2023-12-22 06:00:12
The economic slowdown, high inflation, rising interest rates and uncertainty have been a drag on the real estate market in 2023. Investment in the sector is plummeting, while housing transactions and the signing of new mortgages They have fallen sharply compared to last year, when they achieved their best results since the real estate boom.
Among the main changes of the year are the rise of the hotel and residential sectors, which continue to attract the attention of large investors, the ‘sorpasso’ of the Valencian Community to Catalonia and Madrid in number of sales, or the arrival of investors to the market with a more opportunistic profile.
Real estate investment plummets
One of the keys to the year has been the sharp decline in investment in the real estate sector, which has been weighed down by high inflation, rising construction costs, rising interest rates, and political and economic uncertainty. In the case of Spain, the double electoral period has also had an influence, which has resulted in a change of government in several autonomies and a second coalition government.
The consulting firm Colliers already predicted at the beginning of summer a drop in investment of 50% compared to 2022 levels and at the moment its forecasts are being met.
Data from PwC and Urban Land Institute point to a collapse of close to 50% of investment in Europe, with 119,000 million euros invested between January and September, while in the case of Spain the drop is around 30%, with 13,000 million accumulated in the first nine months of the year. BNP’s real estate division also supports the contraction in investment, with a 63% year-on-year drop in the third quarter of the year, a period in which 1.8 billion euros of investment were quantified.
According to different studiesinvestors are in ‘wait and see’ mode, waiting for bank financing to improve and real estate assets to become cheaper. The most critical moment will foreseeably occur at the start of 2024, although the situation will improve as the year progresses and there is more certainty about the ECB’s monetary policy.
That is the scenario handled by Colliers, who affirms that “theoretical asset prices should bottom out in the first half of 2024” and that the possibility of the ECB lowering interest rates in the coming months “will open up a good investment opportunity that, without a doubt, many players will take advantage of. Some owners, forced by debt maturities and liquidity needs, will assume the new scenario and approach price positions with investors, thus reactivating investment activity.” From the consulting firm Savills they also expect a comeback in real estate investment in 2024, the year in which it could register an increase of up to 35% in Europe.
Another key this year has been a change in the profile of investors. In a market dominated by economic uncertainty and rising interest rates, managers and consultants affirm that, in the current scenario, core funds are not finding new real estate investment opportunities that fit with their long-term strategy. so they are analyzing other financial products with similar performance and less risk. So, These conservative investors are giving way to ‘value added’ funds, with a more opportunistic nature and with interest in different sectors, from housing to hotels or data centers. Profiles such as individual investors and family offices are also gaining more weight, to the detriment of large institutional investors.
Hotels, residential and Madrid are the focus of attractive investors
Despite the general decline in real estate investment, There are some sectors and locations that maintain their attractiveness. A good example is the hotel sector, which in 2023 is attracting more investment than last year.
According to BNP Paribas Real Estate, hotel investment in Spain has reached 2,420 million euros in the first nine months of the year, what represents 36% of the total of investment that real estate has captured between January and September, and exceeds that registered by the hotel sector in all of 2022 (2,256 million euros). The real estate consultancy highlights that The attractiveness of the Spain brand as one of the most relevant tourist destinations in the world continues to attract investors of different typologies.
In 2023, the residential sector, boosted by high demand and low supply. Data from the consulting firm CBRE suggest that ‘living’, a category that groups together all the real estate segments that are part of people’s life cycle (student residences, ‘flex living’, land, residential for rent, residential in sales and senior living), continues to consolidate its position as an investment focus. During the first nine months of the year, it has concentrated 32% of the total transactions in Spain, with 2,386 million euros.
In addition to hotels and the ‘living’ sector, investment appetite also remains in assets such as data centers, las new energy infrastructure (battery storage for renewable energy, solar farms, electric vehicle parking…) or facilities related to health scienceswhich are among the big bets for 2024.
Regarding locations, Madrid is reinforced as the most attractive destination. In fact, the capital of Spain is one of the most attractive European cities to currently invest in the real estate sector. According to a report by the consulting firm Knight Frank, Madrid is the second most attractive city in Europe to invest in rental housing and student residences, only surpassed by London, and one of the large cities in the world where the price of housing will rise the most. luxury real estate in 2024.
