Real estate adjustment is coming: investments, home sales and mortgages are falling

An economic slowdown, high inflation, rising interest rates and uncertainty have been a drag on the property market in 2023. Investment in the sector is falling sharply, with housing transactions and new mortgage signings down significantly compared to last year, when they achieved their best results since the real estate crisis boom.

Among the main changes of the year are the rise of the hotel and residential sector, which continues to attract the attention of large investors, the “sorpasso” of the Community of Valencia to Catalonia and Madrid in the number of sales or the arrival of investors in markets with a more opportunistic profile.

Investments in real estate are falling sharply

One of the keys to the year was the sharp decline in investment in the real estate sector, which was burdened by high inflation, rising construction costs, rising interest rates and political and economic uncertainty. In the case of Spain, the double electoral period was also influential, resulting in a change of government in several autonomous ones and a second coalition government.

The consulting firm Colliers predicted already at the beginning of the summer 50% drop in investment compared to 2022 levels and at the moment her forecasts are coming true.

Data from PwC and the Urban Land Institute point to a the collapse of almost 50% of investments in Europe, with 119,000 million euros invested between January and September In the case of Spain, the decrease is around 30%, with 13,000 crore accumulated in the first nine months of the year. BNP’s real estate division is also supporting the decline in investment, with a 63% year-on-year drop in the third quarter of the year, a period in which investments of €1.8 billion were accounted for.

According to various studiesinvestors are in “wait and see” mode.he is waiting for the improvement of bank financing and the discounting of real estate. The most critical moment is likely to occur in early 2024although the situation will improve during the year and there is more certainty about the ECB’s monetary policy.

This is the scenario tackled by Colliers, which confirms this “theoretical asset prices should bottom in the first half of 2024” and that the possibility of the ECB to reduce interest rates In the coming months, “a good investment opportunity will open up, which many players will surely take advantage of. Some owners, forced by debt maturities and liquidity needs, will adopt a new scenario and move closer to price positions with investors, thereby reactivating investment activity.” From consultancy Savills, they also expect real estate investment to return in 2024, a year when in Europe could see an increase of up to 35%.

Another key this year was a a change in the profile of investors. In a market dominated by economic uncertainty and rising interest rates, managers and consultants confirm that in the current scenario, key funds are not finding new real estate investment opportunities that match their long-term strategy. Therefore, they analyze 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 an interest in various industries, from housing to hotels or data centers. Profiles such as individual investors and family offices are also gaining more weight at the expense of large institutional investors.

Hotels, residences and Madrid are the focus of attractive investors

Despite the general decline in real estate investment, Some sectors and locations retain their attractiveness. A good example is the hotel sector, which attracts more investment in 2023 than last year.

According to BNP Paribas Real Estate, hotel investments in Spain reached 2,420 million euros in the first nine months of the year, what does it represent 36% of the total of investments that real estate captured from January to September, and exceeds the value registered by the hotel sector in the whole of 2022 (2,256 million euros). Real estate consulting draws attention to this The attractiveness of the Spanish brand as one of the most important tourist destinations in the world continues to attract investors different typologies.

In 2023, residential sector, supported by high demand and low supply. Data from CBRE consulting firm point out that “housing”, a category that brings together all real estate segments that are part of people’s life cycles (student residences, “flexible housing”, land, residences for rent, residences for sale and senior housing), continues to consolidate its position of investment orientation. During the first nine months of the year, it concentrated 32% of the total transactions in Spain with 2,386 million euros.

In addition to hotels and the “housing” sector, investment appetite also remains in assets such as data centers, and new energy infrastructure (battery storage for renewable energy, solar farms, electric car parking…) or health science related equipmentwhich are among the big bets for 2024.

As for locations, Madrid is reinforced as the most attractive destination. It is actually the capital of Spain one of the most attractive European cities for investment currently in the real estate sector. According to a report by consultancy firm Knight Frank, Madrid is the second most attractive city in Europe for investment in rental housing and student residences, surpassed only by London and one of the largest cities in the world. the price of luxury real estate will rise even more in 2024.

Currently, investors and promoters are considering investing in Spain is a particularly attractive opportunity in the segment of affordable housing, student residences and hotels. According to PwC and the Urban Land Institute, This is due to several reasons, such as the high level of tourism and its share of 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 grow.

Sales and mortgages are plummeting

Factors that have held back investment in the real estate market have also caused home sales and new mortgage signings to decline. Forecasts at the beginning of the year called for a drop in transactions of more than 20%, although the market is performing better than expected.

This follows from the data of the Ministry of Housing and Urban Agenda, which the government recovered at the start of this new term, A total of 470,584 housing transactions took place between January and September, a decrease of 13.46% compared to the same period last year. when 543,754 operations were recorded. The decline was widespread across the countrywhich are the Balearic Islands (-23.92%), Navarra (-23.28%), Ceuta and Melilla (-20.70%), Madrid (-18.95%), the Basque Country (-18.87%) and The Canary Islands (-18.79%) in the autonomous regions where sales fell the most.

And the declines extended into October. According to notariesin the tenth month of the year, 51,952 sales and purchases, down 5.6% year-on-year, representing the thirteenth consecutive year-on-year decline.

Official data also confirms that villa sales are falling more than flat sales, while the second-hand housing market is suffering more than the new build market. In this sense, INE shows that between January and October, sales of new homes accumulate a year-on-year decrease of 3.3%, while transactions of used homes fall by 9.9%, for an average decrease of 8.7% in home sales in Spain. Actually in the tenth month of the year Operations in the new construction market increased slightly (0.8% year-on-year)while for used housing they decreased by 13.5% compared to October 2022.

Looking to 2024, experts predict a further decline in traffic, which could average up to 10%. Solvia predicts a contraction close to 8%, while analysts Bankinter They predict a 5% decline. Gonzalo Bernardos, professor of economics at the University of Barcelona (UB), is more pessimistic and points to a potential double-digit decline, although he expects to return to the market in the second half of the year. OF idealistic They also expect a drop in transactionsand also the reactivation of part of the demand.

In the case of mortgages, the cumulative volume for January to October is 230,476 operations, with a year-on-year decrease of 23% (more than 301,000 mortgages for the purchase of a house were signed for January to October 2022), according to notaries.

INE also confirms a sharp drop in the signing of new loans, albeit with a different result, since in their case the data is based on the real estate cadastre, which usually has a delay of several weeks compared to that administered by notaries. In your case the numbers point to a year-on-year decrease in accumulation for the first 10 months of the year by 17.7%, after stringing together nine straight months of declines and the last three with year-over-year declines of more than 20%. Even so, the volume of loans in 2023 remains above the levels of 2019, before covid.

In addition to the decline in the signing of new mortgage loans the year 2023 is also in the sign due to the new growth in the Euribor, which broke 4% and reached the highest level since 2008; by supporting mixed mortgages at the expense of fixed ones; due to a wave of mortgage changes by households and early repayment of loans. Banks have been extremely cautious in providing financing, and subprime mortgages have hit historic lows, while reverse mortgages have returned to the market, a financial product aimed at people over 65 who want to gain liquidity from their home ownership.

The Community of Valencia gives “sorpasso” to Catalonia and Madrid

Amid the general decline in house sales in Spain, the Community of Valencia was one of the protagonists of the year after relocate Madrid and Catalonia according to the number of operations. According to data from notaries, 86,545 housing transactions were recorded in the region from January to October, a number surpassed only by Andalusia. During this period, 78,580 units were registered in Catalonia and only 62,314 in Madrid.

Real estate agents and consultants remember that autonomy has a wide and stable demand with usual homes, second homes and domestic 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 living in the Mediterranean.

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