Buying Housing in Spain During the Crisis

Spanish Real Estate Brought €29 Billion in Investments to the Country Over Four Years

Traditionally, the real estate sector has remained extremely important for Spain's economy, attracting the lion's share (about 20%) of all foreign investments coming into the country. Logistics and energy supply sectors followed in second and third place, bringing in 11.3% and 10.2% of foreign capital, respectively.

Analyzing Recent Trends

Over the past four years, foreign investors have invested approximately €29 billion in the Kingdom's real estate. The champion year was 2015, which brought €8.6 billion to Spain. Notably, during this period, annual investments gradually and steadily declined. There are several reasons for this, the main one being that the average housing cost in the country is already approaching the average European level. Building, renting, and selling property in Spain is no longer as profitable as it was 5-6 years ago.

As a result, local market analysts conclude that foreign investments in this sector have lost their leading position in the structure of all foreign inflows. In the first half of 2019, only €1 billion came into this sector, and it moved to third place. Besides the aforementioned reason, the unstable political situation also contributed to this decline.

Despite this trend, third place is still a good result, indicating that investments in Spanish real estate remain a fairly profitable business.

Buy Property in Spain During the Crisis!

This statement may surprise our readers familiar with the current recession in the European real estate market. Indeed, demand for housing in the "coronavirus" year has fallen, developers are curtailing their projects, and the price per square meter is decreasing.

However, the situation is far from straightforward. There are many conflicting forecasts among experts, and potential investors are simply bewildered by this information chaos. Regarding Spain, we found the opinion of the reputable Spanish real estate agency Alfa Inmobiliaria noteworthy. Its vice-president, Jesús Duque, recently stated that the end of this year and the first half of next year is the time when purchasing property in the Kingdom of Spain will bring investors maximum profit. What guides the specialist in his forecast?

What Was the Spanish Market Like Before the Pandemic?

To better understand Mr. Duque's logic, we should take a brief look at the recent past of the Spanish real estate market. It is known that the highest housing prices were observed in the country in 2007. According to experts, they were unjustifiably high, and the market was overheated. It is not surprising that the global crisis of 2008 collapsed the Spanish market, plunging it into a prolonged and deep recession.

The decline, during which Spanish property lost about 50% of its value in some areas, continued until 2015. The recovery that began then lasted until the start of the pandemic, but it was relatively slow and did not bring prices back to their 2007 level, as shown by the following chart.

Despite prices not returning to their previous peak, by early 2020, the investment attractiveness of the Spanish market began to slow down. Housing started losing its financial appeal, which had characterized the local market in 2015-2019.

How Did the Real Estate Market React to the First Wave of COVID-19?

The first wave of coronavirus slowed down all processes in the Spanish real estate market and further hindered an already sluggish price growth. In this regard, the statistics from the Idealista portal are interesting, which we will present in the form of a table.

Table 1. Market Statistics for the First Half of 2020

As we can see, in the first half of the year, the Spanish market still experienced positive dynamics, though it lagged in growth rates compared to the same period last year. But analysts predicted that this situation would not last long, and by the end of the year, the recession would deepen.

The forecasts varied. For example, Moody’s agency believes that by the end of the year, prices will be 2.5% higher than in 2019, but in 2021, they will decrease by 2-3%. This drop will be especially noticeable in the country's resort regions.

The process of price reduction in the Spanish real estate market in 2021 is also predicted by analysts from the American agency BBVA Research and the Spanish Association of Valuation Analysts. Their forecasts, compared to Moody’s, are more pessimistic. They do not rule out that prices may drop by 5-6%, and this decline will be particularly noticeable in the secondary market (which is already lagging behind the new property market, as seen from our table).

However, all analysts agree that the recession associated with the pandemic will be short-lived. Properties purchased now or next year will quickly regain their value,  price increase, and bring profit to their owners.

