An Evaluation of the Property Market in Spain 2019 and 2020

Barbara Wood, the foremost buyer’s agent in Spain, has written a detailed and erudite article about the prospects for the property market in Spain in 2020. She has analysed the data in detail, and combined this with her considerable experience, to produce some well-informed insights. Here is the article on her website.

And here are some of the things that stood out for me from her article. These are inevitably subjective. No commentary or summary can replace reading the original article.

The overall performance of the Spanish economy has been mildly positive in 2019. Unemployment is high but has always been higher than that of other European economies. My own view is that the official statistics do not account for the black economy which is probably higher in Spain than in other countries and so the official numbers overstate the real unemployment figures so maybe this is not particularly concerning.

The attractions of Spain as a location for a second home or retirement are pretty much unbeaten. I have written about this myself quite often. In my own words, it’s the California of Europe with a perfect climate on the coast, great beaches, beautiful mountains, fascinating history and culture, great food, animated nightlife and a host nation of happy zippy people who just want to have fun all the time. Oh yes and superb communications with motorways and airports everywhere, bullet trains, and a free market democracy within the European Union. It’s where all well-informed people want to live!!!

Foreign buyers account for just less than 20% of the total. You might expect their influence to be greater than it is but the influence is highly localised and is concentrated on certain municipalities where they can account for 75% of the market. Examples of this can be found around Marbella for example Benahavis where we have 4 projects at the moment. In other municipalities, in other regions, they may be almost absent.

Amongst the various nationalities the Brits are the largest minority despite the negative effect Brexit has had on the value of the pound which has reduced their buying power by about 5% since the referendum result in 2016. Other nationalities remain important. In our own case, custom designed villas, in addition to clients from the UK we have clients from Germany, Switzerland, Ireland, Belgium, the US, Spain, and clients who are British but not living in the UK and clients who are not British and are living in the UK.

The domestic market in Spain has declined slightly and there is also a slight decline in the number of foreign buyers: hard to say exactly why. Is it a harbinger of bad things to come? Personally I don’t think so, at least not in the specific localities popular with foreigners where demand is strong.
Barbara discusses the perplexing discrepancy between prices of new builds and what you might call second hand property. Perhaps some difference we might expect but 100% difference or more seems out of proportion. She amusingly talks about “cushions and candles” marketing photos that hoodwink people into paying more than they should. It is amusing and it is also borderline unethical and ………well maybe that’s not so funny for people who are caught out…….and why as Barbara asks are they attracted like “moths to a flame”?

My own view is that these big new developments focus on cutting costs right down which means a low energy inefficient specification and an uncomfortable home that is made to look superficially decorative in order to sell. Occupiers won’t know why they feel uncomfortable and their energy bills are high until it’s too late. There is no real way of knowing what the bones of the property are before you buy even if it does occur to you that it might be important. If you will indulge me a moment of blatant self-promotion there are many advantages to building your own home and getting the bones of the house right, good insulation, well considered solar orientation, careful window placement, is one of them.

Barbara also discusses the oversupply of these new developments. Some signs of discounting are already appearing. She suggests that this oversupply will put downward pressure on prices and a correction of this price discrepancy between new builds and second hand property.

There is also a dearth of well-priced top quality property in prime locations. This, in my view, has always been true and is partly a function of the very tight planning regulations. Even at the height of the recession, given the attraction of a luxury villa in Spain, and its popularity amongst the rich and famous, prices of prime property held firm (although it’s also true that for a time there was almost zero market activity).

She also describes that Tecnocasa, a valuation service, report an average difference between asking prices and achieved prices on 20%. This is very interesting. Negotiating a property purchase is a zero sum game. It kind of reminds me of my 1980s yuppy negotiating skills training course so the following is slightly toungue in cheek. (I think we lost a months’ worth of contracts when we had completed the course!!!). If 20% below asking is the average then you will naturally want this as your absolute maximum settlement point. To arrive at 20% under (kicking and screaming of course so the seller knows you are serious) then your opening offer would need to be…..what? 30% under the asking price? Seems like a lot to me but it depends…..

I think the truth is probably that if you are buying a new build then 30% below asking price might not be enough, whereas for something that is clearly desirable and prime than you may have to accept as little as 5% off asking. As always when discussing property it’s not possible to generalise which is why it’s such an exciting investment medium.

It’s important to remember, in my experience, that in Spain sellers do not take advice or study the market when setting their asking prices. They just pick a high number out of the air. We also know that they will reject your first offer whatever it is. The more like a game you see it the greater your chances of winning. So….maybe 30% as an initial offer isn’t out of line.

There are some interesting statistics in her article about prices per square metre of property: from 2,930€ psm to 3,890€ psm. This kind of information is interesting but must always be “interpreted” in the context of the property you are evaluating and you really need a separate study for each situation. Take a look at Barbara’s article to see what she says.