Wave of bargains on the Spanish housing market after the crisis?

Potential local and foreign home buyers will inevitably have to postpone their purchasing plans for a while due to the Covid-19 outbreak. Uncertainty about the economy’s resilience and consequently the declining consumer confidence, the travelling restrictions and the direct financial impact on buyers and sellers are expected to affect the housing market in sunny Spain drastically.

Already fewer transactions before the crisis

Already in the fall of 2019, the number of property sales in Nerja (Malaga) started to decline and across Spain the number of transactions decreased by 3.3% compared to previous year. The data from Idealista, the largest real estate platform in Spain, show that prices increased tremendously last year. As an example, the average price per square meter in Nerja in October 2018 was € 2,432, exactly one year later the average asking price raised to no less than € 2,753 / m².

Demand certainly could not keep up with the pace of rising prices in the last quarter of 2019 and the first months of 2020. In addition to a stagnating growth of the German economy, an unfavorable exchange rate of the Swedish krona and the uncertainty regarding the "Brexit", the political instability in combination with a new mortgage law in Spain is causing the declining demand for coastal properties in Nerja and surroundings.

Demand continues to shrink, offer is increasing

Especially now that the corona virus has spread wildly, the Spanish housing market has become completely frozen. Viewing properties was impossible and even a virtual tour was not allowed during the strict quarantine. All real estate agencies were forced to close and the notary had only permission to execute the highly necessary tasks. The chance that the housing market in coastal towns such as Nerja will immediately recover now that the de-escalation of the safety measures has started, seems rather small.

Housing market experts have already explained in Expansión, a Spanish financial newspaper, that the decline in the demand for coastal homes is likely to continue until 2021. The unemployment rate and the number of cases of income loss as a result of the crisis are increasing and consumer confidence also seems to be inevitable in many countries. Subsequently, many foreign buyers will temporarily put the purchase of a holiday home or ambitious migration plans on hold, resulting in further reduction of the number of transactions. Moreover, it will not be possible to travel to the southern European peninsula at all in the upcoming months.

According to the experts, the corona crisis will affect not only the demand side, but also the supply side. For example, the persons with liquidity problems will be the first to put a ‘For Sale-sign’ on their holiday home and the pressure to sell will increase even more among the home owners who already had sales plans before the crisis.

There is a great chance of serious price drops

A logical consequence of the recurring demand and the increasing number of properties for sale is a significant price drop in Nerja and surrounding coastal towns. The intensity of the decline is not certain yet, although urbanData Analytics counts on price drops of 25% in the coastal areas under the current circumstances. The duration of the lockdown and thus the impact on consumer confidence, the unemployment rate and the freedom of movement of foreign potential home buyers will impact the number of transactions (and subsequently prices) in the coming months. The banks have also instructed their appraisers to take the current circumstances into account, determining the property values ​​will be guesswork this year.

In short, the chance of finding a bargain on the Spanish coast is certainly possible towards the end of the year. It will depend on the personal situation of the seller of the house you have in mind, the buyer is in any case in a favorable negotiating position. A sale like after the financial crisis of 2008 seems to be excluded, as, despite last year’s soared housing prices, there seem to be no significant signs of a ‘housing bubble’. In addition, financially struggling households are now coming to the rescue by the banks in the form of a deferment of the monthly mortgage payment, reducing the pressure to sell quickly.