Review of the real estate market in Spain in 2021. Forecasts for 2022

Review of the real estate market in Spain in 2021. Forecasts for 2022

CONTENT:

SPANISH REAL ESTATE MARKET IN 2021

The pandemic significantly impacted the Spanish economy, with very few sectors showing positive results. Strict and long isolation changed people's lives and their need for space, the ability to work remotely, and recreation.

There was a sharp increase in online commerce, delivery services, remote work, and a decrease in international travel.

This caused problems for the future development of the real estate market. Many experts predicted a gradual recovery in 2021. This recovery is thought to have been noticed in the second half of the year. However, some analysts suggest that the return to everyday life may only occur in 2022.

Review of the real estate market in Spain in 2021. Forecasts for 2022

MAIN CHARACTERISTICS OF THE SPANISH REAL ESTATE MARKET

Changes in prices and property characteristics

During the lockdown, remote work caused changes in the demand of property buyers. Many expressed a desire to have more space in an apartment with more rooms for activities like exercise, gardening, etc.

In this new reality, people became interested in properties with many rooms that are multi-purpose rather than properties with multiple bedrooms. This sparked a new interest in real estate with additional outbuildings, rooms, basements, and attics, with spacious land plots, terraces, and gardens in low-populated areas away from urban districts. Another critical aspect of acquiring property is energy efficiency.

The real estate price reduction predicted in Spain didn't happen due to the real estate market becoming more dynamic with slow but steady growth in sales. With this increase in demand, prices will not decline.

The pandemic and subsequent travel ban between countries can explain the decrease in real estate purchases by foreign investors. The situation is expected to stabilize after the restrictions have been lifted.

The Appraisal and Valuation company Euroval calculates that the average price per m2 in Spain will continue to decline as in the previous two years. It was 1,653 euros in 2019 and 1,563 euros in 2020. The average price for 2021 is yet unknown.

Rent offers and uncertainty

It was predicted that in 2021 there would be a sharp increase in the supply of commercial premises, especially in urban centers, with their price decrease.

Gyms, hairdressers, restaurants, bars, cafes, and many other businesses that depend on customers suffered losses because they could not pay their employees' rent and salaries. This caused an increase in rental properties being offered.

It also affected those who rented out their properties to the tourism sector, which declined dramatically. This led businesses to move towards traditional rental housing units. Unfortunately, there is a significant income difference between these two rental types. However, the situation is expected to be short-lived and only while travel restrictions remain.

Digital real estate sales tours

Despite the restrictions, digital technologies have made it possible for the real estate sector to work as usual during the pandemic.

This refers to video viewing technologies through the Internet that allows the client to take a virtual tour with impressive 360-degree shots of every space and environment, including aerial photographs made by drones.

The pandemic gave a powerful boost to the use of modern technologies.

Despite the uncertainty, real estate will continue to attract investments.

Environmental certification and sustainability

Spain is adopting new laws and regulations that will minimize the construction of houses that cause pollution. The European legislation provides the sustainability policy for raw materials to create urban structures. It aims to reduce pollution, increase energy efficiency, and increase the presence of green areas.

According to this standard, every construction will have a special certification that will notably increase its market value.

However, construction of these units goes very slowly, and no significant changes are expected this year.

SPANISH PROPERTY PRICES

The latest resale property market report by Tecnocasa Group and UPF (UPF) shows the resumption of activity in the sector in the first half of the year and a 1.43% drop in prices.

The study conducted by the Tecnocasa group and UPF indicated that the most significant decline in the prices of resale properties happened in Alcala de Henares (6.31%), Córdoba (6.27%), and Malaga (5.85%). This decline was 1.54% in Madrid and 1.53% in Barcelona. The average cost per m2 of resale properties is 2,292 euros in Spain, 3,033 euros in Barcelona, and 2,627 euros in Madrid.

CITIES WITH PROFITABLE RENTAL PROPERTIES

Prices dropped in the rental market, especially in Madrid (10%) and Barcelona (9.9%). This indicates a profitability decline, which is already at a minimum in recent years.

The average mortgage loan was €124,370 in Spain. This is higher by 1.4% from a year ago, compared to €153,887 in Barcelona and €128,415 in Madrid.

Review of the real estate market in Spain in 2021. Forecasts for 2022

PREFERRED SPANISH AREAS FOR BUYERS

Buyers prefer large cities and the Mediterranean coast, such as Andalusia, Valencia, Catalonia, and Madrid. International investors are more than 30%. According to the study conducted by the Spanish Association of Property Buyers (AEPSI), the demand profile developed since last year, and new trends have led housing units to become the focus of family life.

Iñaki Unsein, AEPSI director, states that “telework has created new habits and needs among buyers. Many of them look for properties located in residential and remote areas.” On the other hand, the change in society’s life led to trend changes. The buyer considers exterior features such as a terrace or a garden priority when searching for a new home.

FORECASTS FOR 2022

The Spanish real estate market will recover from the impact of COVID-19 so intensely that some industry experts warn that a new property sales “boom” is on the way that will last until 2023.

The latest report by the Forcadell real estate agency and the University of Barcelona (UB) analyzes information from 2020 concludes that the market has experienced a "mild recession" as real estate deals have decreased by 14.5%, from 32.6% in 2008, while the price of resale properties decreased by 5-10%.

Low offers, mortgage loans with low-interest rates, and a population interested in purchasing property show why the property market decline is lower than expected.

The report forecasts that a "new real estate boom" will begin in the second half of this year and continue until at least 2023 or even for several years if interest rates remain low (no more than 3%).

Sales are expected to grow by 25%, with a price increase by 5% in 2021, while in 2022, transactions can increase by 15% and prices by 10%.

Gonzalo Bernardos, a senior lecturer of economics at UB responsible for the Forcadell-UB report, noted that the current economic climate did not allow the “boom” to turn into the real estate “bubble” as in the last crisis.

Gonzalo Bernardos notes: “For the real estate bubble to form, the number of loans provided by banks must be large and credits must be approved even for those who have little options of paying off the mortgage when interest rates rise, but I exclude these conditions.” Bernardos also stated that real estate would not be the driving force for development, as it was in other decades, "but also it will not be a dead weight."

The report notes that 2021 and 2022 will be years when the value of real estate deals will be higher than in 2019 due to increased supply, confidence in a quick economic recovery, and the desire of banks to provide loans.

IS IT WORTH INVESTING IN SPAIN?

It is clear now that the Spanish real estate market will remain attractive as, over time, it can bring significant profits to investors regardless of the pandemic or other threats.

Besides, two cities in Spain are the most popular among investors. Madrid is one of the top 10 cities globally, and Barcelona is in 13th place according to the "New Trends in European Property 2021" report published by the consulting company PricewaterhouseCoopers (PwC).

The decision to invest in Spanish property will be the right one, as it is a safe and profitable deal for the medium and long term.

Review of the real estate market in Spain in 2021. Forecasts for 2022

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