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Overseas buyers down in 2019
I have a feeling 2020 is going to be an interesting year in Spain’s overseas property market. After the 2008 meltdown, recovery started in Q1 of 2014 when Marbella became the first municipality in Spain’s Mediterranean coastal regions to register price increases. At last, the market was off the bottom. Since then, the market has had five years of growth, every quarter better than the previous one. However, this was only happening in the very best areas. In secondary and peripheral locations recovery lagged behind by several years.
The 1st half year statistics
Now, the publication of notarial returns for the first half of 2019 show signs the overseas property market in Spain is slowing down. This may just be a period of consolidation following five years of uninterrupted growth or it may be something more serious, it’s too soon to tell. One thing is for sure, the supply/demand imbalance of new-build properties between 2015 and now is over.
What was a trickle of new-build projects has become a flood, the tap has been turned full-on. It’s easy to forget that Spain’s construction sector shrank by 96% after the property bubble burst in 2008. However, as the market recovered and demand returned, lack of supply allowed developers to inflate prices. Unfortunately, buyers have been stumping up what I see as way over the top. Some prices per m2 are listed above peak prices just before the crash. I see problems for some developers on the horizon, particularly as most of the new-build projects are not in prime locations.
Unscrambling the numbers
So let’s unscramble the statistics. In the first half of 2019, 51,270 foreign nationals bought a property in Spain, compared with 53,427 in 2018, -3.2%. Nevertheless, foreign buyer market share held up well, at 18.6% exactly the same as 2018. This is because the domestic market also fell, although by slightly less, just 2.79%. Only two countries in the top 10 of overseas buyers increased numbers; the Irish up 1.5%, the Dutch up 2.4%. The remaining eight were all down, with the biggest drop from Sweden, 30% down, followed by the Danes, 24.6% lower.
The British have always been the overseas buyers league leaders but even they fell off 12.3%. Nevertheless, they are still by far the most numerous group by nationality. With 6,681 purchases they bought 38% more than the French (4,156) and 44% more than third place Germans (3,739).
And the winners are ..
The statistics show big increases for some nationalities. However, they were all non-EU nationals. Argentinians and Ecuadorians rose 12.7% and 9.9% respectively while buyers from Morocco showed the biggest increase, up 21.4%. Buyers from the US rose 11.3%.
The weakest areas
Overall, the Mediterranean coasts account for about 60% of all property purchases in Spain. Add Madrid into the mix and that rises to 65%. Therefore, what happens in the Mediterranean regions can have a big impact on the wider market. So, it’s noteworthy that the principle locations in the Mediterranean and the islands registered falls in overseas buyers. These falls range from -20.1% in the Canaries to -4.6% in the Comunidad Valenciana which includes the Costa Blanca. The Balearics registered a fall in buyers from overseas of -13.7% and Andalucía was down -5.7%. Only Cataluña and Murcia saw increases, up7.8% and 9.6% respectively.
Lower numbers but higher spend
However, although there were fewer buyers from overseas the spend per square metre was up in the most numerous nationalities. For example, on average the Germans spent €2,230 per square metre, 8% more than the same period in 2018. Meanwhile, the French spent an average €1,694 per square metre, up 5.5%. The Norwegians went mad and increased average spend per square metre by 19.9%, to €2,220. Only the Irish, Italians and Danes spent less than the same period in 2018. But the real big spenders in the first half of the year were from the US. They purchased at an average price per square metre of €2,643, more than any other nationality, an increase of 14.3%.
Prices too high?
So what’s going on? In my opinion it’s more about prices, than falling demand. Indeed, in terms of enquiries, I rate 2019 significantly better than 2018. However, often I’m talking to people whose budget doesn’t match their expectations. It should be enough but asking prices are just too high. Whatever sellers tell themselves the resale market is still very price-sensitive. It seems to me that sellers think prices are back to pre-2008 prices already but they’re not. They look at new-build prices and assume they’ll get the same. But, as I’ve already mentioned, price levels in the new-build sector have been distorted by an extreme lack of supply. Slick, soft focus marketing lures the buyers in.
New-Build versus Resales
However, the new-build drought is over. As the supply side increases I can see prices softening in this sector, even if demand doesn’t fall further. As a consequence, the huge disparity between new-build and resale prices should narrow. Obviously, there’s always going to be a small premium for a brand new property but not 50% or more as in some cases now. I’ve never known such a discrepancy between the two sectors of the market. However, I’ve already seen developers making adjustments to their price lists. In addition, resale asking prices are being reduced in increasing numbers.
Now we have to wait and see…
We won’t have the second half year statistics for 2019 until May of 2020 so we can’t draw any firm conclusions about overseas buyer demand now. I think the demand is there but buyers need to buy smart in 2020. In my view many new-build prices are too high for the location. In addition, sellers of resales must accept we are still below pre-crash peak prices whereas many asking prices imply they think we’re right back up there. We are not. Even in the best locations my best guess is that we are still 20% below previous highs.
If, and it’s a big if, overseas demand really is on the slide, it’ll be even more important to be a savvy buyer in 2020. Unfortunately I believe some off-plan buyers will find their property isn’t worth what they paid for it a year or so ago by the time they get the keys.
These reports will be updated in the New Year with predictions for 2020.
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