Banks forecasting 6pc decline in Spanish property prices and two-year recovery, but foreign segment expected to take the biggest hit

coronavirus covid-19 spanish property market crisis
The holiday-home market, where foreign demand is key, is forecast to take the biggest hit this year.

Two banks have recently published their forecasts for Spanish house price declines in the light of the coronavirus pandemic, with a consensus of -6% that will strike many readers as optimistic.

Both the giant Swiss bank UBS, and the mid-sized Spanish lender Bankinter, have published reports forecasting a 6% average decline in Spanish house prices this year, as a result of the Coronavirus crisis.

UBS makes the point that price falls will be above average in second and third tier locations, whilst prime locations, especially in city centres, will fare better thanks to stronger foundations of demand.

Bankinter warns that sales involving foreigners will be the hardest hit, at least this year, which implies an extra drag on house prices in that segment. “We expect transactions involving foreigners to be much reduced in the coming quarters, given that some limitations on international movement could be maintained.”

The short-term decline in sales is expected to be dramatic, and not just in Spain. “Without notaries, registrars and appraisers in action, real estate transactions should be close to zero whilst they maintain the actual lockdown measures,” says Bankinter. “We assume that these measures will directly affect three months of sales.”

Beyond the lockdown brake on housing market activity over the next one or two quarters, both banks warn about the economic consequences of the crisis looking further out.

Deep recession and massive disruption

UBS talks of a “deep recession and enormous fall in employment” that will hit demand for housing. They also forecast similar trouble in commercial property, and the biggest problems of all in tourism-related property. Price declines will be swift and across the board, with commercial and tourism-related assets taking the biggest hit.

Bankinter warns of “massive disruption for the residential market” from the Covid-19 pandemic that will simply wipe out a certain segment of demand that is left without any purchasing power, whilst others segments delay purchase decisions by six to twelve months as a consequence of the economic crisis unfolding, and worries about job losses. Bankinter forecasts sales down 35% this year to around 326,000 transactions, the lowest level since 2014.

On a more positive note, Bankinter argues the crisis will bring housing costs more in line with salaries, rebalancing a housing affordability ratio that suggested house prices were overvalued in hot markets like Barcelona and Madrid. That would be good for potential buyers and tenants left standing with purchasing power after the crisis. Residential land prices are forecast to drop by 20%.

Recovery? Next year

What about the recovery? In the wider Spanish economy, consumption and investment will start recovering this summer, but leisure and tourism will start later, followed by a slow and prolonged recovery in the housing market spread over 2021 and 2022, forecasts UBS.

Bankinter also expects a recovery underway in 2021, with a better balance between supply and demand for housing, notably strong rental demand driving attractive rental yields for investors.

An average decline of 6% in Spanish house prices this year might sound optimistic to readers of this blog who have seen the results of my Coronavirus and the Spanish property market survey, where 57% of respondents expect holiday- home prices to fall by more than 10%. You can see links to the survey articles below.

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Thoughts on “Banks forecasting 6pc decline in Spanish property prices and two-year recovery, but foreign segment expected to take the biggest hit

  • Youssef Abbaoui says:

    I did participate to your recent Coronavirus and the Spanish property market survey and I think your results make more sense. Right or wrong, bankers, like politicians and corporate management, in general try to polish the truth a bit. Currently, there is around 30 million unemployed people in the US and the EU is at 6.5% unemployment rate. The consumers are choked, oil prices slumped, oil reserves are piling up, several companies started declaring bankruptcy, large corporations started downsizing and/or reducing salaries and looking for government bailout. So far, there is no clear solution for Covid-19 and no clear plan to get rid of it, which will, most probably, take time! In addition, even if we get out of this crisis somehow by any miracle, consumers spending behavior will change and the economy recovery will be very slow as people will be more into cash saving rather than spending. No one knows the future, but regarding the real estate and hospitality services, your survey results looks, at least to me, closer to current economic realities to not say optimistic!

  • We were due to go out to the Costa del Sol with a view to buy a holiday/retirement home this year but obviously now delayed and really we have no idea when we will be travelling. Moe

    • Mark Stücklin says:

      Hi Mo, sorry to hear that. That’s the way things are for now. On the bright side you might end up buying for less than it would have cost before this crisis.

  • Natalie Kear says:

    Hi Mark..
    We’re currently in the process of purchasing a property in Spain, expectation is that the notary will sign next week. This whole situation makes me worry that we could be buying a property that loses approx 15% value over-night!

    • Mark Stücklin says:

      Natalie, I can understand that concern. Many people believe there is going to be a lot of distress in the market, as the results of my survey show.

    • Greenssales says:

      I dont think it will lose 15% overnight, because the 15% is a average of the overall cost of sale divided by the the amount of sales nationally. I think the sale going forward will be more low price properties and less large premium properties as these owners less likely to need to sell. In the short term sales will be to be to national clients and not international and they tend to buy houses not so close to the sea or apartments.
      If you buying a premium property close to beach and amenities the price will drop this year if seller needs to sell, but you may need to wait 2-3 years, repossessions take normally 5 years to come to market, by that time they have been stripped of metal pipe and wires in most cases.

      Premium properties are hard to find and demand for such properties is all ways high with people waiting years for property in the their desired area to come up for sale. Seller generally wont sell them cheap even if market is depressed.

      My advice would be to rent if you feel the supply for the type of properties you are interested in buying is plentiful. Rent can be as low as 3 percent of cost of houses .

      But if the property is really premium eg, front-line or city centre with large terrace south facing and private then I would buy as these will not see much of a decline in price and you may wait along time

  • We are in limbo. Having spent most of the winter in Spain, we had an offer accepted on a bank property. Purchase is currently on hold. I would like to proceed but not sure whether or not to do so. I still like both the property and location, but should I be looking to renegotiate the price based upon an anticipated fall in property values?

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