Brexit: impact on the Spanish residential market Madrid, 30 June 2016 The effects of Brexit on Spanish residential demand and prices will be local, concerning towns and tourist areas with a high concentration of British residents and travellers. The national impact would be marginal. Following, a quantification of demand and prices decrease in municipalities, tourist regions and in the whole country. The United Kingdom has begun the process to leave the European Union, a decision that has generated considerable uncertainty regarding the impact on British visitors, residents and potential house buyers in Spain, for multiple reasons: the sudden depreciation of the pound, which has made all purchases and investments in Spain more expensive for Brits and which has also affected the value of their savings and therefore their purchasing power; modifications in terms of the provision of health services and restrictions over the free movement of people as the UK makes its plans to abandon the single market; the terms and conditions of the new commercial agreements that will be reached following the UK s effective exit from the EU, etc. We can therefore expect a negative impact on British demand for homes in Spain, although as this paper sets out, that impact will be limited to certain geographical regions. British presence in many sectors of the Spanish economy is significant and the residential market is no exception; residents from the United Kingdom are the most prevalent buyers of homes in Spain, accounting for 21.3% of all acquisitions made by overseas purchasers in 2015, according to Spain s College of Property Registrars. Most activity of this activity is concentrated in the Canary and Balearic Islands, and along the Levantine Coast, which is fully in line with Britons preference to take up residence or buy holiday homes. The high numbers of British residents in Spain (they accounted for more than 250,000 of the 4.6 million resident foreigners in 2015) and British tourists (they accounted for more than 52 million overnight stays in 2015, accounting for almost 17.0% of Spain s total overnight stays, 26.0% of overnight stays by foreigners and 32.0% of overnight stays by EU visitors) are mainly concentrated in towns and tourist areas along the Spanish coast. Nevertheless, given that house purchases by Britons accounted for less than 3% of all transactions in Spain in 2015, we consider that the effect of Brexit on demand and house prices nationwide will not be significant.
Residential transactions in Spain - UK over foreign purchases (2015) UK residents (2015) UK overnights (2015) Ranking (foreign purchases) #1 Region % over foreign purchases % UK residents over population % overnights (total) Murcia 53.74% 0.94% 7.10% Andalucía 28.45% 0.95% 13.12% Canarias 24.01% 1.30% 28.06% Com. Valenciana 23.07% 1.66% 19.81% Asturias 12.50% 0.08% 1.76% #2 Baleares 22.24% 1.46% 28.00% #3 País Vasco 5.63% 0.06% 3.98% #4 Cantabria 7.56% 0.08% 3.93% Cataluña 5.13% 0.25% 10.54% #8 Madrid 2.82% 0.14% 3.92% #9 nd Galicia 2.00% 0.07% 1.46% Aragón 1.76% 0.05% 1.71% Castilla y León Not significant 0.03% 2.08% Castilla - La Mancha Not significant 0.04% 1.66% Extremadura Not significant 0.04% 1.23% Navarra Not significant 0.05% 1.99% La Rioja Not significant 0.05% 2.12% #1 TOTAL SPAIN 0.00% 0.55% 16.90% Source: INE, College of Registrars Even more revealing than the regional analysis (presented above) is the data based on tourist areas (presented below), given the aforementioned British preference for those destinations for all purposes; there is a very close link between the Britons choice of place of residence (and the location of their house purchases) and these mentioned areas. Graph: overnight stays in tourist areas (2015) Source: INE
The effect of Brexit on demand and prices in the residential sector.- Given the concentration of Britons living in towns and tourist areas along the Levantine Coast and on both sets of islands, and based on our estimated weight of the British market in each region, we expect to see a decrease in house prices (after a variable time span with respect to the immediate decrease in transactions, of around 1.5 years) in each affected municipality in the following areas: Southeast Levantine peninsular The Balearic Islands
The Canary Islands Some municipalities along the Mediterranean Coast, in the provinces of Alicante and Almeria in particular, have such a high degree of exposure to the British market that they are likely to experience a significant decline in sales in the short term, amounting to and even exceeding 20.0%. In all cases, we are talking about small towns with very limited markets, but there, we can expect to see notable price decreases. On the islands, we expect to see price decreases of more than 6.0% in the Canary Island towns of Santa Cruz de Tenerife and Las Palmas, and of around 4.0% in the Balearic Islands (e.g. Menorca), which will come in just behind the hardest hit on the list. In this way, just over 200 (of the more than 8,100) Spanish municipalities will be exposed, to some extent, to the effects of Brexit in their respective markets, the vast majority of which are located along the South and East Levantine Coast or in the Canary Islands (just a handful of municipalities on the Tarragona Coast such as Salou and a few isolated places inland will be affected in any way). In areas with high exposure to the United Kingdom factor, intra-municipal concentration is frequent, in such a way that whole residential sectors are almost entirely British (town house complexes on the outskirts of coastal towns, residential developments next to golf courses ); the impact in these sectors is massive, compared to areas with no foreign presence within the same town.
Municipality Province Decrease in resid. Transactions Decrease in price Benitachell/Poble Nou de Benitatxell > 20.0% > 9.0% Benahavís Málaga 19.0% - 20.0% 8.0% - 9.0% Arboleas Algorfa Llíber Daya Vieja San Fulgencio Bédar Partaloa Alcalalí Benigembla Hondón de los Frailes Rojales San Miguel de Salinas Albánchez Zurgena Murla Zarra Viñuela Orba 20 most affected municipalities Valencia/València Málaga 16.0% - 17.0% 7.0% - 8.0% 15.0% - 16.0% 6.0% - 7.0% Tourist areas Island of Menorca South of Tenerife Island of Lanzarote Decrease in resid. Transactions Decrease in price Ibiza and Formentera 2.0% - 3.0% 1.0% - 1.5% Island of Tenerife Costa Blanca (Alicante) Costa del Sol (Málaga) Island of Mallorca Island of La Palma Island of Fuerteventura South of Gran Canaria Costa Daurada (Tarragona) Palma - Calviá Island of Gran Canaria Island of La Gomera Affected tourist areas > 4.0% > 1.5% 1.0% - 2.0% 0.5% - 1.0% < 1.0% < 0.5% -
The effect is diluted as the size of the area considered is expanded, but whole islands in both the Canary and Balearic archipelagos, as well as large tourist areas on the largest islands, will undoubtedly feel the impact, with average price decreases of more than 1.5%, following an impact on demand that could lead to a 4.0% decrease in the number of transactions. Other tourist areas, beyond these cases, can expect to see their markets affected only slightly or not at all, with the exception of the Costa Blanca in Alicante and the Costa del Sol in Málaga. As noted above, if we consider the national market as a whole, then we can expect to see only a negligible decrease in transaction volumes (of less than 0.5%), with no impact on prices. In summary, municipal real estate markets (and micro-markets within these municipalities) that have a strong concentration of British clients will suffer the effects of Brexit in the form of significant decreases in price and demand; some entire tourist areas along the coast may suffer in a more acute way, but the incidence of a crisis in British demand, even in the most severe scenario, will not affect the figures for the national residential sector. *Methodology: using figures for British residents, as a percentage of the total population, and overnight stays by British travellers, as a percentage of all overnight stays, we have determined, after weighting, the degree of exposure that each local real estate market has to demand from the United Kingdom, by region (municipality, tourist area, country). Using this ranking, we have estimated the potential impact on short-term demand (decrease in total purchases), as well as the effect on prices in each market after a variable time span (of around 1.5 years). For more information, please contact Contact: Rafael Gil Email: rafael.gil@auraree.com
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