How will the Spanish property market develop in 2020? [Coronavirus Update]
Will the property market in Spain rise? The top 12 predictions for the Spanish housing market in 2020 coronavirus (Covid-19) updated. Only data and graphs from official resources.
Our Spanish Property Market forecast for 2020
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Spanish property up due to the coronavirus (Covid-19)?
The Spanish property market has fallen to a standstill situation, as the rest of the economy in most European countries, although it is expected to resume activity during 2020, as the coronavirus crisis follows its natural course.
The recovery will be due to domestic demand by Spanish nationals and the holiday property market by European citizens.
Regarding domestic demand, the APCE (Association of Promoters and Constructors in Spain) has already put forward a demand to the Government, together with other incentives, for the reduction of VAT on newly built property from an average 10% in most areas to 4%.
This could be one of the extraordinary measures that are now being implemented by the Spanish Government, to prevent that all new housing promotions suffer the consequences of a long term crisis.
VAT is applied to the property so the reduction would benefit all buyers, regarding their nationality.
The general optimistic belief between promoters is that Covid-19 effects on the newly built property market would only be a delay in launching new promotions, but they don´t foresee significant reductions on the price.
The foreign holiday property market might be subject to high and low fluctuations as the crisis progresses during this year, once the movement restrictions are lifted.
Real Estate Agents are finding new innovative ways to keep customers interested and be ready to attract three types of customers, in an ideal scenario of a sudden rush in the property market:
- Buyers and Sellers being kept on hold now, by the complete shut down of the economy, will want to exchange contracts as quickly as possible before next Autumn and the predictable return of coronavirus during the winter months.
- Investors with substantial cash amounts, who are already suffering losses in other financial investments, will quickly move to the property market as the safest place to keep money during times of economic uncertainty.
- Bargain hunters expecting to find special reductions on prices in some areas, as new properties add up to the ones already for sale prior to the coronavirus crisis, creating an excessive offer and the subsequent discounts.
Is the Spanish property market improving?
The Spanish property market started growing steadily in 2016 and, with the exception of last August and September slight falls, the general outlook is that market values will maintain the level reached up to now, with slight variations between 1 and 2 % in 2020.
Assuming that interest rates remain low for the time being and there is a lack of alternatives to make a return, the flow of money that goes towards the property market will remain high. This will ensure stabilization of Spanish house prices in 2020.
A good indicator of the evolution of the property market in Spain can be seen in the data showing the price per square meter. This data can be used to forecast and predict the path of the Spanish housing market. As the graph below shows, the growth continues steadily into 2020.
Is the Spanish economy improving?
According to the European Commission, the growth prediction for the Spanish economy in 2020 is 1.9%.
The unresolved political issues to be dealt with by a fragmented Parliament and the demands in Catalonia and the coronavirus (Covid-19) situation are factors that might influence the already weak global economy, in Europe and the rest of the world.
Are construction trends affecting the property market in Spain?
The construction sector is recovering after years of hardly any activity, building permits experimenting an increase of 9% in 2019 and new developments are attracting money from investors globally, specially Rusia and China, who account for 60% of the Golden Visa applications, since it was introduced in 2013.
The supply and demand issue in the Spanish Market
The supply of housing is still growing faster than the demand. This mainly applies to existing construction. There is much more housing supply on the market than the market can handle. The demand is growing slightly, but the supply is growing much faster. That is because, during the Spanish property crisis, sellers have been holding on for years, waiting for better times to sell their property.
New construction is relatively expensive compared to the existing constructions. That is also the reason that it is difficult to sell new homes. And even in new construction, supply is growing faster than the potential buyers market can handle.
Both construction and sales are expected to keep moderate levels and maintain the price rises that have taken place over the last four years, which are still 35% lower than before the 2008 crash, and a good investment opportunity.
Do you know all the Spanish Property Taxes? Learn all about them in this 'easy to read' article
Should you invest in the Spanish housing market?
Property investment appears as a safe place for money, helped by low interest on Spanish mortgage rates, based mainly on the Euribor, now at -0.263%, with negative values since 2016. While savings have not delivered any decent return for years, due to the same negative values.
Check the Official Euribor website for live updates and up to date information.
A property in Spain has a predicted return of around 9%, according to data from the Bank of Spain this last summer 2019. Earnings coming from rental activity are quoted just under 4% and capital gains tax, well over 5%.
Worried about investing in Spain after Brexit? Check our full guide and find the answer to all your questions.
Who is buying property in Spain?
Lower economic growth is expected within Europe. Although Spanish economic growth is still above the European average, this will not cause extreme price increases in the Spanish housing market. Especially on the Spanish coasts, foreign home buyers are still the ones who account for a large part of the market.
Foreign buyers account for 18% of total sales in 2018.
Britons (14%) are the main buyers, because they settle in Spain after early retirement or as regular holidaymakers with a property to enjoy all year round. Although the British market has been holding back waiting for the final exit from the European Union, the last election strong majority seems to be giving the so much needed confidence to the financial markets, as the rise in the pound showed immediately after the election result. Buying a property in Spain after Brexit is becoming a realistic opportunity.
Property Registrars numbers show an important growth in properties purchased in Spain by other european citizens like Scandinavians, Dutch, French and Germans.
Should you rent property in Spain?
Rental yields can be very interesting as 35% of the 82 million tourists visiting Spain last year are using private accommodation, according to the Ministry of Tourism.
Even if many use their own family or friends' houses the amount of people renting privately is rapidly growing.
Buying a holiday property comes with the added plus of being a source of good income, especially for those familiar with holiday rental platforms, such as Airbnb.
Where should I buy a house in Spain?
The demand for properties in Madrid and Barcelona is as strong as ever with prices now reaching a limit high, and profit more difficult to obtain in the medium term.
Considering coastal areas such as Alicante and Malaga still remains the best option when purchasing a holiday home. The winter climate in Alicante is by far the best in Spain with the exception of the Canary Islands, with good living standards and many Norwegian, French and British communities well settled in these areas.
Our Prediction for the year 2020
The general expectation for house prices in the coming year is a slight increase of 1 - 2%. You can actually talk better about a stabilization of house prices in Spain. There is no reason or indication that house prices in Spain will fall in 2020.
You can never exclude minor corrections. Abrupt price falls as we have seen in the years 2005 and 2006 are no longer to be expected. This is partly supported by the low interest rates in Spain and Europe.
Renowned Spanish property-appraisal agencies such as Tinsa and Tecnitasa expect an increase of 3% for the Spanish housing market in the coming year 2020.
Spanish agents are clearly more optimistic for 2020. They are considering an increase of 4 - 5%. But that will undoubtedly be for another reason.
On the safe side
I like to stay a bit more on the safe side. My expectation is that we can expect a good 2020 with stabilization or a slight price increase of up to 2%.
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