PART 1 – WIDER TRENDS AND EVIDENCE
This is our 26th Quarterly Report. Its style is different from our last Quarterly, due to the production of our ‘Return of the Market’ Report in June (which you can find linked to at the bottom).
New Normal: We’ve reached the ‘New Normal’ in most of Spain, with facemasks being compulsory and compulsive hand washing after doing anything. Handshakes and ‘High Fives’ are awkward, not wanting to offend, but also to stay safe. The Thai Wai of prayer style clasped hands is safest, though it doesn’t give the physical contact that elbow knocking does. But aren’t we told to cough or sneeze into our elbows? Hey Ho, life’s so complicated.
Market: Regarding the market, as usual there is a variety of experience and opinion. The work of this Report is to try to bring that together and see if there is a trend. However, before bringing in the comments of the various professionals surveyed, some background is needed.
Background: Principally, Spain has been locked down for 3 months, with the 4th month showing gradual relaxations. Overall, most people have behaved, with the rules being clear and the enforcement strong. Now that there is relaxation, there are more examples of careless and selfish conduct, which brings fears of a return to higher levels of illness and the enforced return to lockdown. Recent studies have shown that 90% of people tested and found to be carrying the virus, show no outwards signs and are themselves unaware that they could be infecting others, who may not be so fortunate.
Tourist Arrivals: The last few days of June and now early July have seen borders opening and non-residents and tourists coming from various countries. The fear is that the holiday spirit will take over and they will act and party without respect for the real and local situation. Again, prospects of a spike in cases is concerning, which has already resulted in some provinces in Northern Spain being locked down again. If that were to happen on the Costas or Islands, the effect would be financially disastrous for the resident population.
Businesses: Also concerning, is the situation with the businesses that serve the tourists. Bars and restaurants must take measures resulting in lower capacity, making profitability difficult. Do they raise their prices to cover the downturn in income, but as a result make Spain appear more expensive and so reduce the number of tourists, upon which the local property market relies? Some areas have been working on improving the quality of the tourist, away from the cheap booze crowd, so maybe they won’t worry too much.
Financial Support: Spain has financial support schemes for employees made redundant, businesses with losses and self-employed who have seen their income disappear. When it’s paid, it has helped many families literally survive, and schemes most have now been extended for a further 3 months to October. On the Costas, the summer season has started late, with tourists in any numbers only starting to come within the last few days. Some will have been put off by tales of hotels and restaurants not opening and health concerns regarding flights. Those who arrive, should have a better time as they need to be appreciated as saviours by the businesses serving them. It will all help to bring money into the local economy.
Closures: However, in places like Tenerife, where their peak session is over the winter, they are unlikely to see so much business activity as ‘employees’ lying on the beach will get more from the ERTE scheme, which supports businesses keep employees, than if they come back to only part-time working, which is all the business can afford. When the schemes end, in October it’s thought, these employees will be taken back for the ‘busy’ 6 months and then maybe released without support. The effects of this are going to be felt for years.
Letting Income: Many owners have depended upon rental income to cover the cost of their holiday home ownership. That’s been absent over the last 4 months and there will be concerns that it’s going to be absent or at least sporadic, for a great deal longer. Also, flight concerns, redundancies, and the economic effects of the virus in their home countries, could be making them have thoughts of selling and using the money for other things such as supporting family and the like. So the supply of properties may increase.
Lifestyle Change: As a counter to that, most redundancies will see people being given a lump sum payment, or shorter hours will make them wonder about the sense of their existing lifestyle. Commuting will reduce as people work much more from home, with businesses and the individuals realising they can be as productive that way as sitting together in an office. Also, sadly, many will find that they no longer have the family ties to the areas they were raised in. Those with a broader outlook, will consider changing lifestyle altogether, and it’s these with their families that we should be encouraging and seeing increasingly coming to live and work in the coastal areas of Spain.
Migration within Spain: The situation is similar in Spain, and there may be a flow of professional and entrepreneurial families coming to live and work here, with its better climate than much of Spain, countering the traditional low and unskilled workers moving North to the industries of Madrid, Cataluña and Bilbao.
Migration Locally: Being in a small apartment with children and trying to work from home, perhaps without even a balcony, will have been a great frustration, to put it mildly, for parents. They are the ones, assuming continued income and savings, who will be looking to change to a larger space, with balcony or terrace or even a small garden if ground floor. Not to be found in the middle of cities, it’s likely to encourage movement outwards, with employees and consultants working from home being more accepted by businesses, which will be a blessing to developers creating those homes, who had initially aimed at the expat, second home market. This will especially be the case if they can offer high mortgage percentage of price.
Inner City Accommodation: The movement out to pastures green, will release the smaller apartments for homes for workers who are needed to enable the city centre businesses to function. There is likely to be less investor demand as many will have seen the cessation of seasonal Airbnb type income and similar possibilities in the future and be looking to more reliable long-term let’s or even backing out of the market altogether. If that happens, the reduced demand is likely to stabilise the prices and certainly be politically encouraged.
