Barcelona Dreaming?

Barcelona Dreaming?

For the first time in 30 years, Barcelona’s population is falling. Coronavirus has stemmed the flow of migrants into the capital and created new reasons for residents to depart. Since the outbreak of the pandemic, almost 700,000 foreign-born residents may have left the city, according to one estimate by the Statistical Institute of Catalonia.

The loss which at that level would be equal to about 8 percent of Barcelona’s population is already being felt in the city’s property market. Rental prices in inner Barcelona have fallen sharply since the start of the pandemic, and the number of property sales in the capital’s prime, central areas has dropped as international buyers have been kept away.

But will this be a short lived dip, or something more sustained? With the vaccine rollout under way, some experts think that overseas renters and buyers will return in droves once shops and businesses can reopen. Others believe that underlying economic conditions point to a longer-term reduction in demand for Barcelona property, creating a drag on house prices that could last beyond the end of the pandemic. 

So what is next for the Barcelona property market? We took a look at the evidence.

 

Exodus leaves rentals reeling

Aislinn Dolman left Barcelona for London in February, when the severity of coronavirus started to become clear. “I and many people I know went back to our home countries during Covid, be it to be in lockdown with family rather than alone, or to save money on rent,” says the 29-year old journalist. 

Some leavers, including Dolman herself, have since returned, drawn by work or the pull of a city which, despite being diminished, remains home.

But with the job loss one of the major factors behind the departure of foreign-born Catalans, others have not, and are unsure they ever will. Dolman says that one friend has begun looking for work outside of Barcelona after losing her job there. “We all need to pay our bills somehow, even if it means moving countries,” says Dolman.

Their absence is already being felt in the rental market. In the 12 months to October, average rents in Barcelona fell 6.9 per cent, according to property portal Fotocasa. In Sitges, which is home to some of the capital´s most expensive property, the average rent is 10.2 percent . In the city of Barcelona, it fell 15 per cent.

Met with a sharp drop in demand, some landlords are having to slash prices to appeal to tenants. Across central Barcelona, reductions of more than 25 per cent have become relatively common, according to homes listed for rent on Fotocasa. A one-bedroom flat near Passeig de Gracia has recently cut its asking price by 43.8 per cent to 900 Euros a month.

 

What next for house prices?

Barcelona house prices have grown since the first lockdown ended, especially in the outer boroughs, as lockdown-weary buyers look for more space and their own garden. Since July, property sales have been boosted by the government’s tax cuts, saving buyers an attractive sum of money for restoration expenses. By November, the average property price in Barcelona had grown by 3 per cent year-on-year, according to Idealista, with boroughs such as Sarriá and Gracia showing the largest gains. 

However, tremors in the rental market could soon start to be felt in the sales market, says Ronei Kolesny, President and CEO of Barleigh Ellis.

“If rents are falling that will put pressure on landlords: gross yields were already quite low in parts of Barcelona and if landlords have got any sort of debt they are unlikely to be covering costs.”

That could trigger a raft of non-profitable buy-to-let properties hitting the market at the same time, which would put downward pressure on local house prices. “We could definitely see that happen, particularly in new-build markets such as Sitges,” says Kolesny, referring to the huge redevelopment project near Palamos on the northwest of the city.

Meanwhile, the loss of thousands of tenants will affect future sales too, says Luis Turrens, principal architect at ArcWorld. “The rental market is the top of the funnel: the number of first-time buyers in Barcelona tomorrow could be hit by a lack of activity in the lettings market today,” he says.

A swift rebound in population which would restore demand for housing depends on the return of the departed masses. But even if the pandemic is contained, tens of thousands of jobs lost in the hospitality sector, where foreign labour is a considerable part of the mix, will not return overnight.

“We’ve all but switched off the flow of people coming from abroad,” says Turrens. “There’s fewer international people coming in, including students. So even if the numbers leaving are consistent, that would mean the population is seeing some pressure.”

