Spanish real estate heading for second crash in a decade

Madrid

SPAIN'S US$6 trillion home market looks headed towards another crash, said economists who are studying the impact on property demand stemming from Europe's strictest pandemic lockdown.

While it is too early to estimate the full dimensions of the blow to demand caused by the health emergency that flared up in March, experts who study the Spanish market said the hit to housing prices in 2020 could range from 6.5 per cent to 15 per cent.

"We are in the prologue of a decline that will only become apparent in September," said Gonzalo Bernardos, an economics professor who directs the real estate master's programme at Barcelona University. "By year-end, prices will have dropped by 12 per cent, because this is maybe the sharpest economic crisis we've had."

The looming crash comes after the Spanish market rose 32 per cent since the trough of the previous collapse was reached at the start of 2014.

House-price declines are felt sharply in a country where home ownership approaches 80 per cent and savers tend to use property as their primary nest egg.

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Other observers who predict declines of more than 10 per cent this year include Raymond Torres, at the Funcas think-tank in Madrid, and Alejandro Inurrieta, a property consultant and former economist at Spain's Economy Ministry.

Fernando Rodriguez de Acuna, director of Madrid-based real-estate consultancy R R de Acuna & Asociados, predicted a 6.5 per cent drop.

The consultants said that no factor is as important to house prices as job growth and the economic outlook.

The Bank of Spain projects that gross domestic product could shrink by as much as 15 per cent this year in a worst-case scenario, while the jobless rate - already at 14 per cent before the pandemic - could jump to between 18.1 per cent and 23.6 per cent.

The data does point to a correlation between levels of Covid-19 infection and declines in asking prices for homes.

Navarra and Castilla y Leon, two of the regions with the highest infection rates, showed some of the biggest declines in asking prices in May, versus a year earlier, data from the Health Ministry, the INE statistics agency and Idealista.com, Spain's largest property sales website, showed.

By contrast, the regions with the fewest cases per 100,000 population - Andalucia, the Balearic Islands and Murcia - saw home prices climb 3.8 per cent to 6 per cent. BLOOMBERG