In terms of foreign buyers, the Costa del Sol property market ranks as one of the most important in Spain. Since the 1960s when the southern Mediterranean coast first appeared on the European holiday radar, the Costa del Sol has been a firm favourite among foreigners for second homes and holiday let properties.
Just like all property markets, the Costa del Sol has experienced its share of ups and downs. And in common with the rest of Spain, the post-2007 crisis hit it hard. Covid-19 has impacted hard too, but the Costa del Sol market has one advantage over many others – it tends to bottom out of a property cycle before the rest. We fully expect this upper hand to come into play yet again over the next few months.
The Costa del Sol property market pre-covid-19
For perspective on the impact of COVID-19 on the Costa del Sol property market so far, it’s helpful to get a pre-pandemic picture. The situation before the virus closed borders and shut down businesses.
House price gains on the Costa del Sol have been steadily rising over the past few years, although prices remain around 30% below their 2007 peak. According to the Tinsa Local Markets Index (IMIE), property rose by 3% in Malaga province in the year to Q1 2020, 0.5% higher than Spain generally.
The Spanish Institute of Statistics (INE) reported 2,225 sales on the Costa del Sol in February, slightly below the 2,537 recorded a year earlier. However, transactions in March (Spain entered the state of alarm and lockdown on 14 March) dropped by over 31%.
By January 2020, there were some 200 new developments in the pipeline or under construction between Malaga and Estepona. Figures from the Spanish Ministry of Development (Ministerio de Fomento) reveal that Malaga had the highest proportion of new building licences in Spain (10.7 per 1,000 properties) at the end of 2019.
According to a report by Savills-Aguirre Newman, the average value for new-build apartments was €2,494 per square metre with villas costing €3,008, and the most expensive villas were in Casares (€7,005 per square metre). The web portal Idealista lists Benahavis as having the most expensive new-build apartments at €3,342 per square meter, with Sotogrande coming second at €3,204 per square meter.
The Costa del Sol property market during lockdown
Spain went into one of Europe’s strictest lockdowns on 14 March, and confinement measures were only relaxed slightly at the beginning of May. During those seven weeks, all sectors of the Spanish economy suffered dramatically with tourism, perhaps the worst affected. Almost overnight, the Costa del Sol went from experiencing record visitor figures to zero tourists.
The unprecedented and unknown nature of COVID-19 meant that the first stage of the COVID-19 lockdown was all about fear and uncertainty. Judging by the nosedive in online property searches from mid-March to early April, buying a home on the Costa del Sol was far from everyone’s minds.
Sustained interest from foreign buyers
However, once Europe overcame the worst of the virus and the curve in new cases and fatalities began to flatten, confidence returned. Online searches increased, helped by comprehensive marketing packages that include 360-degree virtual tours – estate agents on the Costa del Sol are more than used to showcasing properties to clients who aren’t physically in the area. As a result, many agents saw a strong rebound in website traffic and interest from buyers.
The rise in online searches and enquiries for Costa del Sol properties from mid-April to the end of May showed the sustained interest in the area from foreign buyers. The area’s climate, lifestyle and connections appear as substantial motivating factors even during a pandemic.
Flexible property reservations
Virtual tours using the best technology were hugely successful in persuading buyers to commit to a purchase. Flexibility too was vital – for example, many estate agents have introduced a system whereby interested buyers pay a deposit to reserve the property until they can travel to the Costa del Sol. Should the property not be to their liking, the deposit is refundable. Developers too, have introduced flexible deposits and payment terms in line with travel and economic restrictions.
Despite COVID-19 restrictions – estate agents could not open their offices until mid-May – sales on the Costa del Sol property market continued throughout the state of alarm. The INE recorded a total of 1,339 transactions in May 2020, more than half the total for the same month a year earlier. Some of these purchases were for properties ‘viewed’ during the lockdown.
