February 23, 2021 No Comments

Are Property Prices Falling in Spain After COVID?


Posted by OTHRADMIN in Financial

Are Property Prices Falling in Spain

If you’re wondering if property prices are falling in Spain due to COVID-19, and if now is a good time to buy property in Spain, the short answer is YES.

The COVID-19 pandemic is seriously affecting economic activity globally, and the real estate sector has not escaped the effects, although it is not as seriously affected as some business sectors.

However, despite the seriousness of the health crisis and the great uncertainty about how the pandemic will evolve, it is essential to note that Spain’s real estate sector is supported by a much more robust foundation than when the property market collapsed in 2008.

Can the Market Overcome the Crisis?

Before the coronavirus outbreak, the economic situation of Spanish households and businesses was generally healthier financially than 12 years ago. Furthermore, the number of new properties under construction is not disproportionate in relation to market demand. Banks also have much greater solvency and liquidity quotas. All these factors count when it comes to the real estate sector’s capability to overcome the coronavirus crisis.

Nevertheless, the scope of the economic impact of COVID-19 will significantly affect the labour market and, consequently, the demand for housing. Household income is largely lower than in 2019, and doubt about future job prospects will likely lead to an increase in prudent financial choices by households and the delay of long-term investments.

House sales to foreigners, who accounted for 12.5% of the total in 2019, were especially affected in 2020, as for most people, it was not possible to travel to view properties or to complete a sale.

Construction activity was stopped altogether during the initial state of alarm but was resumed relatively soon as the government eased restrictions. Not surprisingly, there has been a significant reduction in new building projects’ investment, probably due to the unpredictable climate.

Expected Fall In Property Prices

Because of the drop in demand, house prices will experience a notable adjustment. By the end of 2021, it is expected they will fall on average 6% to 9% below their pre-pandemic prices in Spain, with some areas seeing more significant drops than others. The current data suggests tourist areas and second-hand resale properties will suffer the biggest drops.

On the other hand, the rental market is likely to be less impacted as it is maintained by a higher demand given the difficulties to buy a home.

We should also note that the COVID crisis is instigating changes in most areas of our lives, many of them related to our residential choices, as we have never had to spend so much time indoors. The pandemic is stimulating changes in areas such as the renovation of homes, which will result in a more sustainable economy.

One of the predictable consequences of the crisis on Spain’s economy is a marked fall in property prices once the government stops propping up the labour market with benefits packages. The economic and social reforms will be far-reaching and could transform the Spanish real estate market. As yet, the final outcome is unknown, and financial experts can only guess.

Spain & Portugal vs. Rest of Europe

From popular property portals like Idealista and market trend analysts, real estate experts can’t agree on just how drastic the price reduction will be or when buyers will begin to see bargains.

The trend for most of Europe’s most important economies is that house prices will go up during the pandemic, but in Spain and Portugal, it’s the opposite. This matches the International Monetary Fund’s October report, which found the Spanish economy to be the most impacted of all major economies worldwide, with a GDP drop of 12.8 at the time of the report’s findings.

A recently released report by leading the US credit rating agency, Standard and Poor, forecasts that Spain will be one of the European countries where property prices will drop the most due to COVID. However, it also predicts the recovery will be swift. Spanish property prices will become one of the most expensive in Europe, up to 4.5% above pre-pandemic prices, exceeding only by 4.6% in Ireland and 5% in Portugal.

Property prices in Europe, year-on-year forecast

Summary

So, the long and short of the effect of COVID on Spanish property is although Spanish property prices continue to drop in 2021 (Bankinter predicts a 9 percent drop between 2020 and 2021), prices will quickly rise in 2022, with an average increase of almost 5% above pre-COVID prices.

Therefore, 2021 is an optimal time to buy low and see your investment grow in value considerably, all in a time frame of less than two years.

 

 


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