Estate agents argue lower prices due to the Covid-19 pandemic mean now is a good time to invest in prime Spanish property, but the Bank of Spain cautions that the housing market recovery could be some time coming.
Miguel Laborde, founding partner of the Spanish real estate company Laborde Marcet, advises able investors to jump into the market now as “the recovery will be U-shaped, and prices will not fall any further,” according to an article at the Spanish property portal Idealista.
The article then goes onto explain that, according to Laborde Marcet, well-located properties have not lost pricing power since the lockdown ended, and will not suffer any big discounts in the medium term.
Laborde Marcet are not the only ones arguing that now is the time to invest and take advantage of C19 prices. I’ve heard similar arguments made by quite a few real estate agents since the lockdown ended.
Laborde Marcet are less optimistic about the price outlook for properties located outside of prime areas, known as second and third tier locations. There is an argument to be made that, in those areas, the crisis could be deep and interminable, with a total lack of demand for property in some places still saddled with a glut of property left over from the real estate boom of more than a decade ago.
The argument that prime property is holding its value is borne out to some extent in the latest Prime Global Cities Index published by the international real estate company Knight Frank. There were bargains to be found in prime areas during the financial crisis that started in 2008, because many investors were over-leveraged, and had to liquidate their best assets in a deep crisis to raise cash. But in this ciris, caused by a virus, not an economic bomb, with banks in better health (though not central banks), perhaps the outlook for prime property is better. As ever, time will tell.
According to Laborde, there are now two types of investors: Those who have quickly returned to the market after lockdown in search of opportunities, and more cautious types who prefer to wait and see, which means missing out on the current opportunities.
Laborde argues that the most important factor driving the property market is bank lending. “Investors can help, but the big driver comes from mortgage financing. If they stop lending or raise interest rates then there will be problems.”
Slow recovery forecast for the Spanish housing market
Relevant to the question of when to invest, the Bank of Spain recently expressed an opinion for the outlook of the housing market in the “new normal” of the Covid-19 economy.
Noting that the economic recovery will “be gradual, although incomplete,” Pablo Hernández de Cos, Governor of the Bank of Spain, said at a recent event that after a 30% decline in property investment in the first half of 2020, there will be some recovery in Q3, but not enough to get us back to pre-C19 levels “thanks to the notable deterioration in the outlook for households.”
“We are very far from a completed recovery,” said De Cos. “And the final level of reactivation of the housing market, once the public health crisis is over, will depend on to what extent the adverse economic and financial effects are more or less persistent.” Typically incomprehensible language from a central banker, but I think what he is saying is the situation is bad, and we are buggered if C19 leaves the economy in tatters, which I guess it will.