The latest quarterly report from the Association of Spanish Registrars shows an almost 50pc decline in home sales involving foreign buyers in Q2, which can largely be explained by the draconian lockdown in Spain in response to the Covid-19 pandemic.
The Spanish government declared a State of Alarm lasting from the 14th of March to the 21st of June, effectively locking down the country for almost all of the second quarter. But in that period, both notaries and land registrars were allowed to keep working as essential services, which explains why there were any sales recorded by the registrars at all.
Overall market sales were down 41% to 76,545, with local buyers down 40% to 68,385. Foreigners were involved in 8,160 purchases, a decline of 49.7% compared to the same period last year.
It makes sense that foreign demand fell more than local demand, given the travel restrictions getting in the way of foreign visitors. As a result, foreign demand in Q2 fell to 10.7% of the housing market, according to the registrars.
Covid-19 has pushed foreign demand, measured in terms of purchases recorded in the Land Registry, back to where it was in Q2 2013, just as the market started to recover from a deep crash after the financial crisis.
The growth in foreign demand for Spanish property has been getting weaker since about mid-2017 for a number of reasons that I discuss periodically in my headwinds and tailwinds analysis. The trend at the end of 2019 hinted that positive growth might be on the cards in 2020, but along came Covid-19 and changed all that, pushing foreign demand down 6.4% in Q1, and now 50% in Q2.
As I said at the end of my article on Q1, “foreign sales figures in Q2 will show much bigger declines than Q1, as the lockdown made it almost impossible for foreigners to buy homes in Spain in the second quarter.”
I was right to forecast bigger declines, but in truth I was expecting much bigger declines. How do you explain 1,000 purchases by Brits whilst both Spain and the UK were locked down? Perhaps most of those purchases were made in Q1, but not inscribed until Q2. In which case, we might see even bigger declines in the figures for Q3.
Spanish property sales by nationality in Q2 2020
As has been the case for many years, the UK was the single biggest foreign market with 1,003 purchases, followed by Germany (589) and France (543). Despite Brexit and C19, the British are still the dominant force in the market
The eight biggest markets, led by the UK, made up 49% of demand, and the ‘rest of the world’ made up 51%.
As you would expect, all markets shrank heavily, with declines ranging from 67% (Poland, a small market) to 36% (Holland). The big markets of the UK, France and German were all down 50% or more.
What happens next?
Given the continued travel restrictions in key markets like the UK and Germany, which have continued over the summer, and the general level of disruption the pandemic is still causing, it’s hard to see foreign demand recovering in any meaningful way in 2020.
So it looks like sales for the year will end up 40% to 50% down, and I wouldn’t rule out more than 50%.
Such a big reduction in foreign buyers reduces market liquidity, making it even more difficult for vendors to find buyers with or without discounts.
Millions of jobs lost around Europe will also mean an increase in mortgage delinquencies, and the repossession of foreign-owned holiday homes, which will end up back on the market with a discount.
Macabre as it might be, there will also be an increase in the number of foreign owners who have passed away this year, leading to yet more second-homes on the market.
With so few foreign buyers around this year, it’s going to be difficult for vendors to get any interest, but it does suggest that Q4 and 2021 might be a good time to be a buyer with funds in place.
Spanish home sales figures come from two official sources: 1) The Association of Spanish Notaries based on sales witnessed by them in the month, and 2) The Institute of National Statistics (INE) based on sales inscribed in the Land Register by the Association of Spanish Land Registrars.