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  • Writer's picturePeace of Mind PM

Holiday rentals: in a “wait-and-see” mode

Updated: Oct 15, 2020

Source: EXPANSION May 30th, 2020 - J. G. Montalbo

The effects of Covid-19´s confinement have had a sudden and significant impact in all economy sectors, including the real estate business. The residential development segment was only stopped for two weeks but real estate companies have suffered a two-month pause until two weeks ago when they started working again.

Though home sales during confinement have fallen, the news of these days back to business are positive: interest (calls, emails, leads etc.) for house purchases, and specially for long term rent, has returned to levels similar to those prior to the start of confinement.

The most important impact of the pandemic has been the drastic fall in tourist activity, with a significant effect on the touristic rental offer, a small but significant part of real estate. In Madrid and Barcelona, it represents between 5% and 10% of the total rental offer, while coastal cities like Malaga its above 15%. Given the shortage of offer and the high demand for long term rental, some of these apartments might enter the traditional or long term market.

Part of the tourist rental has switched to seasonal rental (by months), waiting for tourism to recover. In the midterm, it is expected that Spanish clients might save the summer, preferring the isolation in an apartment rather than going to a hotel.

This could be the case in Galicia or the South coast, but destinations such as Madrid, Barcelona, ​​the Canary or the Balearic Islands, very depend on international tourism, will hardly compensate for their loss. Owners of tourist apartments will be in “wait-and-see” mode for a while.

In any case, it would be illusory to think that the transfer from holiday to traditional rentals will solve the problems. Studies about the impact of holiday rental stock of properties on the total offer and on rental prices are very scarce. It is also important to keep in mind that Airbnb was born as a way of exchanging homes for a limited period of time. Therefore, one apartment less offered for holiday rental does not equal one more for traditional rent. Depending on the sites, between 20% and 40% of the offer corresponds to the "exchange home" modality. In addition, many owners are only willing to lease their apartment if the profitability is worth it.

The solution for the traditional rental market is not waiting for the unlikely flood of tourist apartments, but rather in increasing the rental offer by reinforcing the legal security of owners so they can limit the compensation for the risk of renting. In a market where very low interest rates are expected for a long time and international tourism may not return with the same force, the profitability of traditional rental is quite attractive if the rental business could be free of constant legislative and political changes. In addition, the pandemic has increased the demand for locations further away from the large cities that offer green areas, gardens, and more affordable rental prices. This trend could be positive for an additional supply of apartments in areas where rents are scarce and expensive.

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