In this article I share my view on how the current economic shutdown will affect the Spanish holiday home market. Totally unexpected, the property market is becoming a buyer´s market again overnight. Temporarily at least. After years of price increases, holiday homes will now become more affordable, with fairer prices in many cases, but equally new caution for buyers is required.
Every day I receive plenty of questions from people that are in the midst of a purchase process (they have already committed somehow) as well as people that are dreaming of upgrading their lifestyle with a holiday home on the Spanish cost’s and now doubt about how to buy in Spain.
My purpose is to offer you the insights and implications that matter, as an economist and from my daily experience as real estate buyer agent for foreign buyers in Spain at INSPIRE and as a professor real estate at the Universidad de Barcelona, so that you can take the best and informed decisions for your situation.
Five must-know nuts & bolts of how to buy in Spain this year:
1. Forget your reference points
I mean: forget your reference points regarding the Spanish property prices and buyer-seller market dynamics. Sounds simple but it is essential if you want to avoid mistakes. A refresh is indispensable to make your dream come true. It will allow you to buy better, smarter. What you knew in January might lead you to a bad or sub-optimal decision in June. Wonder why? Keep reading…
2. An unexpected shift in power from sellers to buyers
In the context of reduced market activity, buyers will stand stronger in negotiations but will find fewer good properties on the market to choose from. Sellers that are not in a rush might decide not to sell. Last year, every working day more than 200 foreign buyers acquired a home in Spain (yes, about 25 each working hour!). My prediction: this year we will see less holiday properties, less buyers and lower prices.
Some people will prefer to wait and see, while others are already looking beyond the current crisis and are getting their ducks in a row to be able to act as soon as the situation normalises, to buy their dream home under the sun for a fairer price.
The well-prepared buyer will be able to find –temporarily- an excellent second residence at an unbeatable price. Spanish banks will be eager as well to help you finance your purchase at historically low interest rates.
3. For how long will the buyer be in this pole position?
The duration of this buyer-favouring situation depends on how successful Europe and Spain will be in their actions to stimulate the economy quickly. As mentioned in my previous article “5 Factors that Determine the Real Estate Market in Spain”, the property market is directly depending on the health of the economy.
If the right decisions are taken by Europe and Spain, the buyer’s market will be around till approximately the end of this year. In terms of real estate, this is a very short lapse of time. The process of searching, sorting out your financials, travelling, inspecting the property and documentation, gauging your decision, negotiating, drafting the contacts and actually buying, quickly consumes 3-6 months.
On the other side, if institutions fail to stimulate the economy, uncertainty will continue and both buyers and sellers might face new or prolonged challenges that could result in a longer economic and real estate recession.
4. How much could prices of holiday homes drop?
On average I think purchase prices, the final price buyers pay, could drop around 10% or slightly more, this year. Occasionally –mainly for existing properties- reductions up to 15% and maybe even 20% are possible. And there will be ad hoc cases where a hard-to-believe, once-in-a-lifetime buying agreement can be reached. But the average property doesn´t exist! Prices will always depend on 3 basics: the characteristics & wow-factors of the property, the location and the urgency of the seller. Important discounts will have to be fought for in a negotiation, I doubt that they will be announced online.
In my conversations with developers (purchase “on plan”), I grasp a preference for seducing the buyer with a “tailor made package” like larger discounts on kitchen appliances, A/C, garden or bathroom tiles, rather than adjusting the property price itself. The latter could easily generate a chain effect of requests for a lower price; something they will want to avoid.
Ah, and there will be differences across regions. The Costa del Sol will be different from the Costa Blanca and the Costa Brava, as will be the islands. But that is an interesting topic for a next article. The volume of the property stock, different by area, plays a key role here.
5. Additional complexity and risk buyers must mitigate
I see two major risks that can affect the foreign buyer of holiday homes. Both are related to what you buy and whom you buy from. In short, both agencies and property developers will be affected by the decline in transactions and some will struggle. But how can this affect you? It’s simple, just imagine you commit to buy and one of them suddenly runs out of business.
The real estate agency continuity challenge. If you have been searching for properties already you might have had the impression that there seem to be more agencies than good properties. In most parts of Spain, although hard to believe, agencies do not require training, qualification or registration. That means everyone can sell real estate to you and this also explains why there are so many agencies. With less purchases, I expect several agencies will disappear. Those with higher costs (e.g. fancy offices, publicity, …), lower volumes and poor service will close first. It happens in every crisis, but might happen much quicker this time. So, it’s not just the property that you need to inspect, also check credentials of the agency and pick a trustworthy one!
If you buy a property “on plan”, you depend 100% on the developer. These companies will see their sales decrease while they need to inject millions into their construction projects and meet substantial mortgage payback commitments with their banks. If you buy in a very early stage of a project, before construction work has started, developers might not (be able to) start constructing. For a purchase on plan, make sure you buy from a solvent developer.
7 TIPS ON HOW TO BUY IN SPAIN IN 2020:
Don’t take decisions based on what you knew in January. Refresh your reference points.
Carefully select your property and who selling or building it. Reputation and solvency are key.
Be mindful of the non-regulated market. Work with someone you trust and who will be looking after your interests till you have the keys in your hands. It is not only about having a good contract. Look for a partner who actually does provide you with true service, opposite to just showing you a property and pushing for your offer and signature.
Before you commit, you need guarantees that you are not overpaying, that the property is technically OK, that the contracts are fair, and of course you need to build in protection in case things don’t go as expected.
5. If you have signed a reservation/option or arras contract and are thinking of withdrawing from it: remember why you decided to buy it. You probably have plenty of reasons beyond “a good price”. If you decide to withdraw, you likely lose the money paid so far. Renegotiation might work in some specific cases, but then you need to be prepared to lose your money and the chance to buy property.
6. If you are thinking of buying: writ