Brexit and Residency: As I write, Brexit appears to be heading for a no deal, with the right to extend the transition period already having been lost, so it’s definitely happening on 31st December 2020. New national identities (TIE) for established expat residents are to be issued in Spain, reportedly as from 6th July, which, though not obligatory, will give greater reassurance of Spanish and European residence status. It’s still possible for new arrivals to apply for that before the end of the year, so again that should encourage a surge of UK interests in the second half of the year.https://www.citizensadvice.org.es/the-procedure-for-the-tie-foreigners-id-card-application/
Healthcare: One of the biggest concerns for all UK expats, actual or potential, is healthcare. The requirements and offers can vary from Region to Region i.e. Andalucía can be different from Valencia, as healthcare is a regional rather than national responsibility. Readers must go to reliable sources, such as the excellent Consumer Advice Bureau Spain https://www.citizensadvice.org.es/)
All Europe Affected: Brexit, Virus, Lifestyle Change, Mobility, Climate Change, etc, also affect the other 27 countries of the EU, so again there should be a continuous flow of possible residents, many of whom will want to purchase their property.
Debt, Taxes and New Economics: Governments have been spending and promising, as if there were money trees in the garden. Individuals and families have either had continuing income, but little to spend it on, or little or no income and been desperate for the basics of life. The wealth and lifestyle disparities in many countries continues to widen. So how are the countries to get their economies back on balance? Some state that we are in a new economic world, where the debt/asset balance is not important, as long as everybody is the same. Convenient, but one can’t help feeling that sometime, to mix metaphors, the merry-go-round will stop, and all the dominos will start falling. It would certainly happen for individuals if they spent in that way, but then the new economics refuses to liken countries that can carry on printing money, to families who cannot. The Eurozone has the awkward situation, as countries try to spend their way out of domestic crisis, but depend upon the EU central bank to print the extra money. Either way, increased taxes are likely in the future, probably angled towards the wealthy, as businesses and the poor need to be protected. Second home owners and expats will be looked upon as wealthy!
Social Change: One thing Covid-19 has shown society is how dependent it is upon ‘frontline’ workers, not only in the health service, but also in transport, distribution, cleaners, police, shop staff, etc. Most of them are low paid, even casual jobs, but they may have to be more than verbally appreciated. Will society reconsider the comparative financial rewards that these workers receive, or can it afford to without great social change? As I said last quarter, they are the ‘worker bees’ without which our ‘hive’ will not survive.
Climate Change: As for Climate Change, it still carries on relentlessly. Again, we’ve all to change our lives to accommodate that and hopefully reduce its effects Rising sea level, less rainfall and more heat, will influence the location and design of future properties, with existing having to be adapted as best they can. Every individual has to change their life, as we’ve all had to do with Covid-19, to reduce the effects that we will all live with in a very few years’ time, and even more so our children and the generations to come.
Local Markets: Previously, we’ve split the Costas into their Municipalities, but, as the virus and it’s effects are all inclusive, and the inland and Northern Spanish and International buyers have just started to arrive, we believe that there is still largely one market. Of course, there are good and poor locations, with the money and interest all heading towards the good in times of stress like we have now, and are likely to see in the near and middle future.
Changes: One big change that’s going to have an effect on Western Costa del Sol has been Marbella’s continuing progress towards getting its planning position corrected. The delays in Marbella having to ‘dot all the ‘i’s and cross all the ‘t’s’, has slowed permissions so much that the surrounding Municipalities of Mijas, Ojén, Istán, Benahavís and especially Estepona, have seen huge increases in development, as they could give permissions within a much shorter time. The start of the planning problems saved Marbella from the worst of the excesses at the start of the 2007 crisis, and, if the perceived overbuild elsewhere proves accurate, it may be that Marbella will benefit similarly once again if there is another slowdown.
Fin de Obras and Licencia de Primera Ocupación: Architects now can sign off both of these on developments in Marbella, which will speed matters considerably. However, the pressure on them to do so will be considerable from developers ‘shepherding’ buyers to the Notary to register the sale and so get the large final payment and transfer the keys of ownership. Buyers will have to be even more aware of looking after their own interests by getting independent inspection of the property before they sign and pay. Survey Spain’s Snagging Surveys often find considerable differences between the specification and quality promised, and the reality on the site.
Inducements: Developers are increasing these, to both the introducing Agent and the potential buyer. Paying flight costs and providing generous furniture packages to the buyer; whilst offering increased commission to the estate agencies and ‘one of’ bonuses to the first individual agent to bring the buyer for a tour of the development. Many developments are reaching completion around the same time and so the competition for the currently scarce buyers is intense.
Virtual Inspections: Developers and Agents have been perfecting these, so that interested buyers can get a feel of a new development, and be persuaded to reserve property without being able to visit the site. Flights have started and many of those behind the facemasks (please!) will be here to confirm what a good deal they have. It’s also been the same with resale existing properties, where deals are reported as being done with only internet viewing. Doubtless there will be some tears, but also properties beyond expectations.
Reports from Around the Market – In part II coming shortly