The freezing of housing sales prices, the downward readjustment of rental prices, the reduction in supply and demand -with a drop of around 50% of used housing transactions-, and the disappearance of the purchase of Real estate ‘cash’ are some of the themes that backbone the XIII Valuation Observatory, which analyzes the data available up to the first half of 2020, and which is presented by the AEV (Spanish Association for Value Analysis) together with the collaboration of the Professor and head of the Department of Applied Economics at the University of Alicante, Paloma Taltavull, and of a group of 21 panelists, made up of experts from appraisal companies, members of the association, and other renowned professionals in the sector.
40% of those consulted agree with the prediction made by the author, who foresees that there will be a freeze in the prices of new homes, with growth close to 0, while those of used homes will move at negative rates and with greater volatility. Regarding the time necessary for the return to price equilibrium, it is estimated that it will be 3 quarters. Those who are against this idea argue that the effect of the pandemic on economic activity as a whole is very intense and solvent demand for housing will continue to decline, even mentioning the possibility of a third wave of COVID-19, not contemplated in the report, which could further complicate or lengthen the recovery. Several experts believe that the fall will last longer and question whether the pre-pandemic values ??will recover before 2023. Downward readjustment of rental prices On the other hand, one hundred percent of the professionals in the real estate sector consulted will shows that it agrees with the report’s prediction with regard to rent: the total count of those consulted believes that Madrid and Barcelona will see their rent level reduce to around 4-5% during the second and third quarters of 2020, with a readjustment rental prices fell in almost all capitals, and with a significant correction in Barcelona, ??Madrid, Las Palmas de Gran Canaria and Palma de Mallorca. One of the main theses supported by those consulted is that rental income is being additionally affected by the transfer from tourist housing to traditional rental housing, especially in large cities, which increases supply and puts downward pressure on rental income.
The building is reduced. Is there support from the financial system for construction? As far as supply is concerned, the report indicates a reduction in the intensity of construction due to confinement: up to -35% in the building and -30% in the civil works during the first quarter, with a direct consequence in a lower number of homes approved and started. 80% of experts support the idea of ??restricting supply in the near future, with an added difficulty for the construction sector to reach its equilibrium size again. However, only four out of ten specialists claim to perceive in the market the acceleration of financial flows for promotion that the author draws from the statistics since the second quarter of the year and that would suggest a relevant support of the financial system for construction. Several of those who are contrary to these statements, mention the data of the Bank of Spain on a tightening of the conditions for real estate development, which is consistent with the increase in risks in the borrowing companies. Likewise, they argue that the increase in financing flows reflected in the statistics has a lot to do with the effect of the measures designed to mitigate the impact of the pandemic, which are aimed at companies in all sectors, and not particularly at the building. The demand for used housing falls by half.
As indicated in the report, used housing transactions have been reduced by almost half compared to those that took place in the last quarter of 2019, while those of new homes have remained at similar levels. Asked about the possible causes, 15% of the experts believe that it is possible that the maintenance of new housing transactions was due to the incorporation of financing (from the developer loan) and their transmission requires a lower volume of prior savings. Another 20% consider that it is possible that the new units have been built aimed at higher income demand, with a lesser impact from the crisis. 50% agree with the first two statements and, on the other hand, 15% indicate disagreement with all the ideas raised, claiming that the preference of buyers for the New housing means that the applicants, even if they decrease, are still sufficient to maintain a constant rhythm in the sale of new housing, as well as that the segments of the population most affected by the crisis are mainly those that were already largely excluded from access to the new housing (young applicants). Cash home purchases disappear The report states that transactions carried out ‘cash’, exchanges that did not require a mortgage loan, are those that have been adjusted during the COVID-19 crisis until almost disappearing. However, investment incentives have not disappeared with the crisis, as the capitalization rate exceeds 8%, despite the 1.6% drop in prices.
The price of housing will need a minimum of three quarters to balance, therefore, it would mean that one of the effects of the crisis has been to temporarily alter the long-term investment decisions of households in their risk diversification process , which, as a precaution, would be delaying their investment decisions. 80% of the specialists agree with this statement, arguing that it is an important and informative adjustment, which shows what the demand for housing was for family reasons compared to the demand for investment reasons. According to Paloma Arnaiz, General Secretary of the AEV, “both the report of the XIII Observatory and the opinions of the experts consulted support the idea that the real estate sector, despite dragging its own problems not fully resolved from the previous crisis, will not be among the most affected by the COVID-19 pandemic.Although it is expected that prices will suffer shocks, which could be prolonged depending on the definitive impact of the crisis on the income and employment levels of the population, the healthy development of the promotion that has taking place in recent years ensures a strong resistance capacity. Construction for rent, rehabilitation, the search for innovative solutions to improve accessibility for young people and the introduction of improvements in energy efficiency will be some of the keys that will guide the activity of this new stage.