Real estate in Spain is and will remain a hot topic this year. Foreign buyers are in love with Barcelona, Madrid, Alicante, the coasts and the islands and there are many factors playing in your favor as a foreign buyer or investor. In 2018, 65,506 non-resident foreigners bought property in Spain. That is 1,259 per week (or 250 per working day!), +7,6% more than in 2017, and the ninth consecutive year of increased transactions. There have never been as many home sales in the last decade as in 2018!
But that’s the past and that might not be the greatest compass for your future decisions. Many changing factors are having an impact on the real estate sector, some more fundamentally and longer term than others. In this article I share my observations and opinion for the property market in Spain for the future; a topic that is relevant for many people thinking of buying in Spain. Going forward I will also bring real-life cases that exemplify situations that expose buyers to risks, problems and often irresponsible and unprofessional practices, so that you can identify potential issues before they hit you. I aim to provide you with everything you need to make a smart investment decision and ensure an optimal purchase process.
1. Expanding Real Estate Market
The real estate market will continue to expand and offer attractive opportunities throughout 2019. The number of purchase transactions and property prices will continue on an overall growth path. However, the market will evolve heterogeneously across the country and a one-approach-fits-all strategy doesn’t exist. Madrid and Barcelona city centers will show reduced growth, Tier-2 cities will fuel the market (e.g. Alicante, Gerona, Malaga, Zaragoza), and the coasts will grow at a rather slow but steady pace.
2. Double Digit Returns
Investing your savings in the right area will give you double digit (10%-15%) returns in the coming years. Investors will need to adjust their strategies more than ever and will have to venture outside their comfort zone and take expert advice to materialize the new opportunities. If you leverage the bank to finance your purchase, your returns will even be higher and 15-20% is not unrealistic.
3. Increased Access to Mortgages
People who rent will be able to buy their own property and have a monthly mortgage payback that is equal to—and possibly lower than—what they have been paying as monthly rent. Without a need for large upfront down payments, hundreds of thousands (and possibly up to one million) Spanish households are expected to switch from renting to buying in the next three to four years. This generates demand in areas that today still have not picked up much, and particularly in those zones close to cities with strong economic activity. This trend is expected to be a key driver for overall housing market growth across Spain. At the same time, a lot of rental properties will become free and this might in some areas cause downward pressure on the rental prices.
4. Rental Prices Will Stabilize
Rental prices have gone up strongly in recent years and will likely normalize, stabilize in the next few years and probably slightly decrease in some of the hot areas. Again here, in markets where expats love to buy, this effect might be different due to their willingness to pay a premium for location.
5. Brexit Uncertainty to Foster Property Investment
Brexit continues to make potential British buyers apprehensive. While no one can predict what the impact will be, what is clear is that—independent from the actual outcome—the uncertainty of Brexit generates anxiety. And, in uncertain times, people become even more interested in buying properties above any other type of investment. We receive more questions than ever before from UK buyers; they are still the largest nationality buying in Spain with an average of 192 property acquisitions per week.
6. Independence Issue Won’t Stifle Foreign Investment
The political tension between Spain and Catalonia did initially create worries with investors. However investors look at returns, probabilities and risks, and they see that the probability for a bad outcome is very low. Second home or expat buyers tend to focus on lifestyle; I don’t expect that to change with political debate.
7. Governmental Efforts to Control the Market Will Prove Ineffective
The national and regional governments are evaluating options to keep market prices down. It seems likely that these measures will produce the opposite effect: higher rental prices and higher buying prices in the areas where the government intervenes.
8. Proptech Will Make Decision Making Easier
Proptech: there is a lot of buzz. I see significant over-promises, and I think many of today’s proptech initiatives will disappear, while many new ideas will be launched. Adding services to pure technology is a critical way to create differentiated value and to convince customers to pay. I do believe strongly in big data applications—we have tested many and are using the best—to support making better purchase or sale decisions. They add clear value and generate insights that one simply cannot attain without combining tons of data.
9. Be Wary of Hidden Costs
Mortgage conditions will change. The good news is that the European Central Bank has decided to keep interest rates low for the rest of the year, but banks will try to compensate for additional costs imposed from recent regulatory changes with incremental charges to buyers. Watch out for new hidden costs; competition between banks is fierce. We have seen creative and totally unacceptable, shameless practices from some of the largest Spanish banks hitting borrowers with hidden costs.
10. Great Opportunities Abound
Second homes in the coastal areas will remain very attractively priced. Prices still have not seen significant recovery yet (except for some very specific areas) and great opportunities exist. Many factors that can vary greatly between regions and even villages will have an effect on the value of a property—don’t just look at the sticker price.
Conclusions:
- 2019 offers opportunities that won't last forever.
- Define your goals and then develop the best strategy. The property market will evolve very heterogeneously across the country. There is no one-strategy-fits-all for Spain.
- If you plan to buy a home (first or second residence), be mindful of the market changes. Your reference points from the past might no longer be a good compass.
- Investing your savings in the right area can give you double-digit returns in the coming years. Don't buy where you would have bought two years ago.
- If you buy, be financially savvy; leverage the bank. There are more options than you might think.
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 Boutique Apartments, 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.