COVID-19 is having a strong impact on all human activity globally. And, in this scenario, it is inevitable to ask what repercussions this situation may have on the economy, on the real estate market, on companies and on the valuation of assets.
The current situation is unpredictable and unusual, and enormously volatile, and the dimensions of its impact will depend on how long this situation lasts.
During the 2008 crisis the real estate sector was the most affected. The bursting of the real estate bubble marked the beginning of that great crisis. The data showed this to be the case. The Spanish National Institute of Statistics announced a sharp drop in home sales (27% in the first quarter of 2008) and in mortgage contracts (25% in January 2008). Twelve years later another big crisis has started, but in this case the root has been health. How will the real estate sector come out of this new crisis?
In recent years we have seen strong growth in professional investment in the Spanish real estate sector, although its pace was beginning to slow down due to strong competition and the gradual rise in prices. The driving force behind the expansion was threefold: the high level of liquidity, the lack of attractive investment alternatives and our growth differential with respect to the rest of Europe.
The covid-19 has left the signing of many real estate operations in the air, has paralyzed the market for offices and retail and has relaxed the day to day of investment funds that were considering new purchases in the country
The impact of the coronavirus will depend on the length of the quarantine and the movement limitation of international buyers. However, the impact on the middle and upper segment of the real estate market is expected to be short to medium term. Due to the fall in financial markets and the unprecedented drop in interest rates, the real estate sector is expected to remain one of the most interesting assets for investors
Although the real estate activity has decreased by about 60%, it is not completely paralyzed, there are still many tools with which to work to continue offering solutions to customers.
Take advantage of the confinement to train and update portfolios, to strengthen relationships with customers, to recycle and to bet much more on technological innovation.
When the confinement is over, there will be less meetings outside the offices, less travel and the activity will be more focused on conference calls and video calls; this will allow more time for the real estate professional for the so demanded and necessary family conciliation.
The Mallorcan tourist area of Palmanova and Magaluf is an eminently hotel destination, with 72% of the total number of beds, above the average for Spanish destinations in 4-star, 4 Superior, and 5-star hotels, which represent 72.3% of the beds, as detailed in the report presented by the Hotel Association of Palmanova and Magaluf, in its balance sheet for the 2019 season.
Between 2012 and 2018, the destination experienced a constant improvement in product quality and customer profile, thanks to the investment commitment of hotel companies and the Government and its tourism legislation of 2012, which has facilitated investment by hoteliers by significantly increasing the number of comprehensive reforms in old establishments.
Meliá Hotels International began the process of converting, improving and modernising its hotels in Magaluf years ago. The company’s investment effort has caused the contagion effect and the number of establishments being refurbished has multiplied. This increase in category is focused on improving the economic potential of tourists visiting the area.
The investments in 2019 have been materialized in partial reforms in the hotels, Samos, Aluasun Torrenova, Melia South Beach and Melia Calvia Beach and Sol Katmandu, and in total reforms in the hotels Palmanova Suites by TRH, Elba Sunset Mallorca, Fergus Style Tobago and the beginning of the works of the Room Mate Olivia, with result of the change of category to 4 stars in the hotels Elba Sunset Mallorca, Palmanova Suites by TRH and Samos and to 5 stars in the hotel Fergus Style Tobago.
For years, stars have been the main reference for travellers to gauge the quality of an establishment, although the situation has changed in recent years. The different hotel search engines host thousands of customer comments on the establishments where they have stayed. Nowadays, customer opinions are the best way to evaluate, something that hoteliers are aware of and dedicate great economic and human efforts to try to solve the complaints or negative evaluations that can be made on different internet portals, knowing that the best way to improve their reputation is to have modern, comfortable and practical facilities, as well as a top level service.
One of the main objectives of the conversion process of the Palmanova-Magaluf area is the progressive extension of the season, increasing the number of hotel beds open in the low season by 2.12%. The Calvia brand seeks to improve the segmentation of the clientele that visits the destination, attracting family and adult tourism as a priority, and diversifying the public with an offer that goes beyond a single “sun and beach” destination. However, due to the market situation, the growing trend of the family segment has been interrupted by that of “young people and students”, in which a part of the so-called “tourism of excesses” is included.
According to the president of the hotel association, Mauricio Carballeda, the 2020 season is initially similar to the one that has just ended, similar occupations and with some very important challenges such as the possible loss of connectivity, the economic slowdown and the fall in prices.
“Our tourism model must bet on quality and profitability and not on the quantity of tourists, and think more about how we grow than how much we grow, betting on the education and training of current and future workers and on digitalization both in marketing and in the operating processes of hotels”.
