One month after the state of alarm was decreed by the Government and the confinement of Spanish society, great experts in the real estate sector draw a gloomy outlook for the residential market, with falls of close to 10% in prices and sales, but they warn that by 2022 the situation could return to pre-coronavirus levels and that this crisis has nothing to do with that of 2008, which took our country into a grey period that lasted for years.
Mikel Echavarren, CEO of Colliers Spain, points out that, unlike the crisis that began in 2008, developers of new construction are not excessively indebted, since they have not financed land purchases with outside resources or obtained other loans other than those required for the promotion of their homes. “This is a very relevant factor, together with the fact that the Spanish banks, I am convinced, will act in a very different way by providing the necessary financing to finish the works and trying to subrogate as much as possible their loans to the promoter with the buyers committed to these developments”, he says.
The impact of the health and economic crisis caused by covid-19 on the residential market has been direct: on the price of housing and on transactions that are mostly stopped. Raymond Torres, Funcas’ director of business, points out that the recovery of the sector will not be in a “V” but in a “U”. “We’ll see a slow recovery and some of the transactions disappear. Why? Because of the lawsuit. A part of the demand will be affected by the impact on employment (ERTE, loss of work…). In times of uncertainty not many purchases materialize. On the other hand, we believe that purchases by foreigners will not return until at least the end of the year,” the expert says. He insists that the full recovery of the economy will be seen in 2022 or 2023, later than was thought a few weeks ago.
However, the coronavirus crisis has accelerated the adjustment process that the real estate sector was already facing, as Rafael Gil, director of Tinsa’s Research Department, recalls, assuring that “the current situation means an abrupt halt, as in most economic sectors”.
“The current crisis affects all aspects, from direct public intervention in the rental and mortgage markets to alleviate the vulnerability of users, to restrictions on new supply (works in progress), as well as the very work of companies and professionals in the sector. It is highly likely that so many simultaneous effects, which completely disrupt the normal functioning of the market, will have tangible and lasting consequences. The key variable will be demand and its ability to recover soon, a demand that also possibly impose new housing preferences after this experience and the changes it may entail,” Gil notes.
In fact, a study by an idealist suggests that during the confinement there have been changes in the housing interests of Spaniards. If before the pandemic 44.1% of the housing searches in our country took place in the provincial capitals, since the state of alarm was decreed that percentage has been reduced to 38.8%.
According to Fernando Encinar, head of studies for idealist, the data show that “during the quarantine many Spaniards have realized that they live in a house they do not like and would prefer to live in less central areas in exchange for having more square meters, more light, gardens or terraces. In addition, the good functioning that teleworking is having in many companies may also be pushing many professionals to consider establishing their residence in small municipalities away from large urban centers.
The sale of new construction vs. used housing
Mikel Echavarren estima que habrá menores transacciones de viviendas de segunda mano, una extensión de los plazos de comercialización de obra nueva y la reducción total de las ventas de viviendas turísticas a extranjeros. “En la medida en la que se recupere el mercado, se inicie de nuevo la posibilidad de viajar entre países europeos, y se recupere la confianza en que esta pandemia ni se extienda ni vuelva a repetirse, el mercado de la vivienda volverá a los niveles de hace unos meses. Creo que para que eso ocurra al menos transcurrirán dos años desde que comencemos a salir a la calle”, subraya.
Aunque la demanda de vivienda no se ha eliminado, porque se siguen cerrando algunas operaciones, lo cierto es que se mantiene a la espera de que el panorama de incertidumbre se despeje. “Irá aflorando a medida que todo vuelva a la normalidad”, señala Luis Corral, CEO de Foro Consultores Inmobiliarios. Añade que las compraventas se han resentido. En obra nueva, las oficinas de venta están cerradas y no hay nexo vendedor-comprador. Y en segunda mano, la situación complica hacer visitas. Por el momento, sólo se realizan operaciones online.
