Outlook to the future of Sant Cugat del Vallès Real Estate sector after Covid-19 crisis.

On March 13th 2020, following publication of the Royal Decree 463/2020, March 14th, instituting a state of emergency, the whole economic activity was halted. The real-state sector is suffering a great impact, with an abrupt and unexpected halt both in real-state transactions and in the conclusion of new rental contracts. The comprehensive ban to move around public roads implies the manifest impossibility for the client to be able to go visit any kind of property either as a buyer, seller or a person looking for a rental. Likewise, from the Decree it is understood the impossibility to carry on any kind of activity related to the operations collection, management, marketing or closure. That is, it has irrevocably lead us to cease our activity. There are lot of questions regarding when we will be able to restart our activity and, as such, return to a situation of normality in our lives and businesses. We are seeing consecutive postponements of the state of emergency, with speculations, according to the media that you select, with several and different scenarios. The situation is grave enough and as such, without any doubt, it will result in less real-state transactions, an excess in the offers considering this trimester without buyout and a contracted and hesitant demand. Without a shadow of a doubt, all these factors will determine changes in the decision-making processes, both for the client who was selling their property and for the one who was looking for a new home.

What will be the impact of COVID-19 in the real-state sector in Sant Cugat? Will this crisis imply a decline in prices? 

These past weeks, friends, acquaintances and clients have been asking me these questions and many more. Nobody knows exactly which effects will have this crisis in Sant Cugat del Vallès market, but it is true that we can extract objective elements to make an approximation for the outlook for the real-state sector for this year 2020. After a study and data analysis, I can confirm that Sant Cugat del Vallès is a city with a real-state sector with consolidated base and structure. In 2019, the El Economista newspaper published an article form the prestigious urbanologist León Krier about the cities of the future; and he highlighted two essential aspects: foot traffic and traditional design. We have both of those aspects. Our small city is attractive in urban design, with pedestrian streets, local commerce, it is a city ready for the kids with multiple parks, open to nature near the Natural Park of Collserola, away form the big city but close to it and well connected. All these elements (and many more that I do not include here) makes it attractive for staying for those who were born here and dreamed of for those who know it. Did you know that since 2000 Sant Cugat del Vallès has almost doubled its population? In these 20 years, according to IDESCAT we have gone from a population of 50.000 to 91.000… And it keeps increasing. Not only that, there are many people from other countries that, being based for their job in a country different from theirs, choose Sant Cugat del Vallès to grow with their family, proof of this are the 12.000 foreign people that live actually here, 13% of the whole population. Likewise, when talking about the family net income, the Spanish Institute of Statistics (INE) states that Sant Cugat del Vallès is the richest city in Catalonia and the fourth in Spain. The average gross income is around €51.000 per taxpayer. Proof of the structured and consolidated market we have in Sant Cugat del Vallès is the connivance of 2 markets with an upwards trend during these past years; the purchase-sale market (new building and second hand) and the rental market. In the graph below we can see how the rental market took the leading role during the 2007-2014 crisis, when the rental operations were tripled (from 530 operations to 1663), whilst there was a downward trend in the purchase-sale market to more than half (from 1258 to 482). In contrast, after the recovery that started in 2014, both the rental and purchase-sale market reached historical data. In 2018, 2172 rental operations and 1128 purchase-sale operations.

Source: Spanish Ministry of Development and Autonomous Government of Catalonia, Housing.

These are encouraging data that confirm that our village, or our small city, is a huge attractive for people to come live in. And this is good for the real-state sector in Sant Cugat del Vallès.

So, this crisis won’t affect us?

Yes, it will affect us. But as in the 2007-2014 crisis, that we still remember fairly well, the effects will be less harmful compared to other cities or to the real-state sector as a whole and most importantly, when the recovery starts, we will be the first ones to get out of it. By analyzing the second hand purchase-sale operations, according to data from the Spanish Ministry of transport, mobility and urban agenda, from the past years and in order to put this in numbers, Sant Cugat del Vallès, when it has a healthy real-state market has and annual average of 800 operations. When it has a market in crisis, the operations average is around 450. In this last prosperity period, that started in 2014, the first recovery year closed with a total of 584 operations. From that year onward, we have been increasing yearly and meteorically (for example, year-to-year from 2015 to 2016, 20%), until arriving at 2018 with a total of 844 operations. Nevertheless, 2019 has seen a red number, -6%, with a total of 790 operations. For you to understand the temporary nature of these operations, Q1 of every year is usually the worst of all, the causes, very human; fiscal calendar, Christmas festivities, shorter and colder days. Q2 is usually the best one along with Q4. Q2 with the arrival of the Spring, longer days and better weather and Q4 motivated also by the fiscal calendar. Lastly, Q3, the worst one also for the aggressive weather and the Summer period, holidays and kids staying at home. For example, in 2019: Q1: 177 operations (22%) Q2: 205 operations (26%) Q3: 165 operations (21%) Q4: 243 operations (31%)

What will happen this 2020 after Covid-19 Crisis?