They are millionaires who represent the great fortunes amassed in the golden years of Chavism, with high oil prices and gigantic public works turned into machines to earn money by means of overcharges and bribes. Some have been called “bolichicos”, young and ambitious businessmen who grew up in the shadow of power. Others are former high officials of the regime who used their position to collect million-dollar bites, all of whom have chosen Spain as a place to live in the last decade. They have also chosen Spain as a privileged destination for their investments.
The political and economic situation that the South American country is going through in recent years has been reflected in the Spanish real estate market with purchases of luxury properties that are generally paid in cash and that have reached 30 million.
For the last three or four years there has been a marked increase in Venezuelan buyers and investors, especially in Madrid, the natural gateway to Europe for this type of buyer. Purchases have doubled in just four years, coinciding with the economic downturn in the country controlled by Nicolás Maduro.
In large cities such as Madrid, Venezuelans are already the foreign nationality that makes the largest number of purchases in the capital Madrid ahead of Chinese and Russians, with investments ranging from 2 million, in the case of individuals, to about 30 million, targeting the most exclusive neighborhoods such as Salamanca, Jerónimos, Chamberí and Justicia.
Generally, operations are paid in cash and if they decide to take out a mortgage it is not out of necessity, but because they are interested in fiscal or financial matters. Since many of them have Spanish nationality because of their Spanish ancestors or because they do not spend long periods of time in Spain, they do not need the “Golden Visa” to operate within our borders, although for a percentage of Venezuelan investors the “Golden Visa” is still a claim.
The arrival of Venezuelans in the real estate sector is not limited to the purchase of houses. Last year the increase in rents by Venezuelans in the capital grew by 35%, with more than 40 firms a month and an average income of 1,700 euros. His profile is a person with a medium-high purchasing power, with studies and employment, and with an average length of stay in Spain not exceeding 3 years.
This growth, together with the greater dynamism of the market and the evolution of the Spanish economy, has pushed up the prices of luxury housing in Madrid over the last three years.
The luxury real estate market does not understand the crisis in the Balearic Islands, growing exponentially even in the hardest years stabilizing in 2018, according to the annual report prepared by the College of Registrars of Property, under the title “Real Estate Yearbook 2018. According to this report, the Balearic Islands is the most popular destination for foreign investors, ahead of Andalusia and Catalonia, since although 979 homes were sold during the previous year, these already account for a fifth of the total. One out of every five homes sold on the islands was considered luxury.
The demand on the islands focuses on a limited group of high quality properties in privileged locations. Majorca: luxury properties and new construction projects guarantee high prices In Majorca, the largest island in Spain and the heart of the Balearic Islands, the average price of residential properties rose to 1.6 million euros in 2018, up 10% from 1.47 million euros in 2017. In prime locations in the southeast and in the coveted districts of the city of Palma, such as its old town, Portixol and Son Vida, the average price of apartments is 800,000 euros. Puerto de Andratx, in the southwest, is one of the most expensive places on the island, with an average cost for the villas of 4.5 million euros. Modern villas with sea views are the most in demand, along with restored palatial mansions and traditional haciendas with large tracts of land.
In ibiza, the third largest city in the Balearic Islands, property prices remain stable. In 2018, the average price of premium properties in the city of Ibiza and its surroundings was 4.1 million euros, although the apartments register an average price of 950,000 euros. By area, highlights the average cost of 3.6 million euros of villas and cottages in very good locations in the south of the island, while in the north is around 3.1 million euros. Properties range from historic houses to modern apartments and penthouses overlooking marinas, as well as exclusive villas in the centre of the island. The increase in private aviation services and the strong influx into marinas is evidence that Ibiza maintains its position as one of the world’s leading tourist destinations.
Prices in Menorca’s main locations have remained stable due to high demand from foreign buyers. The most sought after properties are holiday homes with sea views in the southeast and northeast. Last year, the most select estates in tourist resorts sold for up to 3 million euros, while houses in the capital, Mahon, and in the area around the port of Ciutadella registered an average price of 1.5 million euros. The properties of higher standing reached prices of up to 7 million euros. Thanks to the continuing positive trend in the property market, the island’s authorities are investing more in the modernisation of the motorway and in the construction of a new port in Mahon, which is specially designed to attract large yachts. This will attract even more international buyers in the future.
The main factors to be taken into account in view of the evolution of the luxury real estate segment in Spain until 2020 will be the economic and political stability, the political measures adopted in the field of housing, the international geopolitical situation, the economic policies of the ECB, the adjustment of prices and the evolution of currencies such as the pound sterling, the dollar and the Mexican peso.