Gonzalo Bernardos, economista y profesor de la Universidad de Barcelona, señala que las compraventas de viviendas bajarán cerca de un 20% este año y se recuperarán con una subida del 14% en 2021, ante la desaparición de una parte sustancial de los compradores.
How the crisis is impacting housing prices
Gonzalo Bernardos estimates that the price of housing in our country will fall by about 10%, but in Madrid and Barcelona a little less. The reason? Due to the disappearance of a large part of the demand for houses (due to loss of employment, lower salaries, difficult access to a mortgage or self-employed people who need to sell part of their assets in order to have liquidity) and the increase in the number of sellers who are in a hurry to sell. However, Bernardos believes that by 2021 the price will rise by about 7%.
Funcas’ forecasts are in line with this. “It does not seem unreasonable that prices could fall at a double-digit rate year-on-year, because there is always a correlation with the behavior of GDP. If the economy registers a 5-8% drop this year, house prices could fall by around 10% because they always fall a little more than GDP,” says Raymond Torres.
He also emphasises that many sellers may be in need of liquidity and will reduce property prices significantly, although the ‘safe haven’ factor of property will compensate for some of the fall (stock markets remain volatile and investors are unable to find alternatives in bonds or deposits, so there will continue to be interest in homes located mainly in the centre of large cities).
And Carlos Ruiz, director of studies at the IEE, insists that with covid-19 there is no longer any doubt that there will be a sharp fall in housing prices due to the correlation with GDP. “Everything points to the fact that the fall in prices will be aligned with the economic contraction and that it may fall from 5% to 10%.
Now the question is whether the falls will continue in the medium term: the key, according to Carlos Ruiz, is demand and how much its fundamentals change. “Families will see their income affected, so the real estate recovery is expected to be somewhat slower than that of the GDP,” he stresses.
But new work will not evolve like second-hand work. According to Luis Corral, of Foro Consultores, the prices of new construction will be less affected since the offer is scarce, while second hand housing may deteriorate more due to the particular needs of sellers that force them to lower prices to sell. And the same can happen with the holiday home, which will not be a priority to buy and if the seller is in a hurry to part with the asset, the price will drop.
Echavarren also distinguishes between new and used housing. In his opinion, property developers do not have any pressure to lower prices. However, it estimates that four-fifths of the housing transaction market is accounted for by sales of second-hand housing. “Although I am convinced that the banks will act with the utmost responsibility and flexibility towards the owners of homes in difficulty, given that the crisis we are entering is a combination of reduced solvent demand and fear of the future, I do believe that we will see price reductions in the supply of second-hand housing for those owners who are under significant financial pressure,” says the expert.
To conclude, Echavarren adds that “at present it is impossible to evaluate the impact on the average price of a second-hand home. With 1 million more unemployed, it is like going back two years in the real estate clock, considering that the job creation of the last two years has reached similar levels, and therefore it could be estimated that the drop in the average price of second-hand housing could be around 10%, returning to the average prices of two years ago”.
The rental market suffers
Ruiz, from the IEE, points out that we will also see how the rental market suffers for various reasons. “This is one of the businesses that was attracting the most investment and interest, and new home buying and renting operations could slow down. In addition, the tourism sector is expected to be hit hard, which will limit the operations of families and funds that were intended for vacation rentals. Finally, it remains to be seen what happens with the measures the government has planned in terms of price control, because any over-regulation brings with it a restriction of supply and a rise in prices,” he says.
In any case, the expert assures that the housing market is becoming extraordinarily flexible and fast in these weeks. And, apart from the aid announced by the State, payment deferrals, incentives and negotiations are taking place between the parties (companies or individuals with tenants, developers with buyers, etc.).
On the other hand, Sandra Daza, general director of Gesvalt, emphasizes that “after the lifting of the state of alarm, the supply can be maintained at stable levels or even increase in certain areas where it has increased due to the entry into the market of homes previously destined for vacation rentals and now focused on traditional rentals, while demand could be reduced from pre-confinement levels, which could lead to a decline in prices in the short term and a gradual recovery in the coming months.