The Costa del Sol property market post lockdown
As the Costa del Sol and Spain gradually ease out of lockdown, and the country lifts travel restrictions, the property market will gradually adapt to the new situation. While no one has a crystal ball and much depends on the behaviour of COVID-19 and emergence (or not) of its vaccine, we believe that the Costa del Sol has several characteristics that augur recovery in the short rather than long term.
The appeal of the Costa del Sol lies in several fundamental features:
A pleasant year-round climate – let’s not forget that the area enjoys 320 days of sunshine a year.
An enviable lifestyle – the Costa del Sol has always been about alfresco living, whether that’s doing sports, enjoying the beaches, swimming in your pool or dining on your terrace.
Excellent connections – travel restrictions might be in place at the moment, but Malaga Airport opens to travel from the Schengen zone from 21 June and international travel from 1 July. Many airlines have already announced services, and the airport is expected to pick up its usual network of flights relatively quickly.
These characteristics make the Costa del Sol perennially attractive and remain in place despite COVID-19.
The pandemic has brought about a shift in trends, particularly in home and working environments.
Private outside space – after weeks on lockdown, people now value property with a garden and pool more than ever before. Outdoor space is a given in most properties on the Costa del Sol.
Home offices – working from home is the new normal, and few people expect to return to their office environments this year. Home offices will, therefore, be a highly desirable feature as will efficient and fast internet connectivity (most locations on the Costa del Sol have fibre-optic infrastructure and highly reliable internet).
Quality healthcare – the Costa del Sol has a robust network of public and private healthcare facilities, all of which have proved their efficiency during the first wave of the pandemic.
Covid-19 measures – along with one of the lowest incidences of COVID-19 in Spain, the Costa del Sol has implemented a strict regime for easing of lockdown. Stringent regulations and recommendations for hygiene measures are in place, inspiring trust and confidence in visitors.
Agents have noticed a sharp uptick in online searches, indicating pent-up demand among buyers. We expect to see a continuation of this, particularly as travel restrictions are lifted in late June. Online reservations for August show that tourists, both Spanish and foreign, are keen to return to the Costa del Sol. As the President of the Diputación de Málaga (provincial authority), Francisco Salado, said at the beginning of June, “Malaga is in a privileged position as it attracts property investment from both Spanish and international buyers”.
Travel restrictions and economic constricts will inevitably mean the Costa del Sol sees fewer property sales this year. Looking at transaction figures for May, it may be reasonable to expect a drop of around 30 to 40%. However, the consensus is that this will be a hiatus and that sales will pick up again in 2021.
The behaviour of prices on the Costa del Sol property market will depend on several factors: the economic situation, how quickly a vaccine or treatment for COVID-19 is found and the recovery of tourism.
Resale prices – analysts generally agree that prices for resale property will fall in the short-term. The Spanish economic broadsheet, Expansión, predicts a decrease of up to 6.5% in Marbella, although its figures allow for a 0.5% increase as well.
How much prices fall will ultimately depend on perennial market factors such as location, whether the property is priced for the market and the motivation of both the buyer and seller.
New-build prices – despite the steady supply of new construction on the Costa del Sol, new-build properties look set to maintain their prices. Savills-Aguirre Newman claims that “new-builds show no visible signs of price drops in Malaga city in the short term”.
Our final reason for believing in a relatively rapid recovery for the Costa del Sol property market lies in its solidity. Before the COVID-19 crisis, the market sat on a firm base of sustained demand, moderate price rises and contained supply.
These three pillars are a world apart from the situation experienced from late 2007 onwards when prices plummeted from their highest ever and over construction led to excess supply. Furthermore, prices in Malaga province remain well below their pre-crisis peak (at -33.6% in Q1 2020 (Tinsa)).
Room for optimism
All the factors discussed above, together with a treatment and/or vaccine for COVID-19 on the short-term horizon lead us to cautious optimism about the Costa del Sol property market. We believe that pent-up demand and the overall appeal of the area will ensure a gradual return to regular market activity. And we fully expect figures for 2021 to be on par for those registered in 2019.