Covid aid prevents sinking of housing market

Furlough and loans for companies avoid an avalanche of supply, according to Amat Immobiliaris

2 min
A new real estate development in Badalona's Gorg neighbourhood

Government aid on the occasion of the pandemic, such as furlough (ERTE) or state-backed loans for companies (ICO credits), have prevented an avalanche of supply in the housing market that would have sunk prices, according to Guifré Homedes, director general of Amat Real Estate. The company has presented this Monday its real estate report for 2020 and data for the first quarter of 2021.

According to Homedes, sales "have even been strengthened by the crisis", a trend that has continued during the first quarter. The general manager of Amat has highlighted that "the seller who was expected to need to sell because of a need for liquidity is not coming to the market", which he attributes to the aid handed out by governments to deal with the economic consequences of the pandemic. Another key that has prevented a very sharp fall in prices is that developers, unlike in the financial crisis of 2008, have little debt. "People expected a drop in prices" in the new construction market, but this has not happened because these developers, unlike in the previous crisis, can resist.

In spite of everything, Homedes foresees an increase in supply of newly built flats. "The market will have newly finished flats, which until now did not happen." However, he believes this will be temporary, because the building new developments is increasingly difficult due to limitations such as Barcelona's allocation of 30% to social housing, as well as the time it takes to find new land and the delays in building permits. In this sense, he has given as an example two of his own cases in which the getting permission to build on land has taken nine years in one case and more than twenty years in the other, while the processing of licenses, depending on the council, takes between 18 and 24 months. "This means that from the time a project is started until it goes on sale, several real estate cycles pass".

In the case of the rental market, Homedes has indicated that due to the pandemic bargaining power has shifted from owners to tenants because of increasing supply and lower demand. Even so, he has explained that many tourist apartments have been incorporated into the supply not rented under the regime of the law of urban leases (LAU), but as seasonal apartments. The general manager of Amat has been very critical of the Catalan legislation, which limits rental prices, and constant legislative changes.

Evolution of Amat's business

Regarding the business of his company, Homedes has indicated that flats are sold on average 13% below the price of the published offer, which reflects the bargaining power of buyers. As he said, the company has recorded 18% fewer sales operations in 2020, but only a 6% decrease in turnover. This shows that the price of flats sold has increased. In this sense, he has indicated that the luxury housing division increases the level of operations, especially in the range between one and two million. This is because of the trend - partly caused by the pandemic - of leaving the city to live on the outskirts, and the fact that buyers want a house to occupy immediately and, therefore, opt for a house which is already built and not a plot to on which to build their own, which would mean they would have to wait two years. As for rental contracts, they have increased by 2%, partly because of the increase in housing supply, which is 15% higher than the figures for 2018 and 2019 in the case of Barcelona.