Juan-Galo Macià is CEO of Engel & Völkers for Spain, Portugal and Andorra. The manager receives idealista/news at his offices on Avenida Diagonal in Barcelona to take stock of the luxury residential real estate business in Spain. Macià assures that 2023 will not be a bad year, but that it will not be as good as 2022, since this was “excellent”. According to the manager, the Spanish ‘real estate’ should lower their expectations and be realistic, since the economic environment will be, to say the least, turbulent throughout this year.
We are starting the year and with it, new perspectives, how do you think luxury housing will behave in 2023?
I think that 2023 is going to be a good year, if we don’t compare it with the previous year, which has been exceptionally good. I think that, in 2023, above all, we are going to have to manage expectations very well and be realistic, since we have just generated some 760,000 transactions, which compared to last year is 170,000 more and we are getting used to it badly. We are going to have a good year. Transactions will surely drop by 15%, and even so we can say that it will be a successful year.
Of these 700,000 transactions, how many belong to the luxury sector?
Well, I don’t have that data, but much less than what people think. It is not a very regular market. In the end, the mid-range housing market is much more regular than high-end housing. It is a market that suffers less from crises as it is less dependent on credit.
What is the average ticket at Engel&Völkers?
Ours is 700,000 euros.
Regarding demand: what will it be like this year and what will be the main destinations of this demand?
I believe there are two types of demand. The one that is made up of people who want to buy a home to live and the demand of investors. The first profile, I would divide it into three levels: young people, demand for improvement and demand for high standing. The demand for young people is practically non-existent, zero as a result of what is happening with the banks, with interest rates that are rising and that is leaving young people out. And it’s a shame because it’s a demand that a couple of years ago was latent, with interest rates low. But we have to think that this demand, at least this year, is not there and surely in the coming years it will hardly be.
The demand for improvement, which was the protagonist in recent years and continues to be so now, because it is a demand made up of potential buyers who have the economic capacity to face this rise in interest rates, or because they have alternatives or can increase the time or way to finance.
“Luxury is a sector that suffers less from crises as it is less dependent on credit”
And high standing demand, which is the one that is going to fit the differential between supply and demand the worst, because this type of property no longer has technical appraisals or appraisals, and they are very unique assets. On few occasions we have two very similar assets and that means that, when making the appraisal, they are much more subjective and the owner of a high standing home normally does not have a need and that need means that they are not willing to lower the price .
As for investment demand, it is very aware of what will happen in the future. We have a very dynamic housing law, which we hardly know is going to happen in six months and that in the end we can translate into legal uncertainty. This causes investors to be in a ‘wait and see’ moment. And before investing in a market where they are not clear about what is going to happen, they wait, since there are other markets that provide more legal certainty. And as for the locations, well, I would tell you that all those capitals of all those cities with more than 150,000 inhabitants, because among other things, it is where people with that economic capacity are found.
Barcelona too?
Barcelona is still a highly regarded destination for investors, it has a large circulation, despite the fact that I think we could do things better. Barcelona continues to be a city that investors love: it is close to the sea, to the mountains, its gastronomy is good, the educational offer… So we have many reasons to think that Barcelona will continue to be a city that is highly chosen by our clients, both nationals as foreigners.
And what is the nationality of the investor who will come to Spain in 2023?
American investors are entering strongly, since the dollar is at a very strong moment, and homes in Spain, compared to abroad, continue to be very cheap. The Norwegian investor is also going to buy a lot in Spain this year, since they are in a very sweet moment, because they are gas producers, and also take into account the Belgians, who are Spain’s most loyal customers.
Is the Russian client still around or did it never go away at all?
The Russian client was a great protagonist years ago, but currently it is neither there nor expected. He now has a more seller than buyer position.
“Investors are in a ‘wait and see’ moment”
We are not at a time full of obstacles for real estate: rates, inflation, a war that continues to directly affect the sector… how does the ‘real estate’ in Spain plan to avoid these potholes?
