How do you value a property in a market without transactions? Potential buyers and sellers would like to know, but this is also a problem for appraisal companies in Spain now that the Coronavirus has paralysed the Spanish housing market, forcing the Bank of Spain to issue guidance on property valuations in a diseased environment.

The Spanish property market is opaque at the best of times, because it is always difficult to get reliable market price information based on actual sales. At a time like this, when sales have all but dried up due to the Covid-19 pandemic, sales price comparables have disappeared altogether, leaving the market even less transparent than before. When it comes to the value of property, everybody is now flying blind. In a way, many other property markets around are suffering the same problem.

Which is why the Bank of Spain has just published new guidance for property valuations in the time of C-19. Sent to Spain’s two main associations of appraisal organisations, AEV and Atasa, the memo from Spain’s banking regulator points out that “in the current situation, with transactions practically having disappeared, there are no up-to-date comparables that reflect the new situation.” That means that valuations on the basis of market comparables are not possible in the current climate.

The Bank of Spain recommends that appraisers use “alternative methods whenever possible, or simply turn down the job.”

There are other ways to value a property, for example using a discounted cash flow based on an actual or assumed rental income stream.

Whichever method is used, the Bank of Spain recommends that valuers include a “specific warning pointing out the extraordinary current situation,” and warns that, until the market gets going again, “valuations will be plagued by a high level of uncertainty.”

Mortgage valuations are also affected, though the long-term lifespan of mortgages means that mortgage valuations can take a longer-term view. That said, the Bank warns that “at this moment it is difficult to make a reliable estimation of the timespan and way in which prices will evolve.”

Property valuations from RICS Chartered Surveyors in Spain

RICS Chartered Surveyors working in Spain are often the first choice for foreign owners or buyers seeking a Spanish property valuation, not least because their services come with a prestigious international stamp of approval, and are offered in English.

According to Campbell Ferguson, from the Survey Spain network of chartered surveyors, “the outbreak of Coronavirus (COVID-19) has required all RICS Chartered Surveyors to declare all valuations, until further notice, as subject to ‘material valuation uncertainty’. Note that the uncertainty is in the market and not the valuation.”

In line with guidance from the Bank of Spain, Survey Spain is also using alternative valuation methods where appropriate in the current market. “Survey Spain will provide our valuations principally based upon adjusted current asking prices, and agreed sale prices, where these are supplied by pre-acquisition Building Survey clients,” explains Ferguson. “We consider that these sources reflect the current market more accurately than if we were relying on comparison to historic valuations or registered sales, which information always lags behind the market.” There is still demand for valuations even though sales are currently on hold.

The Spanish property market will start to come back to life at some point this year, probably driven by pent-up domestic demand, and bargain hunters in the holiday-home market. It will be interesting to see at what price level the market starts to come back to life. According to a property market pulse published by the Real Estate Business School reported in the Spanish financial press, house prices are forecast to fall between 20% in northern Spain and 44% in southern Spain.

The Coronavirus Covid-19 pandemic is touching every part of our lives, and property valuations have not escaped the plague.