The major slowdown could be rooted in the sector if the economy does not grow. Prices could fall around 25% in Madrid and Catalonia and the percentage could be even higher in other regions of Spain.

The impact of the Coronavirus in real estate in 2020 will face the worst year since the bubble burst. The restrictions applied during the state of alarm in order to avoid the virus spreading have not only frozen the activity in the real estate business, but also created the shadows of a recession in a close horizon that will complicate a possible recovery. The sale of properties could drop a 46.8%, and this could be extended to prices, causing a fall of 16.7% throughout the year.

With a whole country confined, the idea of ​​buying a home has been left behind, meaning that the number of transactions will fall considerably according to the forecasts made by the Royal Estate Business School about the impact of Covid-19 in Real Estate.

Owners in need of cash flow will probably accept to sell cheaper than previous transactions in the area if there is a decrease in the demand, and this can cause a general price drop that could reach 25%, depending on the region, such as Madrid.

The activity has practically stopped and even though the construction has been restarted on April 13th, it has not reached the same speed level as pre-Covid. In addition to this, an essential part of the business such as real estate agencies and notaries have completely stopped their activity.

Ignacio de la Torre, chief economist at Arcano says that “if we take China as a precedent, real estate sales were reduced a 90% in January and February.” In Spain, the latest available data is from February, when sales dropped a 6%, according to the General Council of Notaries, as a result of various factors: the economy slowdown, the legal uncertainty on the latest regulatory changes and the Brexit. “The current situation breaks the cycle, which was already showing signs of cooling after the expansion of the last five years,” says Rafael Gil, director of the Tinsa Study Service.

More and more voices warn about the risk of a recession that could hit a sector that was already taking a hard slow down. The latest news, the International Monetary Fund, announced this week an 8% drop in GDP for Spain and 20% of unemploymen.

The demand slowdown due to confinement was meant to be temporary, but its effects could have a lasting effect on the economy if people recover their previous “normality” with less purchasing power.

There is different opinions about which sector will take the worst part. De la Torre believes that luxury and second-hand properties will suffer the most, whereas José Antonio Pérez, from Real Estate Business School, thinks that new developments will take the worst part, since a big part of the demand, almost half, is for use as second residence: “These are decisions that can be postponed”, and he believes that up to half of the new construction business could be lost.

Concerning second-hand properties, there will be owners who will probably need cash and will see themselves forced to sell at lower prices. That´s the reason why we will see greatest reductions in the coastal areas, around 15% to 25%, where the majority are considered second residences.

Part of this impact is also due to tourism, which is currently completely paralyzed.

In Madrid and Barcelona will also see considerable price reductions, as Juan Fernández-Aceytuno, CEO of the Valuation Society explains, “the adjustment will take place in those areas where the market was already stressed.”

How will the market be reactivated? Several experts agree that this will depend on owners situated at the end of the Gaussian bell: the ones with savings and the ones who need to sell. With the Central European Bank making sure that money flows and with low interest rates, investment will cautiously come back. They think that there will be more real estate assets for sale to recuperate cash and this will appeal to investors who have cash ready.

New developments in Madrid, 31% less

EXPANSION – JM Cadenas

The Covid crisis will undoubtedly hit Madrid, one of the engines of the counties economy and the real estate sector during the last years. New development in the city could fall by up to 31%, and second-hand housing around 18%, according to data from the Real Estate Business School that analyse the impact of the pandemic during 2020.

The rental business will see the effects earlier than sales, with prices that will fall sooner but which will probably see a fast recovery. In recent months, the price of properties for rent in Madrid has been moving at rates of around 3%. But if we take into account aspects such as income reductions, layoffs, business closures plus a few measures approved to mitigate the impact on the rental market, all leasing contracts will automatically be extended for a few months during the state of alarm and this will produce a consequent drop of prices.

For Font, these price reductions will be more evident in neighborhoods with a weaker lease demand, or in humble areas with population affected by ERTEs or unemployment.

For Fernando Encinar, head of Studies at Idealista, in short and mid-term, there will be a significant increase in ‘stock’ of properties for rent in the Madrid market but also a significant drop in transactions. After summer and towards the end of the year, the ‘stock’ will continue to grow, and only a few sales transactions. He estimates that in early 2021 the ‘stock’ could stabilize, and transactions will increase.

With low interest rates, with the Central European Bank backing the banks, Madrid will be very attractive for investors. For Font “There will be very interesting opportunities, perhaps not as profitable as they would have been in 2017 or 2018, but it is a safer investment than other assets such as the stock market, which in this pandemic situation is unpredictable,” adds Font.

Furthermore, the sector is appreciating new preferences from buyers as a result of months of confinement and mobility restrictions this could modify the future architecture and design of properties, with a trend towards more outdoor spaces, terraces, rooms with functional light, etc.