New-Build versus Resale Property Prices

The College of Architects in Málaga has confirmed that building licences for 7,075 properties were approved in the province between January and December 2022, just about back to the pre-pandemic level in 2019.(7,102). However, the 2022 result is still 8% below the 2018 total which was the best annual figure in the decade following the 2008 collapse.  Interestingly, it was also noted that the building applications centred on properties at higher price levels which tells me that these are aimed predominantly at the overseas sector of the market. Recent statistics from the notaries show that more the 20% of the overall property market in Spain is now due to overseas buyers. In addition, the average price per square metre paid by a foreign buyer is significantly higher than that paid by domestic buyers. In the Balearics, for example overseas buyers pay nearly three times the average of a domestic buyer pm². In Andalucía it’s about 25% higher.

To give these statistics some context, at the peak of the building bubble which burst spectacularly in 2008, just in Málaga province building licences for more than 27,000 units were approved in 2007. That’s more than the total in the 15 years since. Set against the low point in 2014 of only 798, it becomes clear just how catastrophic the downturn was for the construction industry - it more or less disappeared. And it wasn’t just in a few places. Nationally, approximately 800,000 units were constructed annually for several years before the crash, that’s more than the total for Germany, France and the U.K. combined. Post-crash, the construction sector in Spain shrank by 97%.

I use Málaga province as the example because it is one of the prime spots of the overseas property market in Spain. In addition, it is the engine of the Andalucían property market which, in turn, is the largest regional market in Spain, accounting for more than 20% of all property transactions annually.  What is happening in Málaga as regards the new-build and resale sectors of the property market is a good indicator of conditions in other regions that attract high numbers of buyers from overseas.  

An important point to note about licence approvals is the time lag between licence approval and a project being ready for sale, whether that’s an individual property or a multi-unit development.  A few licences trickling out of Málaga Town Hall in 2014 and the years following meant nothing for the immediate market. The supply side wasn’t transformed overnight, it was more like 18 - 24 months before product started filtering through. However, demand, above all from overseas buyers, started to rise from 2012 and so what we were seeing back then was really a recovery of the resale market. There were so few new projects around and what there were were selling out at speed. Realistically, the 2022 approvals are unlikely to appear as product for sale until 2024 at the earliest, meaning the supply side deficit will continue to impact prices.

I think this acute supply side deficit coinciding with growing demand in a recovering market is the main reason that new-build prices per square metre have been running way ahead of resale pm². For some reason, overseas buyers are all over new-build if it’s available, like moths to a flame. For example, when phase 1 of one of the first new developments came on stream in September 2012, in a 5* beachside location, 75% were reserved by overseas buyers even before construction started. Eleven months later, all 114 apartments were sold, well before the first phase was finished and prices in phase 3 were 20% higher than at the start. Although the location was great, I rated the internal and external specification as average.  Meanwhile, I could find much higher quality  resale apartments in another beachside development, even closer to the beach but dating from 2006, with per metre square asking prices 50% lower than the adjacent new-build but they remained unsold while the inferior quality but shiny new stuff was flying off the shelves.

I’ve been involved in the Spanish property market for more than two decades, both as an estate agent and a property finder and I have never known such a discrepancy between new-build prices pm² when compared with resale prices. While it’s true that there is always a premium for new-build product, even during the pre-2008 building frenzy the new-build premium was in the 10% - 20% range, depending on location and other variables.  However, as a result of continued high demand and lack of supply prices pm² for new-build properties in 2023 seem likely to remain detached from resale prices ,with the premium being 50%+ in most cases. In recent months I have seen some new-build prices as much as twice the equivalent resale price pm². In my view, only a sustained increase in the supply of new-build properties will reduce the pressure on prices and, unfortunately, I can’t see that happening in the short-term.

The highest number of units approved in 2022 were in Málaga city, (1,355), followed by Estepona (1,067), Mijas (909), and Marbella, (690), which is still hampered and slowed down by the uncertainty surrounding the PGOU revision. Once that is finally resolved, hopefully within the next year or so, I would expect the Marbella figure to rise above all the other locations, apart from Málaga city itself.

Marbella, the sixth most expensive town in Spain, is a good example of the new-build versus resale price conundrum.  With thorough research it is still possible to identify well-located  resale properties for between €4,000and €6,000 per square metre, depending on condition, location and other variables.  In contrast, I’m seeing new-build pm² starting at that upper level and all the way up to €10,000 pm². What I find curious about this is that in most cases the new-build properties are not as well-located and are smaller than most resales., even when these are only a few years old or recently renovated. In December 2022, Spain’s Institute of Statistics (INE) reported prices on average across Spain were within 5% of the pre-2008 highs. However, in the case of Marbella and similar prime hotspots, new-build prices per m2 topped those previous highs some time ago, certainly before the pandemic hit.

As regards resale prices per square metre pre-pandemic, the demand/supply ratio was more or less in balance and although prices were rising year-on-year it was not extreme, just in line with inflation around 5%. In addition, buyers were still much more likely to walk away from over-optimistic asking prices that overpay; the resale market was definitely more price sensitive than the new-build sector. However, that’s all changed post-pandemic. Demand has risen so strongly we now have a serious supply-side deficit of quality resale property in the prime locations. A surge of overseas buyers pushed 2021 to a record level for that sector of the market and it is almost certain 2022 will have beaten that when full year figures are announced.  My hope is that a tipping point is close, when potential sellers will be tempted to enter the market in 2023 and bring the demand’ supply ratio back into balance. However, in my view, only a sustained increase in the supply of new-build properties will reduce the pressure on prices in that sector and, unfortunately, I can’t see that happening in the short-term.