The 7-year Property Market Cycle

There’s a saying in real estate circles that the property market operates on a 7-year peak-to-trough cycle while our memories are on a 5-year one.  Looking at how things are panning out in the post-pandemic period I reckon that’s just about right, although the 2 year hiatus forced on us by Covid lockdowns has extended this particular cycle to 9 and 7 years. This means that anyone anyone who wasn’t in the Spanish property market prior to 2016 knows very little, or nothing, about what happened after 2008 and before the pandemic arrived. I see signs that some of the post-2008 crash features of the market and being repeated and those new to the market may think that the extraordinary growth we have seen since the market reopened after the lockdowns is the new normal. It isn’t and I believe the property market is once again over-supplied with estate agents.

Prior to the crash one of features of the property market in Spain was the over-supply of real estate agents and nowhere more so than in the Mediterranean coastal areas where the majority of overseas buyers head for.  Throughout this sector the financial crash and subsequent implosion of the property market in Spain saw thousands of real estate offices close and none of them were missed.  In the most oversupplied areas more than 75% closed and in one town a bit inland from the coast only two survived out of thirty.   That would be enough for a small city in most countries so why a town of 15,000 inhabitants needed thirty is a tough question to answer.  Across the board, many of the agents that have survived since 2008 needed to downsize, cutting costs and staff and mothballing office space. Without exception, the survivors are the most experienced, most knowledgeable and most professional and the market is much healthier as a result.  

But I can see signs of the over-supply cycle starting again. As far back as 2014 with the recovery only just getting going, of the 45,000 new business registered in just the first half of the year over 1,000 were real estate agents. That is a statistic I really don’t like and I foresee lots of not very knowledgable start-up agents advising not very knowledgeable property buyers with the same disastrous consequences we saw during the bubble years. I was in front of a row of five commercial premises just before the pandemic and saw that three of the five were newly-established estate agents with three more in the adjacent building. Post-pandemic, there are now twelve. Where on earth do they think the business is going to come from?   

It is almost impossible for buyers entering the market to know whether the agent they are dealing with is long-established or one of the newbies.  They all have smart websites and with the proliferation of multi-listing sites such as Resales Online many don’t even bother with an office, preferring the no-overhead option of a laptop and mobile phone. If you find yourself on the website of one of these you will be dealing with someone who will have no direct listings and will have seen few, or even none, of the properties on show.  Others are opening mega-offices with big numbers of back-office support staff, the very model that didn’t work last time around.  Even worse, some of those involved in failed businesses in the crash are re-entering the market in new premises under new names but a buyer entering the market now won’t know any of this. 

The second trend repeating itself is commission levels.  The overseas market in Spain always loaded prices with more than was normal in the domestic sector. In the resale market 5 - 10% was common with developers routinely paying 10% as a minimum.  It seems nothing has changed and I am regularly seeing a share of 5% being offered by the listing agent to an agent introducing a buyer, so the total commission may be as high as 10%. In the Spanish domestic market 3% is the norm. Having been in the Spanish property business for a very long time I often say that nothing surprises me any more but even I can’t believe that up 10% commission is available on a house with a €3 million price tag.  That’s a potential €300,000 commission, so who wouldn’t want to be a real estate agent - do one deal and take the rest of the year off. 

So if you must use an agent for a purchase in Spain ask them just three simple questions to have the best chance of avoiding the worst pitfalls: 1) how long have you been open for business? 2) how much commission do you charge the seller? and 3) have you actually seen the property you are taking me to see?  If they are reluctant to answer, choose someone else or call The Property Finders. Now the surge of post-pandemic buyers seems to have run its course and the market is returning to more normal levels of new demand I predict that many of the more recently opened estate agents are in for a bit of a reality check.

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