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The After Covid-19. Crisis or No Crisis? 7 Facts That May Affect Property Prices – Part 1/2

Posted by barcelonabuyers on 2 June 2020

Analysis, update, and predictions for the Barcelona Real Estate Market.


With its strong cultural offers, its city beaches, its regional coast lines, its easy access from other other countries (nearby border with France, one of the best connected international airports, new cruise ship and yacht ports), its quality of life, its international communities, etc., Barcelona has long been a dynamic market for real estate operations. Both private and professional investors have, especially since 2010, considered it a key profitable market whether for new residents, secondary residences, Golden Visas, tourist offers or rentals to young professionals and students.

Given its importance on the map of Europe, and more specifically amongst the rare offers of large cities on the Mediterranean Sea, many people are logically questioning what is the current situation and what are the perspectives for the real estate market of Barcelona, and more widely for Catalunya, while measures of confinement for Covid-19 are progressively lifted.

Have the property prices dropped or will they fall in the coming weeks or months?

Over the past weeks during the confinement, I have exchanged with some clients who had such questions and are considering to buy a property in the coming months. Their belief, fuelled by some articles, more often written in relation to other areas of Spain, was that they may benefit from a significant decrease in the offered prices as a consequence of the paralysis of the economy during to the so-called pandemic.

True, I too read articles published in online specialised magazines in which real estate experts anticipated that property prices “could” fall by as far as 25%, although some sources cited more moderate estimates between -10 and -15%. “Could” is the word, because until now, in large measure, all comments were based on some degree of speculation. Practically, we would not know with absolute certainty until we, clients and agents alike, were informed of the de-confinement agenda, which offers would be presented, and, let’s not forget, how sellers would react. Would they show patience or be able to wait it out?

There are also some professionals, who have simplified their current predicament by using easy comparison to previous historical events that have affected the Spanish, but also European, and sometimes global real estate market. These “experts” went as far as to compare the current situation with the 2008 financial crisis and have announced similar consequences and, with them, a long period of recovery.

I wanted to write this article to set the record straight and answer both our clients and such speculations on the basis of facts.

The Covid-19 paralysis was not a financial crisis.

The After Covid-19. Crisis or No Crisis? 7 Facts That May Affect Property Prices

So where do we really stand?

The confinement has relaxed and we have (finally!) been provided some clarity on what to expect in the coming weeks, although international travels are still undecided and prone to relations between governments and waiting for the Spanish authorities to wake from their self-induced coma before they miss the vital season for tourism, their leading industry.

The Spanish real estate agencies have been given the green light to work again, so it is the perfect time to look more objectively at the situation, the damages done, analyse how the public and investors are reacting, and draw some better supported prognostics over what we can expect in the next weeks or months.

But, before sharing my conclusions, I should probably explain that my statements in this article are based on my own knowledge and measures of the Spanish (moreover Catalan) real estate sector from years of local professional experience, my regular exchanges with collaborators and experts of the sector, and something that has become a sort of rarity (too simple to feed the excel spreadsheets and savant charts), what we once used to call “common sense”.

Thus, my first question to all those experts who, between mid-March and mid-May, in the middle of a confinement, which end was still undecided, had predicted huge price drops is:

“You declare this and that, calling for the end of time; you talk of numbers, preaching another crisis of apocalyptic proportions … but what is your analysis truly based on?

One may even question the motives behind their panic slogans. Are they voluntarily seeking to create some kind of vacuum effect with which they would attract, at the detriment of the industry and their sellers, potential buyers with promises of once-in-a-lifetime bargains? For the anecdote, I actually saw with my own eyes some local agencies going as far as advertising 50% discounts on their fees. It made me think of a fashion flash sale, although, in all fairness, real estate agencies too, as commerces, have greatly suffered from the immobilisation of our rights to move and work.

But to their early (too soon) declarations, I am tempted to add, for our readers’ understanding of the situation: “What location are we talking about? What products?

When making such dramatic claims (e.g. drops by 25% in value), one must consider the first factor of real estate investment: Location. In property, before the what, the number of rooms, the view, the price per sqm, there is the Where.

Common sense again. If I say that “Investments are not equal between regions, cities, and, in the larger ones between areas, streets, orientation, amenities…”, anyone reading this will, no doubt, shrugged and exclaimed “of course.”

Not so fast though. Because this is specifically one of the key points that many of us must explain to some of our clients, who may have read some of these articles written in the context of a depressing confinement, and why I have felt the need to address this issue here and correct some misleading inaccuracies.

Truth is: we have no element of comparison whatsoever to measure the impact of what we have just gone through.

The After Covid-19. Crisis or No Crisis? 7 Facts That May Affect Property Prices

It is like the tale of the Three Blind Mice. The first mouse is the authorities. We can even associate the banks, given help money without clear instructions, to these figure. The second is the experts of the sector. And the third mouse may be you or any other individual or company looking to invest, and let’s not kid ourselves, profit.

I have a degree in business economics from one of the leading universities in the world and I can confidently say that, in order to build a serious prediction, especially at a macro level, we need a model that incorporates data available from current or, if unavailable at the moment, from similar situations that have previously occurred.

The Covid-19 hiccup is not in itself a financial crisis, even if it is undoubtedly the cause of the next one. It was not born from a flaw, a manipulation or a re-equilibration in the local or global economy. Except for the few drops of funds offered by the states to parched workers, what happened was a full freezing of the system, economical but also social. Even if people had had enough to invest, regardless of the length of inactivity, no interaction with agents, banks, or notaries was permitted.

This nature of this anomaly alone already rules out any possible comparison with a common, no matter how grave, financial crisis as in 2008, which had been triggered by some excessive practices of the banking system. For example, here in Spain, augmented by an excess in mortgages, it led to a drop in property prices that reached in some regions or areas up to -40%. Notwithstanding, it is important to also keep in mind that, at the time, such prices were inflated, well above their actual real market value, and that a part of the fall was considered as a recalibration of the market.

The After Covid-19. Crisis or No Crisis? 7 Facts That May Affect Property Prices

So now that we are waking out of this bad dream, it is time to ask “what happened?” – at least, herein, as far as the real estate sector is concerned – and “How will this exceptional situation truly impact the market and inflect the trends in prices?

Well, what happened is that someone has frozen the market, its transactions, for over three months or more if we include June, perhaps July, for those international investors, crucial to Spain.

Obviously, we can already use all those predictions made in 2019 for this year to light up our first Summer bbq, unless we replace “20” with “21” on the cover. But can we really, as real estate specialists, confidently, announce that this immobilisation will automatically translate into a drop in prices? And if so, to which extent?

What my clients, my readers, want to know is “Will there be opportunities for investors or for those buyers who were considering a purchase before February?

“Will a buyer be able to make offers significantly below the levels of February of this year?”

I propose to answer these questions, based on the information, in the second part of this article with a list of facts I have gathered and verified.

I invite you to read my observations and my conclusions in The After Covid-19 Part 2/2, Key Facts relevant to the Barcelona Real Estate Market.

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