Learn to analyze the real estate market in the Canary Islands

Real estate market in the Canary Islands

The real estate market in the Canary Islands

In this article we will try to dispel some clichés and start looking at the real estate market with a slightly more realistic and less ideological approach, at least compared to what we normally tend to do.

It is essential to understand that the real estate market must always be observed in its own right local dimension, as the location and context of a property represent the main component in determining its value.

In this regard, we very often read comments like "in the Canary Islands the quality of construction is terrible; therefore, those prices are not justified”; well, these sentences are the result of a lack of knowledge of what are the normal market dynamics which, by its very nature, prices goods based on supply and demand, certainly not based on the quality of construction.

To better understand this aspect, I invite you to do a little research on the Web, comparing the price of a small apartment to renovate in the Principality of Monaco with that of a 500 m2 luxury villa with garden, but located in the countryside of Frosinone. The second will cost about a third, despite the home automation, hydromassage, marble floors and designer furniture included in the price…

Analyze the market locally

Now, once you understand that the real estate market must always be analyzed locally, it goes without saying that talking about the "real estate market in the Canary Islands" is not particularly useful as it is missing the context of reference, especially if you are considering the opportunity to purchase or invest in a property.

Once this obvious limitation has been clarified and accepted, what we want to do in this article is to put the real estate market of the Canary Islands under a magnifying glass, with the aim of highlighting, once again, heterogeneity of price dynamics within what is usually perceived as a "single market".

Let's start immediately by highlighting a very important general aspect: the Canary Islands real estate market must always be placed first of all in its national dimension because, historically, it has always followed the overall trend of the Spanish market of which, obviously, it is part.

This can be perceived very clearly in the following graph, where it is unequivocal that real estate prices in the archipelago are not at all go crazy And out of control, as we often hear; much less compared to the reference market, namely Spain.

Another myth to dispel is that the market is currently in a "bubble" condition. For a market to be defined as "in a bubble", a sudden increase in prices must have occurred in the last period, possibly not justified by market fundamentals.

This condition is also easily verifiable in the previous graph: observing the period from 2004 to 2007, one notices a surge in prices, with a relative collapse in the following years. It is no coincidence that this period is sadly known as the “2007 housing crisis” or the “subprime mortgage crisis”.

Now, I challenge anyone to say that Today (right end of the graph) a situation similar to that of 2007 could be configured: it is clear even to a child's eyes that there is no similarity nor, consequently, any bubble in place.

It is different to note that the market, in the last 10 years, has followed an uninterrupted positive trend, culminating in approximately two years of final acceleration (although not appreciable in the graph as it was mitigated by inflation). This could open up a completely reasonable hypothesis of an imminent "technical pause".

The real estate market in terms of price

Once these necessary premises have been made, we can finally focus on this elusive "real estate market of the Canary Islands" where, through a small game, we will see how its different areas can be significantly distant in terms of price.

To do this, let's assume that Mario wants to buy a 60 m2 apartment "in the Canary Islands" to be able to enjoy a few weeks of spring weather during the coldest period of the year.

How much will Mario have to spend to buy his apartment? Well, if there was a generic "Canary Islands real estate market" we could easily answer €204,420.

However, after a short thought, Mario decides that he would like to buy it in Tenerife. At this point the price would rise to €212,220.

M. “OK, let's look for one in Costa Adeje

– If you want it in Costa Adeje, Mario, you have to spend €246,060

M. “But how, so much? Isn't there something cheaper?

– Of course: if you are willing to move to Santa Cruz de Tenerife you can buy it for €116,400.

M. “OK, let's change the island then; how much would I spend in Gran Canaria?

– €210,720. But be careful, because if you want it in Las Palmas it will cost you €196,260, while if you prefer the southern area the price rises to €250,560.

M. “Let's do Las Palmas, then. I really like the Las Canteras area.

– Erm… Mario, if you want it in Las Canteras, however, you need €251,940… Otherwise you can always opt for Vegueta, where you can find it for €170,000.

M. “But everyone here has gone crazy, it costs less to buy in Italy!

– Very true: in Lombardy, for example, you can find it for €127,380. Obviously, however, if you want to stay in Milan you pay €284,580, but if you are willing to go all the way to Sondrio you can get by with €71,340.

M. “The Canary Islands are no longer convenient: I change my plan and look in a European capital, like Paris, for example

– Don't worry Mario: in Paris for €574,860 you can find as many as you want…

This hypothetical conversation could continue forever, but I think the meaning of this reasoning is now quite clear.

Comparing prices in the real estate market only makes sense if it takes place within the context of a specific context: everything else is just words in the wind, destined to be lost in the infinite vastness of one of the most complex markets in the world.

Article by Marco Sparicius Canary Islands Real Estate Consultant

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