Spain Managed to Avoid a Total Real Estate Market Collapse During the COVID-19 Pandemic

The COVID-19 epidemic caused another crisis and a collapse in the global economy. Spain was among the ten countries most affected by the coronavirus infection. The pandemic impacted all aspects of Spanish society, and the real estate market was no exception. It suffered significant losses, but the indicators did not reach critical levels, as they did in 2008.

Thanks to the coordinated work of the government and the national bank, economic activity in the country is gradually recovering. There is hope that similar processes will soon be observed in the Spanish housing market. It is worth noting that even before the spread of the coronavirus, it was not at its peak development.

A real estate market collapse occurs every six years (2008, 2014, 2020). The period from 2014 to 2020 had its peculiarities:

• No 100% mortgage financing;
• Housing prices were 25% lower than in 2008;
• The number of completed projects decreased tenfold compared to the pre-crisis period of 2004-2008.

Economists consider the last point more positive than negative. Market oversaturation leads to the devaluation of square meters.

Overall, the situation is controllable and quite reassuring. The director of Spain’s Real Estate and Land Department makes optimistic forecasts for the completion of projects that were suspended. We hope that temporary difficulties in completing transactions are a thing of the past.

5 Reasons Why Now Is a Profitable Time to Buy Property

But let's return to Jesús Duque's forecast. Based on the analysis by Alfa Inmobiliaria experts, he names at least five reasons why potential investors should consider buying property in Spain right now.

1.1 The Spanish economy as a whole is experiencing the pandemic crisis more acutely than the real estate market. Unemployment is rising, and many businesses and industries are stagnating. There is a significant shortage of funds in society. One possible solution is to sell extra real estate, a quick way to obtain cash.

Moreover, trends show that property owners' patience only began to run out towards the end of the year. Now, more and more properties, especially in the secondary market, are being sold at good discounts. For example, in October, 3,700 properties were put on the market with discounts of up to 50%.

1.2 Mortgage lending has become even more accessible, with conditions that were already attractive in Spain. Currently, mortgage rates in this country are among the lowest in Europe, ranging from 2-3%.

Important! Russians, like all foreigners, can apply for a mortgage on terms not significantly different from those available to citizens of the Kingdom. The difference is that interest rates for foreigners are usually 1-2% higher, and the initial down payment must be 40-50%, whereas Spaniards can often get by with 20%.

While some are trying to sell real estate, others, on the contrary, see it as a reliable investment in uncertain times. Typically, new, modern, and quality housing is considered such an investment. This leads to the devaluation of older homes and apartments. Right now, it has become profitable to buy them. The number of secondary properties on the market is also increasing due to the sad fact that many homes and apartments are being sold because their residents died from COVID.

Developer Behavior as a Predictor of Future Market Recovery

Now, at the end of 2020, developer companies in Spain have begun selling off their assets. This, by the way, confirms the forecasts of the experts we cited above next year will be more challenging for the market than this one. Due to the pandemic, the largest construction companies in the country, such as ACS, Acciona, FCC, Ferrovial, OHL, and Sacyr, are getting rid of some of their shares. For example, ACS alone sold assets worth €9.5 billion.

However, the largest British developer, Taylor Wimpey, which is actively engaged in building resort properties in Spain, is confident that the local real estate market will fully recover by 2022, provided that there is no third wave of the pandemic in Europe, and effective vaccines are widely used in the first half of 2021.

Conclusion

Logic suggests that the slowdown in developer activity cannot be long-term in such an attractive country for investors and tourists as Spain always has been and will be. As soon as the pandemic subsides (which, according to the most pessimistic forecasts, will happen within two years), tourists will once again flood Spanish resorts, and cities will fill with foreigners.

The demand for rental housing will quickly revive. And then the investors who bought real estate, even if not always new, right now when it is being sold with significant discounts, will come out on top. Those investors who, amidst the sea of conflicting forecasts, tend to share the view of Mr. Jesús Duque.