Spain is gradually returning to normal life: the future is now seen more clearly, and real estate experts are starting to make more accurate predictions about the prospects for the housing market. Raf Jakob, an economist specializing in finance and a member of the Asociación Española de Personal Shopper Inmobiliario (AEPSI) governing board, gave his opinion on what the post-coronavirus real estate market will look like in Spain in general and in Barcelona in particular.
We published early forecasts of the state of the real estate market in Spain in 2019-2020 here.
A crisis completely different from the one that happened in 2008
From the very beginning of the pandemic, voices began to be heard, claiming that the real estate market was facing a crisis similar to the one that erupted in 2008. Then the real estate bubble burst and house prices collapsed by 40%. However, the current situation is fundamentally different from then: both the real estate market and the financial market are now in a much better condition than 12 years ago.
Owners’ debt levels are much lower today, many have savings, and mortgage rates in Spain are at an all-time low.
Today, there is no reason to expect a decline in prices, even slightly closer to the level of 2008. However, it is obvious that the economy is paralyzed and a recession is inevitable, and the state of the real estate market directly depends on the health of the economy.
The expert notes that comparing these two crises is an absolutely wrong strategy that can lead to the adoption of wrong decisions, therefore it is important to understand that the situation in 2008 and the current one have completely different causes and consequences.
What to expect from the Spanish property market in 2020?
Falling prices? Yes. And also – fewer sales and purchases and a decrease in supply and demand. At the same time, sellers will suffer more than buyers, and those who own real estate in resort areas on the coasts of Spain, where they usually buy summer residences, will have the hardest part.
Big cities will attract buyers. Many real estate agencies will leave the market due to a shortage of clients, and those whose services cannot be called quality will be the first to disappear.
Buyers who look to the future with confidence and are not afraid of the coming crisis will find themselves in the most advantageous position. According to the expert, we are talking mainly about young investors who are not afraid of the current situation, but are looking for benefits for themselves in it. In any case, both buyers and sellers will have to adapt to the new state of affairs.
You can find detailed information on investing in Spain here.
Forget everything you knew before
In just a few days, the activity of the real estate market dropped to almost zero. Of course, the market will recover again when the health crisis is over, but it will not be the same.
Let’s say that in January you had a clear idea of the current state of the real estate market and the price level in cities such as Barcelona. Now all this knowledge has turned out to be absolutely useless, moreover – it can even be harmful if you decide on its basis to make an important decision. Understanding the current situation and adapting your strategy to it is a key skill for success. Therefore, forget everything you knew before and gain new experience and knowledge.
The negative consequences will be stronger for sellers than for buyers
Some property owners are putting up their homes for sale and waiting for a buyer, while others are withdrawing their property from sale if they do not have an urgent need to sell it right now. This will reduce the number of sales and purchases as the supply will be limited.
However, an economic recession is inevitable, and many sellers will have to cut prices amid the prevailing uncertainty. On the other hand, buyers and investors are ready to wait, while some of the sellers are in need of money and strive to sell the property as soon as possible, and therefore they are ready to make concessions. First of all, the second residences and housing for rent will begin to be sold.
However, there is another point: many owners believe that their property is much better than it is, and is worth more than a similar property in the neighborhood. In most cases, such expectations are not justified, and as a result, you still have to bring down the price. In other words, if you really need to sell real estate, you need to face reality, otherwise you can miss a good sale opportunity, which in the future may not appear for a long time.
Investors need a plan B
Major cities in the country such as Barcelona have attracted a large number of investors, including foreign ones, over the past few years. Today these investors, who own one or more properties, do not find a way to the market.
Finding themselves in such a situation, they are forced to abandon “Plan A” and go to “Plan B” or “C”.
The expert warns that the next year will be difficult for business. In most cases, the cost of maintaining real estate will “eat up” the profit. In this case, selling the property now, even with very little or no profit, may be the best option.
The expert recommends a creative approach, so to speak: you need to try to negotiate financing conditions with your bank, try to rent out the property – in general, look for options, and not “get hung up” solely on your “plan A”.