What will be the short and long term impact of the Coronavirus COVID-19 pandemic on the Spanish property market, in particular the second-home market driven by foreign demand?
Nobody knows for sure, but we all have our opinions, and opinions are what guide the market, so last week I started a survey of my readers’ opinions, as you won’t find a group of people more connected to the Spanish second-home and expat market than my readers.
I’m pleased to report that more than 600 of you completed the survey in a week, which is a big response for a niche market, providing us with a unique insight into how this infectious disease, that’s come all the way from the far east with compliments from the Chinese Communist Party, is going to affect the market through the opinions of market actors like buyers, sellers, and property professionals.
There’s too much information obtained from the survey to cover it all in one article, which would end up too long. So I’m going to split the analysis into parts, starting today with the key numbers, and then drill down into the opinions of different groups in subsequent articles, ending with a selection of the comments, many of which were very interesting, but with more than 200 comments I need to sort through them.
At the end I’ll make a full report available as a download document, free for all the people who have participated in the survey.
Coronavirus crisis and the Spanish property market survey – key findings
First of all, let’s look at who responded to my survey.
As you can see from the first pie chart below, almost three quarters of respondents were what we’ll call consumers, meaning owners, buyers and sellers, rather than people in the property business. The biggest group of respondents are people who own property in Spain (199 of them, 33% of respondents) with no current plans to sell. The next group are people with plans to buy a property in Spain, or at least who had plans until the coronavirus crisis struck. There were 177 of them (29%). Then there are 71 owners looking to sell (12%), and 14 professional investors like real estate fund managers (2%). The third biggest group were property professionals like estate agents, developers, and lawyers, with 137 responses (23%). When you do a survey, it’s important to understand the profile of respondents, and I think we can safely say that the people who took part in this survey all have profiles that are highly relevant to the market. Their opinions matter, and I believe give us a good insight into the opinions of the wider market.
Coronavirus crisis: How long will the Spanish property market stay frozen?
The market is currently frozen in lockdown with no buyers. I asked how long people think the market will remain frozen with no meaningful number of buyers around, and 57% said more than six months, and 30% three to six months. Just 12% said less than three months. So 88% of market actors expect the Spanish second-home market to be frozen for more than three months. If they are right, the industry will be purged as hard or more so than the Spanish property crash between 2008 and 2010. The majority of agents and developers in the holiday-home market could go out of business.
Coronavirus crisis: What will happen to Spanish second-home prices?
Some respondents rightly pointed out that price changes depend on what are where you are talking about. A luxury villa in Ibiza is not the same as a small flat in Benidorm. Without denying that, it’s also true that people have a general opinion regarding prices, even if there are big regional differences like there were last time the market crashed. I was after the general opinion, and as you can see from the pie below, 57% think that house prices will be dragged down a lot by this situation (the same proportion as those who think the market freeze will last six months or more), whilst 37% say prices will fall a little. Just 6% expect no impact on prices. Given that almost everyone is expecting Spanish second-home prices to fall either a lot or a little, we can be confident that’s exactly what will happen. Falling house prices trigger all sorts of related dynamics, but that’s a discussion for another day.
Coronavirus crisis: What will be the impact on foreign demand for Spanish property?
More than three quarters expect the impact to be temporary lasting no longer than a year or two (75%) and 17% expect the impact to be limited to a few months. Just 7% expect permanent damage to demand. It’s encouraging to see that most people expect demand to recover fully in a few years. Anyone still standing when the recovery comes will be in a good position.
Coronavirus crisis: What will buyers do?
In this chart we see what people think what buyers will do, in the opinion of buyers and others. In a later article I’ll look just at the opinion of buyers.
52% expect buyers wait for prices to go down and bargains to appear. In the comments section at least one person pointed out that in times of crisis people need cash to meet obligations, and have to liquidate their assets at any price they can get; second homes are non-essential items that get liquidated first. It’s not farfetched to expect some incredible bargains to emerge in the next six months or longer, some of them on the market, some off-market. A crisis like this, which is not a full scale melt down like a world war, and will pass relatively quickly, is always going to be a disaster for some and an opportunity for others. A sad fact of life.
Sellers can take heart from the fact that 20% say buyers will go ahead with their plans to buy as soon as it is safe to do so, which I am guessing could be in a couple of months. But I suspect even the hardiest of buyers will be looking for a coronavirus discount, unless you are selling something unique where pricing power is on your side.
26% expect buyers to abandon their plan to buy this year, and 5% to throw in the towel for ever.
Coronavirus crisis: What will sellers do?
41% of sellers are expected to carry on as before, with no change in asking price. Given discount expectations growing on the buying side, there’s an obvious mismatch here. Buyers tend to win this kind of fight.
16% are expected to reduce their price expectations immediately to try and find a buyer. The question is, will it be enough to find a buyer quickly, or will they reduce slowly and miss the opportunity to make a quick sale?
43% are expected to take their property off the market, either permanently (5%) or until the outlook is better (38%). So there might be far fewer properties on the market for a while.
I’ve run out of time for this week, but you should get the overall picture. This is a serious crisis that is going to shake up the market with potential dramatic consequences. But it’s also a passing crisis that will create incredible opportunities and threats in the next year or two, but it’s not necessarily the end of the dream or the business.
Next week I’ll look at these results in more detail, and drill down into the numbers, with more info on the profile of respondents, such as their age and country of residence.