What has to happen is that there has to be an adjustment between supply and demand, and that is not something easy, because it requires a long and difficult digestion process, because nobody wants to accept that their apartment, their property, is worth less. That the last year. And those who buy think that this property is not so exclusive, so singular and unique and so special, as to pay more for it. And until this is adjusted, the situation will hardly be fixed.
Materials are becoming more expensive and new construction is having an impact on the increase in these prices in its final price. In luxury, a sector where price is a factor to take into account, but not as decisive as in a mid-range promotion, how is this phenomenon being?
The promoters have to affect the rise of the materials in any type of promotion, whether it is luxury or not. However, what developers have been telling us since the middle of last year is that the price of materials remains unchanged. The cost of the material in a promotion is between 15% and 20%, and that is what should be passed on to the final price of the home.
The real problem in real estate development is not so much the crisis of materials, but labor. Because of the crisis, we lost a lot of qualified labor and today young people do not want to enter the work, so there are enormous difficulties in finding a qualified labor force.
Is the luxury housing market going to resist this crisis better?
The big difference between a luxury client and a standard home client is that the former is not dependent on financing. So, it is a sale that has a more emotional component. In the case of the average home, we buy out of necessity or for an improvement home. But in the case of luxury housing, the client already lives in a house with a Premium location, so the purchase is impulse and emotional. This is one of the reasons why luxury tends to follow its own rhythm, without paying attention to crises.
In addition to Spain, you also lead the markets of Portugal and Andorra. Are they going to experience a real estate crisis different from the one experienced in Spain?
Portugal and Andorra are countries that have had spectacular years. Portugal is somewhat different from Spain, because it still has a lot of foreign demand. The Portuguese government is doing very well, with large fiscal stimuli. In the case of Andorra, there is a little more excess housing than in Spain, so we will see what happens in the future. The economic recession will affect it somewhat more than Portugal, since the main client is the Spanish investor.
“The big difference between a luxury client and a standard home client is that the former does not depend on financing”
Andorra has recently tightened some of its conditions for being a resident or buying a home in the country. Does this curb the attractiveness that the country may have?
Andorra is competing with Monaco, San Marino, Malta, Luxembourg. These are Andorra’s ‘stoppers’, as they compete among themselves to have the best tax incentives to offer.
The Balearic Islands are studying prohibiting the purchase of housing by foreigners. How would this affect you?
Obviously wrong, because in the Balearic Islands what there is the most is foreign clients. The real estate business is very well represented in the Balearic Islands, so we trust that we will be listened to and that decisions that really work for all parties will be made. You have to find that balance, I know that it is not easy on many occasions, but it is also important to listen to real estate professionals who know what is happening and have the pulse and sensitivity that other institutions or governments often do not have.
In Spain, how is the new tax affecting large fortunes?
We still do not have much information about it, but obviously it will be a brake on investment, I have no doubt about that.
Take the crystal ball and tell me how you see Spanish real estate two years from now, not only economically, but also in terms of trends in the sector.
The data this year will be significantly lower, because we are entering a recession and, as I mentioned before, there will be fewer operations and cheaper prices in certain areas. 2023 will be a worse year than 2022, but 2024 will be better than 2023 and 2025 better than 2024, but we are not going back to 2021 levels.
Regarding trends, I would tell you that the sector tends to become digital and modern. The real estate company still invests a lot of time in administrative tasks that do not add any kind of value, neither for the client nor for us. Now, with virtual visits and all the technology that exists, we will be able to greatly shorten all those processes and wasted time.
As for home trends, we are going to see the real explosion of home automation, which is no longer something as inaccessible as it was a few years ago. We will be able to control any home from our devices.
Regarding promotions and construction, we are moving towards an industrialized sector. I believe that the environmental impact of a house with a traditional construction has nothing to do with an industrialized one. And, in this sense, there is a lot of awareness among the managers of the main real estate companies for sustainability, being more efficient and generating less impact on the environment.