But the numbers are not consistent. The number of Catalonians departing the city and buying homes elsewhere has increased. Barleigh Ellis estimates that departing Catalans bought 73,950 homes outside the city last year, the highest number since 2016 and the highest proportion of sales outside of Barcelona since before the financial crisis. 

“Proportionally, the share of homes outside the capital that were bought by a Barcelona leaver reached 7.7 per cent, the highest level since 2007 when it was 8.2 per cent,” says Ronei Kolesny. 

One of those leavers is Ricardo Etcharri, who is painting the walls of his new home when he answers the phone. The 31-year-old and his boyfriend bought the house in Castelldefels, on the catalonian south coast, in December, leaving behind a rented flat in Barcelona.

“We are both artists and we were living in a flat in the Eixample Esquerra with no garden and one bedroom. We just thought, ‘What are we doing now?’ Now we’ve got a studio and I can see the sea,” says Etcharri, who grew up in Barcelona. The couple never thought they could afford to buy in Barcelona the pandemic, he says, “gave us the impetus to leave”.

As 2020 has underscored, putting a firm figure on what the exodus means for house prices a year out is impossible. The grim expectations at the start of the pandemic last year were confounded by government intervention and shifting buyer preferences. Ministers may acto to support the housing market again in 2021, and historically low interest rates look likely to burnish the appeal of property for some time yet. Even so, estate agencies are anticipating very limited price growth this year. 

 

Betting long in the centre of Barcelona

Many buyers have been happy to look beyond what they believe will be temporary effects of the pandemic and have bought homes in central Barcelona. 

Juan, a solicitor, has just completed a one-bedroom flat, in a new development near the Palau de la Musica in the city of Barcelona, after renting nearby for seven years. “I work crazy hours and I wanted to be able to work in 15 minutes,” says 61-year-old Juan, who did not want to give his real name. “I am sceptical that the working from home trend will continue and think the Ramblas will get its buzz back.”

Others, having sampled a different lifestyle in the countryside, found it only renewed their urge to be in the capital. “We had a property with plenty of land and nobody but I felt isolated and uninspired,” says graphic designer Ricardo, 39. “It was a complete cultural shock. I missed cosmopolitan Barcelona. There was nowhere to go aside from the village bar.” Ricardo and family moved to Tarragona two years ago, but are now living close to Barceloneta in a three-bedroom flat.

Those who are wealthy enough can choose to have a foot in each camp. This group “don’t want to cut themselves off from Barcelona life completely, as moving to the country is a big adjustment. One buyer moved out to a big pile in Olivella but was so bored she started renting a room at The Majestic’s three nights a week,” says Roney Kolesny.

 

Barcelona Premiums revised

According to Idealista, house price growth in Barcelona last year was slower than nearly every other Spain region. In Barcelona, prices in the North grew 5 per cent; in the South, they rose 3.6 per cent. The impact will be greater if the city’s population continues to contract. According to data provided by the Statistical Institute of Catalonia, the official body responsible for collecting and publishing statistics in the autonomous community of Catalonia, that is a real possibility. A slowdown in migration will slow house-price growth in Barcelona and that will spill out to the East and West: if you want to sell but there’s no migrants to buy there will be an impact.

The Statistical Institute of Catalonia forecasts that Spain’s population growth will slow over the course of the next decade. “But 2020 and 2021 are likely to bring sharper drops,” states a report from SICAT. “That’s dramatic for a country that’s enjoyed strong population growth since the Barcelona Olympic Games’ time.”

That could mean that a period of relatively slow growth for Barcelona´s property prices, during which prices in other regions of Spain have been catching up, is extended.
“In Euros terms, prices in Barcelona have gone sideways, and in real terms have gone down for the past six years. What you’ve really seen is a soft correction in Barcelona,” adds the report. 

A slowdown or a dip in prices would be bad news for homeowners, who could struggle to trade up the property ladder, or even find themselves in negative equity. But, says the author of the report, “it could actually be that Barcelona needs over a longer-term perspective, if it leads to Barcelona becoming more affordable and more attractive to your people again.”

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