Property in Spain after the lockdown — sell or buy? What is happening with Real Estate

Thе hоusing markеt is gradually returning to normal after two months of lockdown. Since May 6, quarantine measures in Spain are weakened, and life is going back to usual ... or not? Buуers and sellers are now wondering what will happen to the prices of local real estate. Is it profitable to make deals now, and is it possible to capitalize on the current situation? And when will everything go back to normal?

Virto Property's experts continue to monitor the situation. In April, most Spanish analysts have already noted the impact of the Covid-19 pandemic on the future market and predicted a decline in prices by 10-15% in 2020. Now, with the gradual transition to a "new normal" experts note some new trends and advise on how to benefit in the current situation.

According to experts, the coming months will be crucial for the market. The forecasts of Bankinter predict that potential customers will postpone the decision to buy on average for 6-12 months. It is also expected that part of the demand will disappear for an extended period, which will lead to a temporary imbalance between supply and demand. With everything indicating a drop in prices, many sellers decided to wait. On the contrary, some buyers enter into "aggressive" negotiations with homeowners to bring down the cost. According to experts, they return to the market to catch luck by the tail and purchase a property below market price.

"I'd postpone my deal for now. The world is still pending, and it's not easy to find an investor right now. Yeah, there's already been many deals that were made since we got back up and running. But it's mostly transactions where the buyer has already made a deposit, and all he or she had to do was sign the papers. At the same time, the total drop in sales is obvious," says Jesús Duque, vice president of Alfa Inmobiliaria.

According to Bankinter and UBS estimates, in 2020, the drop in housing prices will be around 6%. S&P Global Ratings expects a fall of 3.5% (and forecasts that prices will start rising again in the second half of 2022). There are also more pessimistic predictions: "Most developers and agents do not intend to reduce the price right now. They are waiting and monitoring the situation," explains Gonzalo Bernardos, Professor of Economic Theory at the University of Barcelona. "But then there will be a spectacular fall. Almost three months of economic stagnation will lead to a decline in housing prices in Spain by 13%, in Barcelona and Madrid - by 7.5-9%. In general, I do not believe that prices will return to their previous level before 2023."

Some Spanish experts believe that there will be a price adjustment because, in recent years, the cost of local housing was overestimated in relation to the average income of residents. During 2013-2020 the price of rental housing increased in Spain by almost 50%, while the average salary of the Spaniard has risen by only 1.5%. Thus, as noted by economists, even before the epidemic, prices in some parts of the country were overvalued. During the quarantine, it became particularly evident.

So, despite the opposing views, all experts agree that the actual reality puts homeowners in a complicated situation. At the same time, buyers, on the contrary, have a chance to seize the moment and conclude a profitable deal.

Oscar Larrea, CEO of Engel & Völkers Madrid: "The price of housing has historically been linked to GDP and unemployment rates. According to the most conservative estimates, in 2020, Spain's GDP due to the epidemic will lose about 15%. Similarly, the price of housing will change. At the same time, the IMF forecasts economic recovery by the second quarter of 2021. Much depends on the policy of the European Central Bank" Therefore, 2020 and 2021 years can be considered an excellent time to buy a property.

As noted by the CEO of Uxban Gonzalo Robles, attractive offers for the sale of housing have not disappeared. Those who are interested in early sale remain active on the market, as well as citizens who have recently inherited (unfortunately, during the epidemic in Spain, many new homeowners received property in possession after the death of older relatives). The country has thousands of empty "grandmother's" apartments, which over time may lose liquidity. Thus, some of them will be on sale as soon as possible.

Another category of "urgent sellers" are profiteers. In most cases, they buy holiday apartments on the first (bajo) and last (alto) floors in tourist areas, make repairs and earn on resale. Now because of the quarantine, many of them are in the negatives, spending on the reconstruction of housing. Soon, they are going to return at least their investments. According to experts, this category of sellers will not be waiting for 6-12 months.

As for the construction of new houses, most work resumed in mid-April. At the same time, if you are looking for a new building – do not expect huge discounts. "Some buildings remain unfinished due to the epidemic, in other cases, the deadline and cost of work have increased, in such conditions the developer will not reduce the price in order not to lose money," says the director of residential and land property of CBRE.

[Update]. In June 2020, price of new Spanish property reached its peak of the decade, despite the ongoing COVID-19 pandemic. According to Idealista with reference to the Society of Appraisers, the cost of new real estate in Spain at the end of June was €2,472 per 1 m², which is the highest price since 2010.

How is this even possible? During these turbulent times, "investors have again recognized the residential property as a haven for their investments in the face of an uncertain future," said Juan Fernández-Aceituno, CEO of the Society of Appraisers in Spain. The specialist also adds that in 2020 many transactions are made not with a mortgage, but with savings. Parents in Spain buy homes for their children so that they can feel safe nowadays.

Talking about what has already happened in the Spanish property market, the situation is as follows(аs of June-2020).

The average property cost per square meter in Spain is 1.730 €/m2, which is 1% more than in June 2019. The price per square meter of housing for rent —11.4 €/m2, + 4% to June 2019.

Top 5 most expensive regions:

• Balearic Islands - 3.105 €/m2 (+4.2% per year)
• Madrid - 2.783 €/m2 (-1.4% per year)
• Basque Country - 2.597 €/m2 (+1.4% per year)
• Catalunya - 2.226 €/m2 (+0.1% per year)
• Canary Islands - 1.854 €/m2 (+3.2% per year

Popular regions for foreign buyers:

• Andalusia (Costa del Sol) - 1.646 €/m2 (+6% per year)
• Province of Alicante - 1.596 €/m2 (+3.8% per year)

Get more information about best places to buy a property in Spain.

Read the detailed Spanish Property Market Report.

Sales agents of Virtoproprety give some advice to owners and potential buyers of real estate:

• Do not panic — in times of uncertainty, fear and panic are the primary motivators of decision-making. These decisions are emotional. Therefore, there is a considerable risk that you can act wrong. To sell and "get rid of" a real estate in such conditions makes sense only if it is a last resort. In any other situation, transaction risks are a significant loss of money.
  
  
• Keep a close eye on what is happening on the market - monitor offers and read reviews. Trust only what you have seen with your eyes.
  
  
• Buy only in case you have some spare money and confidence in the future - the best time for purchase is when others fear and panic. It is now possible to find offers at a reasonable price, or offer your price. Experienced investors use this time wisely, because, with the right approach, you can conclude more than one profitable deal.

Related articles:

How the epidemic has influenced the Spanish real estate market?
Spanish property market forecast 2020
How to act and get profit during and after quarantine

El Confidencial materials were used in the preparation of this article.