Prices of newly-builds rise at the height of the pandemic and hit decade-long highs

price of housing

Average price of new housing in Spain:

The residential sector, and in particular the new construction, is resisting, at least for the time being, the blow of the coronavirus crisis. In fact, new housing not only maintains its demand, but also registers the best numbers of the last decade in terms of price.

According to a report drawn up by the Sociedad de Tasación, the price of new housing in Spain stood at 2,472 euros/m2 at the end of June, the highest figure since 2010 and, shortening the gap with the highs recorded in 2007 (2,905 euros/m2) than the lows recorded in 2008.

Since the end of 2014, the price of new homes has not stopped rising, although from June last year until June 2020, it has only increased by 72 euros/m2, which shows that growth has moderated, registering an annual variation of less than 4.5% between December 2018 and the same month in 2019, when it went from 2,348 euros/m2 to 2,453 euros/m2. This deceleration makes it difficult for newly-built homes to reach their 2007 highs; in fact, it is still 15% below this figure, according to the appraiser’s data. 

However, current prices are closer to that record than to the minimums of the previous crisis. At the end of 2014, the average price reached 1,992 euros/m2, which means that since then the price has increased by almost 24% or, in other words, by 478 euros/m2. In contrast, the current price is 433 euros/m2 below the maximum.

It should also be noted that the average price of new housing in cities with a population of over 100,000 inhabitants that are not provincial capitals has been 1,807 euros/m2 , which represents an annual variation of 2.1%. On the other hand, cities with a population of more than 50,000 inhabitants register a price in new construction of 1,691 euros/m2, which represents an annual variation of 2.2%, according to the appraiser.

Why covid-19 does not affect the price:

The data show that the coronavirus has not affected the experts’ forecasts for this type of product within the residential segment, and in which they rule out price falls. It should be noted in this regard that the developers already had almost all the units sold for this 2020 and also a small part for 2021, which has helped to maintain stability in the market.

In addition, Juan Fernández-Aceytuno, CEO of Sociedad de Tasación, explained in the presentation of the latest study that the segment of the population most affected by TEEEs derived from the coronavirus was already excluded from buying a new home because of their lack of savings capacity in recent years.

But it is not the only key that explains this situation. “Investors have once again seen residential property as a refuge for their investments in the face of the uncertain future of other alternative investments”, he explains.

An argument that is backed up by data from the Valuation Society: transactions are increasing but mortgages granted are decreasing. “The fact that fewer mortgages are granted but transactions increase is because houses are bought without having to take out a loan and in many cases as an investment,” he argues. This section also includes families who decide to sell their home to buy a replacement one without having to take out a mortgage and parents who buy a home for their children.

Housing prices increase by 2.7% year-on-year

With regard to the price of housing, including new and used, the company puts the average in Spain at 1,681 euros/m2 at the end of June 2020, with an increase of 2.7% over the same month in 2019. The variation in prices in the first half of 2020 was 1.1%. The rate of growth has thus moderated for the third consecutive year, which also confirms the trend in the new works market.

The report details that all the autonomous communities recorded an increase in house prices over the last year. Thus, the greatest increases were in the Community of Madrid with 4.3%, in the Canary Islands with 2.9% and in the Balearic Islands with 2.7%. In contrast, in the Autonomous City of Ceuta there was a slight increase of 1.4%, in Galicia of 1.5% and in Asturias of 1.6%.

With regard to the half-yearly evolution, the Autonomous Communities which led this growth were the Community of Madrid with 1.5% and Andalusia, the Canary Islands and Navarre, the latter three with 1.1%, respectively. The variation in prices was particularly contained in Ceuta (0.6%), Asturias (0.6%), Galicia (0.8%) and Castile and Leon (0.8%).

A little less than 7 and a half years to buy a house

The Appraisal Society’s Property Effort Index, which measures the number of years of full salary that an average citizen needs to spend on buying an average home, stood at 7.4 years at the end of the third quarter of 2020, barely a tenth more than twelve months ago, another sign of stability in the residential sector.

The Balearic Islands remains the region where more years are needed to purchase a home, with 16.4 tenths more than a year ago. On the other hand, La Rioja remains the region where access to housing requires 4.6 years of full salary, two tenths of a percent less than a year ago.

Increases in rental income

The study carried out by the appraiser also analyses the gross profitability of the rent.

According to data from the third quarter of 2020, the average gross profitability of rent in Spain stood at 8%, which represents an increase of 4.9% compared to the data recorded during the same period of the previous year.

Segovia and Cantabria stand out among the provinces that have increased their gross rental profitability the most compared to the same period last year. Madrid and Barcelona have also increased their profitability by 5.2%, while Granada has risen by almost four points to reach a yield of 7.3%. However, Álava and the Balearic Islands have reduced their profitability.

 (Sources: Idealista news)