandemic will be felt at least until the end of 2021. CaixaBank analysts forecast a decline of 6% to 9% by the end of the year and a return to pre-quarantine indicators no earlier than 2024.
Large banks such as UBS and Bankinter expect that the price drop in 2020 will not exceed 6%. The most optimistic forecast was given by S&P Global Ratings: -3.5% in 2020 and market recovery by the second half of 2022.
VirtoProperty’s editorial team asked several Spanish developers to give a forecast for the local housing market. Representatives of most companies, including Esphouses (Costa Blanca), Maryporto (Malaga) and others, agree on several key points:
Florin Gama, construction company Esphouses, Costa Blanca: “With the start of the pandemic, sales fell, but in summer the market began to recover. Now local developers are worried about the end of the year, since borders are still closed, and the number of COVID-19 infections in the world is not decreasing.”
Eric Einar Svenson, construction company Maryporto, Malaga: “If the vaccine does not appear on the market in early spring, some construction companies will have to close. If the vaccine is available in the first quarter of next year, sales will return to normal. Next year expects the greatest price reduction for medium-sized homes in the luxury segment.”
A. Shashkov, Chairman of the Board of Directors of Group de Palol: “If we talk about Costa Brava, demand growth is expected (due to postponed deals) for luxury real estate. We believe that activation should occur next spring. At the same time, the middle-class housing segment should also recover. During the year, we plan to start construction of two new luxury residential complexes. We work mainly in the luxury real estate segment, and demand among potential clients always grows during unstable times. We observe growing interest in luxury housing and try to satisfy our clients’ demand at least virtually.”
Anna Baltsevich, VirtoProperty representative, Andalusia: “As for new construction during the pandemic — sales on Costa del Sol have not fallen. British and Scandinavians, who are traditionally the most active buyers here, feel just as good and even more comfortable sitting by the warm sea and maintaining social distancing. This variant of self-isolation is popular. Therefore, we now feel even increased activity. Accordingly, developers now give discounts very rarely. For example, only when 1-2 units remain in a complex of 70 apartments, they may offer a discount of 5-8%.”
Sergey Sinyugin, General Director of VirtoProperty: “We definitely expect some shortage of offers. More precisely, this is not a shortage as such. Demand is the same, but fewer new properties will be built this year and next. Of course, we try to be as flexible as possible in these difficult times. For our clients, we organize remote viewings. This is not just a video of an apartment or villa — our agent can even drive with you during a video call, show the surroundings and infrastructure of the area so that you feel the atmosphere. Germans, Belgians, Dutch like this — remote viewings, and they are not afraid to choose options this way. Russian-speaking clients are not yet so open to technology, plus borders are still closed. As for discounts — there are none yet. Sales have not stopped, so we cannot count on any serious concessions yet. Buying new construction in Spain is an excellent decision during a pandemic, quite a reliable investment.”
Recommendations from VirtoProperty specialists
VirtoProperty agency specialists give several recommendations to owners and potential real estate buyers:
Don’t panic — in conditions of uncertainty, it is fear and panic that become the main levers of decision-making. Such decisions are based on emotions, which means there is a high risk of making a mistake. Selling and “dumping” real estate in such conditions makes sense only as a last resort. In any other situation, a transaction is a risk of significant money loss.
Carefully monitor what is happening in the market — track price offers and read reviews. Trust only what you have seen with your own eyes.
Buy if you have money and confidence in the future — for such buyers, the period of panic and crisis is the best time. Now you can find offers at a low price or propose your own conditions. Crisis periods are often used by experienced investors, since with a competent approach, one can conclude more than one profitable deal.
Don’t buy or sell real estate in Spain without consulting with us!