Currently, investors and promoters consider that investing in Spain is a particularly attractive opportunity in the affordable housing, student residences and hotels segments. According to PwC and the Urban Land Institute, this is due to several reasons, such as high rates of tourism and its percentage in the national GDP, the lack of affordable housing in cities such as Madrid and Valencia, combined with internal migration patterns; the imbalance between supply and demand and the high profitability of student accommodation in urban centers, where the demand for university housing continues to rise.
Sales and mortgages fall sharply
The factors that have hampered investment in the real estate market have also caused a contraction in home sales and the signing of new mortgages. The forecasts made at the beginning of the year anticipated a drop in transactions of more than 20%, although the market is performing better than expected.
According to data from the Ministry of Housing and Urban Agenda, which the Government has recovered at the start of this new legislature, Between January and September, a total of 470,584 housing transactions were carried out, which represents a drop of 13.46% compared to the same period of the previous year. when 543,754 operations were recorded. The decrease has been generalized throughout the country, being the Balearic Islands (-23.92%), Navarra (-23.28%), Ceuta and Melilla (-20.70%), Madrid (-18.95%), Country Basque (-18.87%) and Canary Islands (-18.79%) are the Autonomous Communities where sales have decreased the most.
And the declines have been extended into October. According to the notaries, in the tenth month of the year, 51,952 sales and purchases, 5.6% less year-on-year, which translates into the thirteenth consecutive year-on-year decrease.
What official data also confirm is that sales of villas are falling more than those of apartments, while the used housing market is suffering more than that of new construction. In this sense, the INE shows that between January and October sales of new homes accumulate an interannual decrease of 3.3%, while transactions of used homes decline by 9.9%, leaving the average drop in home sales in Spain by 8.7%. In the tenth month of the year, in fact, operations in the new construction market have grown slightly (0.8% year-on-year), while those of used housing have decreased by 13.5% compared to October 2022.
Looking ahead to 2024, experts predict further declines in operations, which could average up to 10%. Solvia anticipates a contraction close to 8%, while analysts at Bankinter They foresee a decrease of 5%. Gonzalo Bernardos, professor of Economics at the University of Barcelona (UB), is more pessimistic and points to a potential double-digit fall, although he expects a comeback in the market in the second half of the year. From idealistic They also expect drops in transactions, as well as a reactivation of part of demand.
In the case of mortgages, the accumulated volume between January and October amounts to 230,476 operations, with a drop of 23% year-on-year (between January and October 2022, more than 301,000 mortgages were signed for the purchase of a home), according to the notaries.
The INE also confirms the sharp drop in the signing of new loans, although with a different result, since in their case the data is based on the Property Registrars, which usually have a delay of several weeks with respect to those managed by notaries. In their case, the numbers point to a year-on-year decline in the cumulative figure for the first 10 months of the year of 17.7%, after a chain of nine months of consecutive falls and the last three with year-on-year drops of more than 20%. Even so, the volume of loans in 2023 remains above the levels of 2019, before covid.
In addition to the drop in the signing of new mortgage loans, the year 2023 has also been marked by a new rally in the Euribor, which has broken 4% and reached its highest levels since 2008; by the promotion of mixed mortgages to the detriment of fixed ones; due to a wave of mortgage changes by households and early repayment of loans. Banks, for their part, have been extremely cautious when granting financing and maximum risk mortgages have hit historic lows, while reverse mortgages have returned to the market, a financial product aimed at those over 65 who want obtain liquidity with your home ownership.
The Valencian Community gives the ‘sorpasso’ to Catalonia and Madrid
In the midst of a general decline in home sales in Spain, the Valencian Community has been one of the protagonists of the year, after displace Madrid and Catalonia by number of operations. According to data from notaries, between January and October, 86,545 housing transactions have been recorded in the region, a figure that is only surpassed by Andalusia. In that period, 78,580 units have been registered in Catalonia and only 62,314 in Madrid.
Real estate agents and consultants remember that autonomy has a wide and stable demand, with habitual homes, second homes and both national and foreign clients, especially in the province of Alicante. Added to this are other factors such as affordable prices, high profitability for investors and the attractiveness of Mediterranean life.
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