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19th April 2020

How real estate prices will be affected from now ´til the end of the year?

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Source: EXPANSION April 19th, 2020-Inma Benedito

The major slowdown could be rooted in the sector if the economy does not grow. Prices could fall around 25% in Madrid and Catalonia and the percentage could be even higher in other regions of Spain.

The impact of the Coronavirus in real estate in 2020 will face the worst year since the bubble burst. The restrictions applied during the state of alarm in order to avoid the virus spreading have not only freeze the activity in the real estate business, but also created the shadows of a recession in a close horizon that will complicate a possible recovery. The sale of properties could drop a 46.8%, and this could be extended to prices, causing a fall of 16.7% along the year.

With a whole country confined, the idea of ​​buying a home has been left behind, meaning that the number of transactions will fall considerably according to the forecasts made by the Royal Estate Business School about the impact of the coronavirus in Real Estate.

Owners who would need cash flow will probably try to sell cheaper due to a lower demand which will cause a general price drop of around 25%, depending on the region, such as Madrid.

The activity has been practically stopped and even though the construction has been restarted on April 13th, it has not reached the same speed level. In addition to this, an essential part of the business such as agencies and notaries have completely stopped their activity.

Ignacio de la Torre, chief economist at Arcano says that "if we take China as a precedent, RE sales were reduced a 90% in January and February." In Spain, the latest available data is from February, when sales dropped a 6%, according to the General Council of Notaries, as a result of various factors: the economy slowdown, the legal uncertainty on the latest regulatory changes and the Brexit. "The current situation breaks the cycle, which was already showing signs of cooling after the expansion of the last five years," says Rafael Gil, director of the Tinsa Study Service.

More and more voices warn about the risk of a recession that could hit a sector that was already taking a hard slow down. The latest news, the International Monetary Fund, announced this week an 8% drop in GDP for Spain and 20% of unemployment.

The demand slowdown due to confinement was meant to be temporary, it could last in the economy if people come back to normal with less purchasing power.

There is disagreement with the opinion about which sector will take the worst part. De la Torre believes that luxury and second-hand housing will be taking a worse part whereas José Antonio Pérez, from Real Estate Business School, thinks that it will be the new developments, where half of the demand is for a second residence: "These are decisions that can be postponed", and he believes that half of the new construction business will be lost.

On the second-hand side, there will be owners who will probably need liquidity and will see themselves forced to reduce prices. That´s the reason why the coast will present the greatest reductions, between 15% and 25%, as the majority are considered second homes.

Part of this impact is also due to tourism, which is currently completely paralyzed.


In Madrid and Barcelona will also be very noticeable, as Juan Fernández-Aceytuno, CEO of the Valuation Society explains, "the adjustment will take place in those places where the market was already stressed out."

How will be the market reactivated? Several experts agree that this will depend on those situated at the end of the Gaussian bell: the ones with savings and the ones who need to sell. With ECB making sure that money flows and with low interest rates, investment will cautiously make its way. They think that there will be more real estate assets for sale to recuperate liquidity and this will appeal to investors who have liquidity ready.

New developments in Madrid, 31% less

EXPANSION – JM Cadenas

The coronavirus crisis will undoubtedly hit Madrid, one of the engines that had been pulling up the market during the last years. New construction in the city could fall by up to 31%, and second-hand housing by 18%, according to data from the Real Estate Business School that analyse the impact of the pandemic during 2020.

The effects will be seen earlier in the rental business, which will drop prices sooner but with a fast recovery. In recent months, the price of flats for rent in Madrid has been moving at rates of around 3%. But if we take into account aspects such as reduction of income, layoffs, business closures plus a few measures approved to mitigate the impact on the rental market, all leasing contracts will automatically be extended for a few months during the state of alarm and a consequent price dropping.

For Font, these price reductions will be more evident in neighbourhoods with weaker demand, or in humble areas with population affected by ERTEs or unemployment.

For Fernando Encinar, head of Studies at Idealista, in short and mid-term, there will be a significant increase in 'stock' in the Madrid market but also a significant drop in transactions. After summer and towards the end of the year, the 'stock' will continue to grow, and only a few sales accomplished. He estimates that in early 2021 the 'stock' could be stabilised, and operations will experience an increase.

With low interest rates, with the ECB backing the banks, Madrid will be very attractive for investors. For Font "There will be very interesting opportunities, perhaps not as profitable as they would have been in 2017 or 2018, but it is a safer investment than other assets such as the stock market, which in this situation is unpredictable," adds Font.

Furthermore, the sector is appreciating new preferences as a result of the confinement that could modify the future architecture and design of properties, with a trend towards light and outdoor spaces.

https://www.expansion.com/economia/2020/04/19/5e9c8267e5fdea33098b45c8.html

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