With the UK’s referendum on EU membership looming on the horizon, here are my thoughts on how the result might affect the Spanish property market, and British demand in particular.
The UK’s 23rd June referendum on EU membership is a big deal for the Spanish property market because British buyers are the largest group of foreign buyers by far , and British demand, which may have already started to cool on fears of a “Brexit” (vote to leave the EU), will be sensitive to the outcome. There’s a lot of money at stake for the Spanish economy.
British demand for property in Spain grew strongly last year on the back of a strong pound and attractive Spanish property prices. Buyers from the UK were the biggest group by a wide margin (21% of the foreign market – see chart below), and increased the most – up by 42% last year. In some regions like Alicante (Costa Blanca) and Malaga (Costa del Sol), the British dominate the market.
BRITISH BUYERS WAIT AND SEE
However, in the lead up to the referendum the pound has fallen substantially against the euro (so you know what the currency markets think of the UK’s economic prospects outside the EU), and British people thinking of buying in Spain have a good reason to wait and see what the result is before taking the plunge.
The following chart illustrates how the pound was strong for most of last year – frequently above 1.40 – and has fallen around 10% this year to around 1.25, with obvious implications for British buyers and their budgets.
It’s not just worries of a weaker pound that might deter British buyers in Spain. A Brexit result would raise big questions for British expats and property owners in Spain (affecting issues such as taxes, residency rights, pensions, freedom of access, health care, and so on), which could take years to sort out. Nobody likes uncertainty, so the referendum is bound to be giving British buyers pause for thought.
All this suggest that British demand might go soft in the first half of the year, at least until the referendum is out the way. There are no statistics out yet to shed light on this question, but anecdotal evidence like this sale falling through suggest that a percentage of British buyers have decided to sit on the sidelines until after the referendum. If the number is big enough vendors and agents in areas popular with the British might notice it.
Will it be enough to affect the market in key areas and take the wind out of the recovery in those areas? I wouldn’t rule it out. However, the latest sales figures from the notaries for February were reassuring, with sales up 23% in February. If British demand was down at the start of the year it wasn’t enough to have a noticeable impact on the overall sales figures, though one has be careful interpreting aggregate figures and making assumptions about British demand.
If the referendum ends in a Brexit result (vote to leave the EU), it will be bad news for the Spanish property market and British owners of property in Spain.
The implications of a Brexit are complicated for expats and holiday-home owners, and the pound might fall even further, given what the currency markets are already saying about even the possibility of a Brexit. None of which would be good for British demand for property in Spain. Remember, the British are the biggest group of foreign buyers by far, so a Brexit would be a negative shock for the market that could last several years or more. It would be bad for vendors, businesses, the expat community, you name it.
If the British vote to stay in the EU, then all the uncertainty holding back demand could evaporate on the day of the referendum. I would expect the pound to rally, and all those Britons who have been sitting on the sidelines to come stampeding back into the market. It could be a great second half of the year for home sales in areas popular with British buyers.
How will the British vote? Many of my friends are strongly in the out camp, and that is the opinion I hear the most from my own circle of acquaintances.
However, I believe the majority of British people will vote on the day for their favourite devil – the one they know. I don’t think the British have got the stomach for a big change like leaving the EU, and I will be very surprised if the result is a Brexit.
The latest opinion polls (see chart at the top) suggest the remain camp is still slightly ahead by 48% to 41%, but opinion polls are fickle and can change fast. I think betting odds are more reliable than opinions polls as someone is putting their money where their mouth is. According to Betfair, a remain result is still odds-on favourite at 1.4 (bet of 10 wins 4), compared to 2.7 for a leave result (bet of 10 wins 17). The leave odds have fallen a bit in the last week (from 2.87), but the bookies are still clear who they think is going to win. And if they are right, I suspect the result will be most welcome on the Spanish coast.