Coronavirus: The effect on the Spanish property market
Before the coronavirus rattled the Spanish economy, Spain’s property market was in high demand. For many foreigners, it is a popular destination due to its Mediterranean climate and thriving expat community.
However, while the Spanish housing market has experienced exponential growth, looking at the 12-month year-on-year rolling average, there has been a market contraction.
The main factor for this decline is the uncertainty surrounding life in Spain after Brexit.
The Spanish property market and Brexit
A significant number of Britons were uncertain about their post-Brexit futures in Spain due to inadequate support and lack of communication from the British and Spanish authorities.
Under the Schengen Agreement, citizens of the 26 European states are entitled to free movement in Spain without a visa for 180 days. However, as the UK has “Brexited” these rights will cease after the transition date and as a new agreement has not been outlined, panic has sparked.
The British community in Spain is estimated to be anywhere between 500,000 to 1 million, but not all Britons are registered as Spanish residents. Out of fear, nationals are returning to the UK to avoid repercussions, and the British demand for Spanish property has declined as a result.
The Spanish property market is slowing down
The Association of Spanish Notaries evidenced that the Spanish property market has slowed by -5.9% after rocketing between 2014 and early 2019.
By nationality, Britons accounted for 14% of foreign market share – the largest group of foreign homebuyers in 2019 although the downward buying trend continues. Compared to the market share in 2018, the number of UK buyers was down 14.3%.
According to Spain’s Association of Land Registrars, France defied the trend last year, as the number of French nationals buying Spanish property was up 1.2%.
The larger cities such as Barcelona and Alicante, where there were sharp price increases, showed considerable buying declines in January 2020. Although, according to the Institute of National Statistics (INE), by region, properties in the Canary Islands, Almeria and Murcia enjoyed strong sales growth in January 2020.
The concern now is that the coronavirus pandemic has dented any demand, and previous trends are being disrupted. Countries are in lockdown, and extreme social distancing measures have been introduced, which is stalling housing market activity.
The property market, coronavirus and expat buyers and sellers in Spain
Sales and rental activity in the Spanish housing market will suffer significant declines for some time due to the draconian measures introduced by the government to tackle the virus.
Spain is one of the countries worst affected by the coronavirus. According to Worldometer, as of 9:45 AM on April 2nd, Spain has 104,118 positive cases and the second-highest death toll in the world.
To curb the spreading of the virus, the Spanish government ordered a nationwide lockdown, whereby no-one can leave their homes except to go to the supermarket, pharmacy or to care for the vulnerable and elderly. Businesses and restaurants have closed, there are travel restrictions, and police are issuing fines to anyone who does not have sufficient reason for being outside.
The travel and tourism sector has been severely affected by the lockdown and expats who rely on rental income, or are looking to sell and relocate elsewhere are also suffering.
Property rentals is a flourishing market in Spain, and many expats let their homes to travellers due to the high financial returns available. However, travel restrictions and border closures enforced worldwide are having a damaging effect on rental income as tourists are unable to travel.
Also, as the coronavirus is rampant in Spain, there has been a freeze in market activity due to loss of income and social distancing measures that have reduced the appetite for buying.
Without a reliable source of income, buyers are reluctant to invest, meaning expats hoping to sell and return to their home country are stuck in limbo.
Future of the Spanish property market
While the coronavirus pandemic has delivered a shock to the Spanish housing market, it is a passing crisis.
For the overseas buyer, life in Spain is attractive and an excellent investment due to its popularity with tourists. For Britons, if Sterling rallies in the coronavirus aftermath, the British demand for Spanish properties is expected to surge.
Recovery may be slow, but there is hope for the future of the Spanish property market.