5 Factors that Determine the Real Estate Market in Spain

A residential property market is fundamentally driven by the overall health of a country's economy, and by the interest rates. At very local levels in Spain, we can additionally speak about true expat-driven markets.   

1. An Expanding Economy

Spain is in an expansive economic cycle and a good economy means employment, increasing incomes, optimism and confidence, moderate inflation, etc. The International Monetary Fund (IMF) predicts the Spanish economy will grow stronger than the Eurozone: Spain 2.1% vs. Eurozone 1.3% in 2019. That’s better than Germany 1.4%, France 1.5% and the U.K. 1.2%.

2. Wonderfully Low Interest Rates

Interest rates are historically low in Spain. This is of enormous help for many buyers to access their dream properties, and for investors to increase their financial returns (you use the bank’s money as a low-cost engine to earn money for you). The European Central Bank (ECB) has confirmed that it will keep interest rates low until at least the end of 2019 (initially a hike was expected after summer). But watch out, interest rates won’t stay this low forever and banks will look for other ways to increase their margins.

3. Paltry Investment Alternatives

Investment alternatives for your savings are meager at best. Bank deposits, investment funds, bonds and stock markets have greatly disappointed. The Central Bank of Spain forecasts +11.2% return on residential properties in Spain for 2019. Compare that to the interest you get on your bank deposit. You can borrow money at 1.2% to 2.5% (and fixed rates under 2%) and make 11.2% returns. It’s really worth having that strategy talk.

4. The Expat Factor

The expat-dimension: foreign buyers, often with higher available income than locals, make lifestyle choices with a property or properties in Spain and pay a premium for location or certain wow-factors. This is a very local effect, mainly in the coastal areas and in parts of Barcelona and Madrid. This creates micro-markets that behave differently from similar markets without expat buying activity. Detailed local knowledge of these areas is vital to understanding the implications and opportunities for you. It impacts buying prices but also your property’s performance on the rental or resale market.  

5. More Bang for Your Buck

Spanish property is cheap compared to many other countries, and Spain offers an unbeatable lifestyle and cost of living. For instance, Barcelona properties cost on average less than half the price of Paris properties, and the Spanish coasts offer fantastic homes for prices that are probably nonexistent in your home country.  

Raf Jacobs is an economist specialized in finance, a member of the Board of Directors of the Spanish Association for Property Finders/ Buyer Agents, a former management consultant, and known from his radio shows and international seminars on the property market and buying in Spain. Raf is a guest lecturer at university for a Real Estate Master Program, and is the Founder & CEO of Inspire Property Experts, a boutique real estate buyer advisory firm. Originally from Belgium, Raf lives in Barcelona with his wife and two daughters. In his free time you will find him enjoying a glass of good Spanish wine or behind his piano—or both.