A month after declaring a state of alarm by the Government and the confinement of Spanish society, great experts in the real estate sector paint a gloomy picture for the residential market, with price falls of around 10% and sales, but they warn of that by 2022 the situation could return to pre-coronavirus levels and that this crisis has nothing to do with that of 2008, which led our country to a gray period that lasted years.

In fact, Mikel Echavarren, CEO of Colliers Spain, points out that, unlike the crisis that started in 2008, the developers of new construction are not excessively indebted, since they have not financed land purchases with external resources or obtained other loans more than necessary for the promotion of their homes. "This is a very relevant factor, together with the fact that Spanish banks, I am convinced, will act in a very different way, facilitating the necessary financing to finish the works and trying to subrogate as much as possible their loans to the developer with the buyers engaged in said promotions" , opine.

The impact of the health and economic crisis caused by the covid-19 in the residential market has been direct: in the price of the house and in the transactions that most are stopped. Raymond Torres, director of conjuncture of Funcas, points out that the recovery of the sector will not be in "V", but in "U". “We will see a slow recovery and a part of the transactions that disappear. Why? By demand. A part of the demand will be affected by the impact on employment (ERTE, job loss ...). In uncertain times, many purchases do not materialize. On the other hand, we believe that purchases by foreigners will not return at least until the end of the year, "says the expert. He insists that the full recovery of the economy will be seen in 2022 or 2023, later than previously thought a few weeks ago.

However, the coronavirus crisis has accelerated the adjustment process that the real estate sector was already facing, as Rafael Gil, director of the Tinsa Studies Service, recalls, who assures that “the current situation supposes an abrupt paralysis , as in most economic sectors ”.

"The current crisis affects all its aspects, from direct public intervention in the rental and mortgage markets to alleviate the situation of vulnerability of users, passing through restrictions on the new offer (works in progress), as well as the work itself of companies and professionals in the sector. It is highly probable that so many simultaneous effects, that completely disrupt the normal functioning of the market, have palpable and lasting consequences. The fundamental variable will be demand and its near recovery capacity, a demand that, in addition, may impose new housing preferences after this experience and the changes it may entail ”, Gil adds.

In fact, an idealist study suggests that during the confinement there have been changes in the interests of the Spanish home. If before the pandemic 44.1% of the searches for housing in our country occurred in the provincial capitals, since the state of alarm was decreed that percentage has decreased to 38.8%.

According to Fernando Encinar, head of idealist studies, the data shows that “during the quarantine, many Spaniards have realized that they live in a house that they do not like and that they would prefer to live in less central areas in exchange for have more square meters, more light, gardens or terraces. In addition, the good functioning that teleworking is having in many companies is possibly also pushing many professionals to consider establishing their residence in small municipalities far from the large urban centers ”.

The sale of new construction vs used housing
Mikel Echavarren estimates that there will be fewer second-hand housing transactions, an extension of the terms of commercialization of new construction and the total reduction of sales of tourist homes to foreigners. "As the market recovers, the possibility of traveling between European countries begins again, and confidence is restored that this pandemic will neither spread nor recur, the housing market will return to levels from a few months ago. I think that for that to happen, it will be at least two years from when we start going outside, ”he stresses.
Although the demand for housing has not been eliminated, because some operations continue to be closed, the truth is that it remains waiting for the uncertainty scenario to clear up. "It will emerge as everything returns to normal," says Luis Corral, CEO of Foro Consultores Inmobiliarios. He adds that the sales have suffered. In new construction, the sales offices are closed and there is no seller-buyer link. And second hand, the situation complicates making visits. At the moment, only online operations are carried out.

Gonzalo Bernardos, economist and professor at the University of Barcelona, ​​points out that home sales will drop by around 20% this year and will recover with a rise of 14% in 2021, given the disappearance of a substantial part of the buyers.

How the crisis impacts on the price of housing
Gonzalo Bernardos estimates that the price of housing in our country will drop about 10%, but that in Madrid and Barcelona a little less. The reason? Due to the disappearance of a large part of the demand for houses (due to loss of employment, lower wages, difficult access to a mortgage or freelancers who need to sell part of their assets in order to have liquidity) and the increase in sellers who are in a hurry to sell. However, Bernardos considers that by 2021 the price will rise about 7%.

Funcas' forecasts remain in this same line. "It does not seem far-fetched that prices could fall at a double-digit rate year-on-year, because there is always a correlation with the behavior of GDP. If the economy registers a decrease of 5% -8% this year, house prices could fall by around 10%, because they always fall a little more than the GDP, ”says Raymond Torres.

In addition, it stresses that it must be borne in mind that many sellers may find themselves in a situation of needing liquidity and that they greatly reduce property prices, although the 'refuge value' factor of the real estate will offset part of the fall ( the stock markets remain volatile and investors do not find alternatives in bonds or deposits, so there will continue to be interest in homes located mainly in the center of large cities).

And Carlos Ruiz, director of studies at the IEE, insists that with the covid-19 there is no longer any doubt that there will be a sharp drop in house prices due to the correlation with GDP. "Everything indicates that the decrease in prices will align with the economic contraction and that it may fall from 5% to 10%."

Now the question is whether the falls will continue in the medium term: the key, according to Carlos Ruiz, is in demand and how much its fundamentals change. "Families will see their income affected, so the real estate recovery is expected to be somewhat slower than that of GDP," he stresses.

But the new work will not evolve like the second hand. According to Luis Corral, from Foro Consultores, new construction prices will affect it less since the supply is scarce, while second-hand housing may deteriorate more due to the particular needs of sellers that force them to lower prices to sell. And the same can happen with the vacation home, which will not be a priority to buy and if the seller has an urgency to dispose of the asset, the price will drop.

Echavarren also makes a distinction between new and used housing. In their opinion, real estate developers do not have any pressure to lower prices. However, it estimates that four fifths of the housing transaction market corresponds to second-hand home sales. “Although banking, I am convinced that it will act with maximum responsibility and flexibility towards homeowners in difficulties, given that the crisis we are entering is a combination of reduced solvent demand and fear of the future, yes I believe that we will witness price reductions in the supply of second-hand housing for those owners who are under significant financial pressure, ”says the expert.

In closing, Echavarren adds that “today it is impossible to assess the impact on the average price of second-hand housing. Asked to speculate, with 1 million more unemployed is as much as going back two years on the real estate clock, considering that job creation in the last two has reached similar levels, and therefore it could be estimated that the drop in the average price of the second-hand housing could be around 10%, returning to the average prices of two years ago ”.
The rental market suffers
Ruiz, from the IEE, points out that we will also see how the rental market suffers for several reasons. “It is one of the businesses that was attracting the most investment and interest and the new operations of buying to rent a home could slow down. In addition, a strong setback is expected for the tourism sector, which will limit the operations of families and funds that were intended for vacation rental. Finally, it remains to be seen what happens to the measures the Government has planned in terms of price control, because any over-regulation brings with it a restriction of supply and a rise in prices, ”he points out.

In any case, the expert assures that the housing market is becoming extremely flexible and self-flexible in these weeks. And, apart from the aid announced by the State, payment deferrals, incentives and negotiations are taking place between the parties (companies or individuals with tenants, developers with buyers, etc.).

On the other hand, Sandra Daza, general manager of Gesvalt, stresses that “after the alarm was lifted, the offer may remain stable or even increase in certain areas where it has increased due to the entry into the market of homes previously used for rent. Holiday and now focused on traditional rentals, while demand could decrease from pre-confinement levels, which could lead to a drop in prices in the short term and a progressive recovery in the coming months. "