Do these questions sound familiar to you? – “Shall I finally buy my own house in Spain this year?” – “How far will property prices drop?” – “What is the impact of Covid-19 on house prices?” – “When is the best time to buy?” – “Can I buy instead of rent?”. Keep reading to find out the answers.
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Covid-19 and the effect on Spanish real estate in 2020
Covid-19 sent a massive shock wave through the Spanish property market last year, disrupting supply (sellers) and demand (buyers), and de facto creating a problem for the first group and an opportunity for the latter. For 2021, I expect this impact of the Corona-virus to continue and potentially even expand, pushing average house prices further down, although during a temporary period and not for all properties. Caution is required when looking at average market data when it comes to buying or selling your property (except if you want, or have, an average property at an average location of course). In this article I look beyond the numbers and share my predictions, insights and advice so you can take better and informed decisions.
My opinions are the result of very intense feeling with the real estate market through monitoring and analysis, but maybe more importantly: daily touch-points with buyers and sellers, hundreds of properties screened each month, continuous negotiations for our customers, and valuable interactions with different market players (sellers, agencies, banks, brokers, valuation companies, developers, lawyers, architects, analysts,…).
These topics were also be addressed in our 5th webinar on February 9th 2021. Watch the recording of this session below. Or join our other REAL ESTATE SERIES episodes, via the other button below:
View the recording of the “2021 Predictions” webinar
View all other REAL ESTATE webinar recordings here
The trend for 2021 is a continuation of what started in 2020: a True Buyer´s Market
The pandemic has obliged to restrict economic activity and social interactions to unseen levels. After 6 consecutive years of growth, in 2020 Spain´s GDP lost 11% (Eurozone -7,4%), brutally impacting large sectors (e.g tourism & travel, hospitality, retail, automotive, transportation, …). The consequent rise in both temporary and permanent unemployment, business closures and consumers’ concerns about their physical and financial health, will make many potential buyers put their plans on hold, while some owners will want or need to sell quickly and hence accept lower bids from solvent buyers.
Real estate buyers will remain in control, and will have excellent buying opportunities. Since the second quarter of 2020 we have obtained significantly lower prices for our customers and I envision this to remain the case until the effect of the Covid-19 vaccines will start to kick in. At the same time negotiation complexity and stress levels have increased, but the result is worth the extra effort and expert support.
For example, when a property is owned by more than one person (e.g. an inheritance) it is reasonable to expect –in the current circumstances- that one of the owners will have a more pressing desire for cash than the others, and his or her situation will be decisive for the price reduction they will be willing to accept.
My April 2020 article “What Effect Will the Coronavirus Have on the Property Market in Barcelona?” is still very relevant and worth a read. Most of the topics of the article are materializing (lower prices, younger buyers, lower loan rates, …).
Real estate as a safe haven
In the current context of volatile and risky stock markets, struggling businesses and Spanish banks starting to charge you a fee for depositing your savings in your bank account, buyers and investors look at real estate as a safe haven. This demand is composed of both local and foreign buyers.
The real estate market goes down but the price of áticos goes up
While I expect average properties to continue on a downward price trend, I see tangible evidence of new buyer interest in properties with unique features. Think of centrally located “áticos” with a terrace. Demand is up and there are simply less áticos than other apartments. Those prices are going up. A clear consequence of a much longer than expected (semi-) confinement.
The home office trend makes buyers more flexible on location.
Nearly all of our recent customers mention in their wishlist the need to be able to work from home. People will be spending a multiple of hours at their place and value natural light, a convenient working area (not the bedroom) and a balcony. Before the pandemic, the majority of buyers wanted to live close to work or be on a smooth public transport connection. If they also wanted to enjoy the famous Barcelona city lifestyle, they were happy to pay a location premium for their properties.
Today we see more buyers opting for larger properties away from the immediate center. In Barcelona for instance, think of Guinardó, Vallcarca or Nou Barris. The younger buyers are setting this trend, which I expect to continue in 2021. We equally see international people leave the city center behind and move to places like Gava, Castelldefels, Sitges, Sant Pere de Ribes, Premia and the Maresme coast or further North to the Costa Brava. It´s often both a financial and lifestyle improvement. You can often buy a nice house with a garden for the price of a 100-120m2 apartment in the city center.
So who will be buying real estate in Spain in 2021?
