Barcelona’s real estate market has been booming in recent years. Prices have been soaring since they bottomed out in 2013. According to web portal Idealista, they increased by 46% to 4,335 €/m² by the third quarter of 2017, almost reaching pre-crisis highs of €4,732/ m². According to the City Council of Barcelona (Ajuntament de Barcelona), the number of real estate transactions increased from 9,000 in 2013 to more than 14,000 in 2016. According to Statista and Barcelona Turisme, the number of tourists grew from 7.5 million to 9.1 million during the same period.
On October 1, 2017, an independence referendum was held in Catalonia in which 90% of voters chose separation from Spain. How has the local market reacted to the events?
Fall In Demand
According to Alina Batyrshina, Tranio sales manager for property in Spain, there was a 40% year-on-year fall in applications to purchase property in Barcelona in October 2017.
The Spanish Property Insight web portal quoted a real estate agent as saying, “The number of foreign buyers in Barcelona fell from a record level in September to zero in the first two weeks of October”. Bloomberg reported, citing Idelista co-founder Fernando Encinara, that the number of properties listed for sale in popular beach resorts south of Barcelona grew by 50%.
Maria Kamysheva, Tranio project manager for property in Spain says: “Clients who applied before October 1 fall into three groups: 1)those who have already been living in Spain and are looking for residential property for themselves, and are continuing their property search; 2) investors who have refocused from Barcelona to Valencia or Germany; and 3) those who had already had doubts and insufficient motivation to make a purchase – they are now avoiding any deals on because of the uncertainty in Catalonia.”
Buyers looking elsewhere
The focus of many foreign buyers has shifted from Barcelona to Valencia. “Previously, if customers hesitated between Barcelona and Valencia, 80% of them eventually chose Barcelona because it has better traffic and is three times larger in size. Now it’s the opposite: 70-80% of customers opt for Valencia,” Juan Luis Herrero from Lucas Fox Company said in an interview with The Financial Times.
According to Spanish Property Insight, which cited Lucas Fox, there was a 20% plunge in demand for property in Catalonia in October, while demand in the rest of Spain grew by up to 38%, with the strongest growth coming from Madrid (+45%) and Valencia (+42%). According to the source, there was a 3-5% fall in Catalan property prices. The luxury property market has been more reactive to the crisis. Spanish periodical Expansion reported, citing Barnes International Realty, that prices for luxury property in Catalonia fell by 20%, while prices grew by 10% in Madrid, the Balearic Islands and Costa del Sol.
Tightening mortgage lending rules
According to real estate appraiser Tinsa, the total number of mortgage loans issued in Catalonia fell by 10% in October unlike the rest of Spain where this number was growing. As before, banks continue to issue mortgage loans to residents for up to 90% of the property’s total cost. However, financial institutions in Catalonia have reduced the LTV to 70%. Some analysts think that mortgage lending will be further tightened.
Decline in tourist numbers
Aecos, the Spanish largest business association, estimates that tourist arrivals in Barcelona may fall by about 20%. Hotel occupancy is estimated to fall to 80% as tourists are now thinking twice before booking a hotel room, Bloomberg reported, citing a local trade association.
According to data from global hospitality industry analyst STR, the first five days after the referendum saw a dramatic reduction in revenue per available room (RevPAR). The record low of -27.5%, year-on-year, was recorded on October 4.
As for hotel occupancy, the only marketplace in Barcelona reporting growth between August and September was Sants-Montjuïc (+0.4%, according to STR). However, that was due to the world’s largest Cardiovascular Congress (ESC Congress 2017) held there in late August, which was attended by more than 30,000 people.
“From early October there were massive group booking cancellations involving 10 and more hotel rooms”, Javier Serrano, STR area manager (Spain and Portugal), said. “Since the beginning of the political unrest, all performance indicators have been poorer for Barcelona. This will adversely affect hotel occupancy through the end of the year and, in turn, may lead to reduced booking prices in the months to come.”
The market for short-term rental properties will not stay untouched by the turmoil. The number of apartments booked via Airbnb in October was 11% less than in September. A change in season would have been a good explanation, if not for the 4.4% rise in bookings for the same period the year before.
Most market participants share the view that while local buyers are still making deals, the demand for Barcelona property from abroad is declining. Some investors have shifted their focus to Valencia and other regions of Spain. However, it is too early to draw any conclusions, as many analysts believe that it will take at least a few months to come up with a more accurate estimate.