The current year will bring a whole range of challenges and opportunities for the Spanish economy, including its tourism sector and the related real estate market. «Unpaid leave». In 2020, this word was «rediscovered» by economic analysts and politicians from different countries, when it became impossible to ignore the accumulated problems in the global economy over decades, the multiplication effect of the global pandemic.
In 2023, another word is added to this word, forgotten by many — stagflation. The next stage in the imminent fall of world markets. What will stagflation mean for the Spanish tourism sector and how will it affect the tourist rental market?
What is this all about? Stagflation is an extremely undesirable state of the economy, in which the effects of both inflationary dynamics and economic recession or suppressed growth are simultaneously manifested. Modern history has few precedents for such a condition, which is why it is so dangerous.
Inflation, as a rule, favors real estate assets, although it harms the economy. Economic stagnation harms them not only the economy, but also the real estate sector as a whole. In any case, each of these effects is a pronounced and simple factor in making investment decisions and making purchases. But what to do when these trends occur simultaneously? And what if the global economy does not have much experience with such a situation?
Suomma's analysis suggests that the counteracting effects of inflation and slowing growth will eventually be leveled within the tourism segment. Consumers, that is, tourists, should not feel the big changes in the markets. The impact of stagflation on rental rates and the cost of buying real estate will be moderate. For investors and sellers, the effect will be more noticeable. The income rate will smooth out and will not show high growth spikes. Nevertheless, according to Suomma, those investors who decide to «sit out» in the current situation may miss their chances to earn money.
Experts from Summa believe that in 2023 the buyer will regain some of the bargaining power lost in recent years. And the prices of square meters will experience a mild correction, mainly due to a lack of liquidity. The market will be sufficiently cleared of overvalued assets. Income, although it will decline, nevertheless remains stable. The cost of rental real estate will grow below inflation rates.
The lack of liquidity will favor the buyer, although it will not cause the same damage to all sellers. At the same time, the market will regain a certain financial discipline. The economic characteristics of assets will become more important factors. They, together with the individual needs of buyers and each individual housing object, will play an important role in negotiating and managing it.
Stagflation in the modern era
Because of the obvious parallels, when discussing the current situation, experts often recall the 1970s, when stagflation hit several developed economies of the world at once and, in principle, entered wide circulation as an independent term. At that time, the head of the US Federal Reserve, Paul Volcker, initiated an increase in interest rates on lending in order to contain inflation. He incurred the wrath of politicians, but achieved his goal due to economic growth of such strength that he was able to weaken only by 1983.
The experience of Brazil, which experienced stagflation in the previous decade, is fresh. There it coincided with a boom in the construction of new hotels, which exacerbated the difficulties of the sector. According to available data, the Brazilian scenario will not be repeated in Spain, since there is no similar situation with an oversupply. Moreover, the volume of new construction and even the issuance of permits for such construction is slowing down.