If you have been thinking of buying a property in Spain in the last -say- 2 years, it is likely that you wonder if 2021 should be thé year to do it. You will have read about the economic recession and the lower property prices and therefore see an opportunity. You are not alone! I think those groups will buy this year:
First-time buyers: young international buyers, already living in Spain, with a stable income and at least 45.000€ savings. They will stop wasting their money on rent and buy, saving them hundreds of euros each month, and buying an apartment that is better than the one they currently rent. If you think you could be in this group, the first thing to do is check if you qualify for a mortgage. Learn about mortgages in Spain in Episode 3 of the free Metropolitan-Inspire Real Estate Series. Or re-watch Episode 6: “From Renting to Buying”.
Buying a better home: the lower real estate prices suddenly make it possible to buy that dream house that previously was over-budget. What you thought was not possible because too expensive, might become a realistic purchase in 2021. The reasons are the lower prices and banks offering very low interest rates and a high % of Loan-to-Value (60 to 100%). Our customers Rob & Monica saw a fabulous house on the Costa Brava nearly a year ago, but dropped their dreams as it was too expensive. However last week (Feb. 2021), they signed the earnest money contract to buy that dream! How? – With a mix of preparation, price facts plus an own valuation, technical arguments, persuasion, emotional intelligence (and a lot of patience), we managed to negotiate the price within the buyers´ budget and optimize the mortgage conditions. The dream suddenly became reality!
Lifestyle buyers: Foreign buyers dreaming of a place under the sun, often as a second residence. They will spend more time in Spain encouraged by the ability to work remotely. This group has largely been unable to buy since March 2020 simply because of the travel restrictions. In economic terms, this is accumulated demand, waiting to buy. When I speak to these potential buyers, they are just awaiting restrictions to be lifted to travel to Spain and visit properties. If you are a lifestyle buyer, you shall buy before this group comes back to the market, because it is a large number of buyers, and many will be less rational about negotiating in order to finally be able to buy their dream house or apartment. When this group will start buying will nearly entirely dependent upon the performance of the Covid-19 vaccines. Tip: For several international buyers we are actually now pre-screening the market and doing virtual property visits, in order for them to be able to act quicker on the best properties on the market before everyone else comes back to buy.
Prudent investors with a long-term view: buy-to-rent apartments in the city center or tier-1 areas. They want to build up assets and future income. If this is you, then consider taking a mortgage to increase your ROI, and create leverage. You might be able to buy 2 instead of 1 properties.
Speculative investors attracted by temporary discounts on properties. They will look for well-located distressed properties and leverage the bank for financing their investments. They plan to sell their renovated apartments once the market picks up again. With price drops on the market during a relative short period of time, the business case for flipping properties should work, if you get elements right. As usual, many will burn their fingers.
Cheap mortgages
Buyers will in 2021 be able to keep financing their Spanish purchase at historic low interest rates. It remains attractive to take a mortgage and you pay more capital back earlier because of the smaller portion of interests. Depending on your profile, banks might be requesting you to buy an insurance with them. Interest rates are low, but the risk is always higher during a crisis.
Buyers will realize that the opportunity window is temporary
Everything will depend on how fast economic and social life can restart and people can travel again. As soon as we reach a reasonable degree of control over Covid-19 and confident vaccination levels, the economy and consumer confidence is expected to pick up. The number of buyers will go up again and this can gently change the price trend. However I don´t expect average property prices to spike suddenly, as there will be a vast amount of unsold accumulated stock on the market that needs to be absorbed first.
The international buyers often look for unique properties, “better than average” and might have a higher disposable income. Their demand will be more concentrated in specific areas and they might compete for the best apartments or houses.
To buy a bargain in May-June, you need to start preparing everything in February-March.
Bad Properties presented as bargains
Unfortunately this will happen too. As explained in our article “Your Guide to Buying Property in Spain”, the property market is poorly regulated and liability of agencies/sellers is a joke. We already see more nervous sellers and agencies trying to sidestep common sense in their attempts to get a signature from a buyer for a property. Extra caution is required and expert advice not a luxury.
Thinking of buying? Here is what you can do:
At INSPIRE Property Experts we provide professional and independent advice to buyers and investors. We guide you through the jungle, help find better properties, access off-market deals, negotiate, write contracts, perform technical inspections, and de-risk the entire process. Or as one buyer recently told us: “Deciding to get expert advice from INSPIRE has been the most profitable decision in the entire purchase process.” If you want to be well-versed, save money, avoid disturbances and conflicts of interest, this is what you can do: – View recordings of the previous webinars. – Contact me to discuss your plans: raf@inspireapartments.com
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