Spain's residential real estate market to slow down due to inflation and rate hikes

Spain's residential real estate market to slow down due to inflation and rate hikes

Activity in the Spanish real estate market will gradually decline in the second half of 2022. The reasons will be higher construction costs and lower purchasing power as a result of higher ECB interest rates and historical inflation highs.

This is the conclusion reached by Sociedad de Tasación in its Mapa del Tiempo Urbanístico study, which refers to the second quarter of 2022. The study also made a forecast of the situation in the Spanish real estate market for the coming months, taking into account the uncertainty of the modern global economy.

Sociedad de Tasación, an independent real estate asset valuation company, notes the general increase in prices for Spanish residential properties and predicts that the scenario of "real estate activity" will tend to soften in the second half of the year.

The proposal will suffer from a "double-digit" increase in construction costs, which poses a threat to new developments. Demand will be affected by the loss of purchasing power, which will lead to higher interest rates and record high inflation.

Demand outstrips supply and drives prices up

On the other hand, the authors of the study note that during this period, the Spanish residential real estate sector demonstrated "great dynamism" in activity and prices (both in the primary and secondary markets). However, they warn that "the scenario of macroeconomic uncertainty may act as an incentive for demand."

This stimulation of demand can create problems, because buyers will have to purchase a property as an alternative investment or postpone the decision to buy it later, while the supply can cover it. This causes a widespread price increases, mainly for new buildings. The cost of secondary real estate will also increase, as part of the demand will move to this segment due to a shortage of space, especially in Madrid and Barcelona.

The study also revealed an increase in demand "for more spacious and eco-friendly homes" with open spaces. Interest in industrial and modular residential properties is also growing.

By sector, the Valuation Society notes the growing interest of investors and developers in buying land on the main access roads to logistics and industrial zones in Madrid and Barcelona. In addition, with the restoration of the tourism sector, there is a redistribution of assets in coastal areas and on the islands of Spain. However, the office and commercial sector continues to experience high supply and restrained demand, despite signs of recovery in first-class areas.

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