Every year, the first questions our clients ask are “How is the market doing?” or “Will prices rise or fall this year?”
It feels more challenging to answer every passing year.
Maybe it’s because we now have access to so much information, which makes it even harder to do a proper analysis. Or maybe it’s because we are overwhelmed by ‘expert opinions’ from influencers on instagram and tiktok? One thing is clear though – we have a very complicated situation in the world right now with wars and political tension between the East and the Western democracies. It was further complicated by skyrocketing inflation during the last year but which may now be under control after harsh monetary policy by the Fed, the ECB and followed by the Swedish, Norwegian and British central banks. However controlling inflation by raising interest rates is normally not good for the property market.
Last night I attended a conference at GIPE HQ in Malaga where one of the biggest bank valuation companies, Sociedad de Tasación, gave a conference analysing the market with a forecast for 2024. About 50 real estate agents got a two-hour overview of the market over the last 15 years; highs and lows, new developments and resales, type of buyers, etc. After they finished their talk, we had a Q&A session where the agents could ask their questions. We enjoyed a very engaging discussion of opinions and information. It was a great mix as we had perspectives from all levels, the regional CEO of Sociedad de Tasacion who sits in an office and analyses information from hundreds of valuations every month, a bank valuer who does the valuations “on the ground”, and finally all the real estate agents who actually sell and price the homes. Of course, the main focal point of ST’s report was the forecast for 2024. Nationally, there are places where prices have dropped in 2023, but these are rural areas and smaller towns in the centre of Spain, for example in Extremadura. The larger cities and coastal areas have seen a strong increase and are expected to keep rising, although at a slightly slower rate in 2024. When it comes to new developments, Malaga was at the top of the list nationally with an increase of 7.2% in price /m2 in 2023. The high prices of new developments are driven, among other things, by the price increase in material cost as well as inflation that followed the war in the Ukrainie. According to ST, fewer and fewer new developments are being launched, partly because of the high interest rates that make it more costly for builders to get started, but a major factor is that they have trouble finding qualified labour. There is a huge lack of skilled construction workers, which causes delays and makes it hard to start a new project. Not only is this a lasting shortage, but it is worsened by the fact that those who retire are not replaced. Maybe the younger generation is trying to become Instagram influencers rather than opting for a traditional profession?
International buyers are driving the demand in the major cities and coastal regions. They are not so affected by interest rate hikes, as they often buy second or third “homes” or pure investments. We’ve seen a huge influx from Eastern Europe and the Baltics, where many people want to secure their money, and also many investors from the US, Canada and Mexico. The strong dollar has made it cheap for them to invest in Spain, and since Portugal has now cancelled its Golden Visa programme and terminated tax benefits for foreigners, Spain might just be the best choice for these investors in 2024.
We proceeded to ask ST how they saw the situation for first-time buyers. With high prices and high interest rates, it is harder and harder for them to get their foot on the property ladder. ST used Malaga as an example to answer this. Before, people wanted to live near the city centre, but after the prices increased, this group can’t afford living in the centre any longer. As a biproduct, other areas have become popular, such as Cartama and Alhaurin de la Torre, where there are new developments being built especially for this group of property buyers and these areas have a good supply of already built homes available. A young family can get a three-bedroom townhouse with a private garden for a similar price as an apartment in the centre. Thanks to a very good infrastructure with motorways and public transport, distances are no longer an issue. Also, nowadays many professions have the opportunity to work partially or fully from home.
This has resulted in a more mature and diverse housing market, and you can see it all across urban Spain.
Many of us GIPE agents present at the conference indicated a fear that we would see price drops like the crash in the early 90s and in the 2010s after the financial crisis. But that doesn’t seem to be likely. Partly because Spain is one of the most popular countries to buy holiday homes for so many different nationalities and international investors. And also as we now (using the Costa del Sol as an example) have a much more mature market with good infrastructure and a buoyant economy with plenty of job openings. That just wasn’t there in the 90s. If we add the opportunity for so many people to work from anywhere in the world, as well as the large investments made by e.g. Google and Amazon in the Malaga area, it gives a positive vibe to keep investing in the Costa del Sol market in 2024.