The tensions over independence are punishing the prime property market in Catalonia, with prices down 20% and demand down 15%, while in Madrid, prices have soared by 15% and demand by 45% in the same period.
Adapted translation of an article in the Spanish financial daily Expansión
The prime property market in Catalonia – one of the sectors most affected by the independence conflict – has ground to a halt. In the last few weeks foreign investors have stopping buying luxury property in Barcelona.
Notaries and registrars are seeing a noticeable drop in property sales, especially those for the prime sector, caused by political uncertainty. The fall in demand has triggered price falls in a market that has seen a strong upward trend over the last few years on the back of economic improvement in Spain as a whole, and in Catalonia in particular.
Price drops are starting to get so acute that many potential buyers are choosing to walk away from their deposits rather than go through with the purchase.
The upmarket real estate agent Barnes International Realty has seen a 20% drop in luxury properties in Catalonia. “Price drops have already started, and we’re seeing it in the offers from people who can’t wait for the situation to calm down in six months,” explains Emmanuel Virgoulay, founding partner of the company, in comments to Expansión.
“This is just the start, and it could get worse,” he adds. Falling price in Catalonia contrasts with the upward trend in large cities such as Madrid, and coastal regions like the Balearics and the Costa del Sol, where prices are currently increasing by over 10%.
Lucas Fox, one of the property agents with the biggest presence in the Catalan prime sector, have seen a drop of demand “of 20% in Barcelona in October”, according to Stijn Teeuwen, founding partner.
At the same time “we are seeing growth of 38% in the rest of Spain,” says Teeuwen. Leading the market are Madrid, with a 45% increase and Valencia with 42%. In terms of prices, he has noted a drop of 3 to 5% in prices in Catalonia.
Catalonia’s prime property market recovery blown of course by dreams of independence
2017 was all set to be the year of consolidation for the Spanish property market recovery. After years of price adjustment following the bubble, the property market was starting to ride the crest of the wave. The resale property market had even recovered activity levels seen before the crisis.
“The Catalan prime property sector was enjoying its best moment since the economic crisis, but as of last month prices are showing a strong downward trend,” says Virgoulay. Catalonia, along with Madrid and Spain’s largest tourist areas, had been leading price increases. In terms of high-end property, increases ranged from 10 to 15% in July and August. In Barcelona, prices were even overvalued, and hovered around €14,000 a square metre in the Paseo de Gracia. “No sales are taking place at the moment,” Virgoulay explains.
“Any political uncertainty affects investments. In this case, if a solution isn’t found in six months or a year, it will undoubtedly affect property sales in Catalonia, says Juan Velayos, CEO of Neinor Homes. According to the consultancy firm CMS, property investment in Catalonia has been slowing down since October due the perception of increased risk. Office investments are moving to Madrid, and those in hotels to the Costa del Sol.
“I believe that prices will continue to fall until at least the Catalan elections on 21 December,” says Virgoulay. The problem is that, as is the case with investments, demand has come to a halt. “Exterior demand is in free fall. There’s no legal or political security,” he says, pointing out a 50% drop in demand. “The largest SOCIMIs (Real Estate Investment Trusts) have been avoiding Catalonia for a while,” Virgoulay says.
Mortgage credit is a key factor. “It’s a bad sign if bank aren’t lending,” says Virgoulay. Sources from the property portal Idealista said they expect loan conditions to become more stringent.
“Banks are looking at a loan-to-value of no more than 70%, against the current 90%,” says the property valuation company Tinsa. It has also seen fewer mortgage loans in Catalonia in October, around 10% less, while in the rest of Spain loan approvals are growing.
Jose García Montalvo, senior lecturer at the Pompeu Fabra University, and author of the Tecnocasa property report, explains that the prime market “is the first to suffer, but not the only one”. He notes that there will be a big impact on regional taxes. “With economic recovery, these taxes were the ones generating most income for the region, around 10%.”