The Outlook for 2021
The real estate market in Spain suffered in 2020 less than initially feared. The situation remains with various uncertainties for 2021. We try to shed some light on the dark.
2020 was not necessarily an easy year for the property market in Spain, and we are now trying to make a forecast for 2021. However, it is worth taking a look back into the past beforehand. As early as 2019, after a five-year period of sustained growth, the first signs of a cooling of the real estate market were noticeable. Nobody could have guessed that things would get worse then.
The surprising outbreak of the Covid-19 pandemic at the beginning of 2020 and the strict lockdown measures that followed by the Spanish government have taken their toll. Still, interestingly, despite the difficult conditions, the real estate market in Spain was less shaken than some experts assumed. The most frequently put forward reason: Spain learned from the bursting of the property bubble in 2008. With the start of the new year 2021, one is now facing another year marked by the coronavirus. There is still great uncertainty to what will happen to the Spanish real estate sector.
It is therefore obvious that the coronavirus pandemic is also known as a “fat tail “event. The term comes from the right and left end of the Gaussian curve, which if a significant event occurs in those areas is called a “fat tail “event. It describes how very improbable or unexpected events – whether positive or negative – can have enormous effects on world events. Such “fat tails” always put the robustness of systems to the test. The coronavirus has shaken many areas of the economy, among other things. Tourism, the hotel industry and retail business are the main victims. We believe, the real estate market in Spain got away with scratches but is not seriously injured. However, 2021 is the year of great uncertainty.
According to calculations by leading risk rating agencies, property prices in Spain will fall between four and six percent on average in 2021 and then stabilize again in 2022. The agencies concluded that Spain and the UK will see the largest price drops due to job losses as a result of the Covid-19 pandemic and the Brexit. In addition, the slump in tourism will have an additional negative impact on investor demand on the Spanish coast. With the decline in Spanish GDP, the downward pressure on property prices is also increasing and will depend crucially on the ability of the Spanish economy to generate stable jobs.
Another collateral damage from this crisis, is the difficult access to financing options, not only for home buyers – which will lead to a further shift in demand towards rent – División of but also for many property developers. Interest rates may be lower than ever before, but banks have tightened their credit terms since the pandemic began. Together with the ongoing consolidation in the Spanish banking industry – two merger projects are well advanced – the uncertain short term economic outlook unrelated projects.
We are absolutely convinced that the key to evaluate what will happen in 2021 lies in the speed of vaccination and the medical progress made through better pharmaceuticals reducing mortality and infection rates, as well as the number of people being hospitalized. All of this will restore consumer and investor confidence.
To be continued…
Ivo Kratschmer & Pablo A. Anderson