The outlook in the absolute sense of number of operations is not good. The fist trimester of this year 2020, at Proddigia, we have reached a high mark, but with any doubt, thanks to the talent of our agents, because for the past few months we were already noticing the depletion of the market in the view of an increase in prices for the past 7 years and offer prices from the properties that greatly differed from those that the buyers were willing to pay. I must highlight, during these past months, the aggressiveness of the offers from the bidder, many times between 10% and 15% above the offer price. To this scenario, we have to add now the Covid-19 crisis. Part of March, and almost the whole Q2 have been lost. Literally. This leaves us, approximately, in a loss of 230 operations. If everything goes right, we will be able to return to our activity around the Q3, concurring with a trimester with a weaker historical activity due to the causes that we have listed earlier in this document (even though it is true that this will be the strangest Summer of all for many of us). Return to “normality” (Q3 and Q4), will be marked by a stand by situation for the market (those who worked whilst the 200-2011 market have not forgotten this), with more new offers (more properties being put up for sale) and with the general uncertainty of the supply and demand regarding the reaction from the market given the actual events… And the future ones, we shall not forget that. How is this translated? How will the buyer market react? For a first group of buyers, those more cautious or those who would have suffered a job mishap, given the need to change home, their making-decision process will be transferred to the rental market. The rest of buyers will wait for a drop in prices. Without any doubt, offers will be more aggressive. Those properties of interest but that won’t be in line with the study price will stop being active and will break away from the buying scale. The buyer will recover the position of strength on the market board (they had lost it in 2016) in favor of the seller.

How will the seller market react?

Amongst the sellers, there will be two reactions. Those sellers with a good real-estate agency advisor and who are able to read the situation will immediately enter the market in order to be the first ones to sell. But at which market price?  At average 2019 transactions market price. We should take into account that there is a difference between the offer prices and the closing prices at an average around 7% to 12%. In many cases, a lot more, but I won’t dive into that. That is, for example, a flat in Parc Central, is put on offer for the first time in the advertisement media at €600.000 and ends up closing at €40.000 and €65.000 below that price point. Those owners that update their property to precovid-19 close out prices (average 7 to 12%) will be the first ones to be able to sell without suffering the additional drop that will slowly come later. For the rest of the owners, either by their own decision or due to a lack of advice, or for both reasons at the same time, their strategy will be that of not reducing the offer price they have and to wait and see how the market reacts, hoping for an offer to arrive, willing, at least, to adjust the price a little. These will be the last ones to sell, with two drop-in stages; the differential they had precovid-19 (7% to 12%) and that of a new market that will slowly be affected (my minimum scenario is another 10%-15%). In this last group, there will be a halfway reaction during this process, those who will cease their sale and will wait for a better time or those who will have a need for a temporary or economic sale at a medium-term and who will put their property into the rental market. Given all these data, my scenario for 2020 is a drop, at least in absolute value of 210 operations, that in percentage means a -26%.

Source: Proddigia’s studies and statistics center, article written by Kristian Johansson

As I have already mentioned, the drop in operations, the lack of buyout for the properties for sale during Q2 and Q3, the transfer of part of the demand (buyers) to the rental market and the increase on the new properties for sale during Q3 and Q4 will result in a 10% to 15% drop in prices. According to the real-state portal Idealista.com, in  April 2020, in Sant Cugat del Vallès there are 1216 properties for sale, according to 2019 market, with 790 operations total for 2nd hand and an average of 300 for new building, the buyout is already very slow (in many cases the average sales time is 1 year). According to our study, next year, with the offer that will be added, only 1 out of 3 owners will close a sale for their property (33%), that is, 2 out of 3 (66%) won’t be able to reach their expectations and will have a property that will get devalued from day to day. This drop, even though it is true that it is also motivated also by the hard and strict confinement situation in which we are living, will not have the same impact on every property, the resentment will be different, for example, for attics and ground floors (after this crisis, buyers will value higher those properties with exterior, big and exclusive areas) compared to more conventional flats. I will expand this idea further on a future article. To conclude and as I have always said, after many maneuvers from the public powers for the regulation of our market, it has been demonstrated once more that it is not necessary to intercede on it, since the market, in a natural manner, is able to control itself. If you have any doubts or comments, do not hesitate to drop me a message. And remember that now family is the most important thing. Kristian Johansson Partner & Sant Cugat Sales Manager Tel:+34935894536 linkedin.com/in/kristian-johansson-59297420 kjohansson@proddigia.com @kjechaide