Low Property Prices in Spain, but Increases Expected

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Sponsored by Inspire Property Experts.

There are many indicators that housing prices in Spain have bottom and will go up soon. At least, in many segments and for the internal buyers. In this article I outline the six reasons.  

COVID-19 had its effect. Everywhere. Also, on the real estate markets around the globe and in Spain. But, in contrast to most other countries, in a good way: house prices went down. When the pandemic started, I kept track of the current status and made predictions about what I expected to happen in the market:

In my last article last summer, I listed some ingredients for a possible real estate boom in Spain. Now it’s October and it’s time for a new real estate market update, because that boom is about to happen. Which makes the conclusion of this article pretty simple for potential buyers: if you want to buy a house in Spain—now, more than ever, is the time! You will save money.

In the past weeks, two of the biggest Spanish real estate and financial media platforms consulted me for an article in which they wrote about this increase in foreign investments and the upward price pressure:

  • Idealista (the biggest Spanish real estate website)
  • Expansión (the most read Spanish business newspaper).

So why is now the best time to buy a house in Spain? You will save money. I will summarize it in six key takeaways.

1. We Start to See a Shortage of Good Properties.

What is a good property? 

In general, for a city apartment, that’s two bedrooms, one-bathroom, a small balcony, elevator, from second floor up (more light, less noise), in a building without too much maintenance and if you’re lucky, even nicely decorated. In another business case, a good property can also be a house or apartment that needs a full renovation.

For the Costas it’s more about the quality of the house, private space and maybe in a complex with shared facilities (sports facilities, swimming pool, etc.).  

The shortage of this type of desirable property is noticed with some geographical differences in Spain. Typically, Barcelona is the leading indicator for cycles in the real estate market and moves first in terms of market drops and recoveries. Normally Madrid follows, and then the rest of Spain.

In Barcelona, we are slowly starting to see a shortage of these good properties. There is a strong local demand, and international buyers are back with more savings, eagerness and heightened, and they will sometimes pay more than the market price. In the Canary and Balearic Islands, this shortage also happens, with an upward trend of the attached price tag. 

We notice it clearly in our daily work as buyer agents: when we see a good property for a client, it’s all about being fast. Waiting means that the house will be reserved by someone else. 

The Spanish real estate figures in the first six months of 2021 show why: the 267,000 property transactions in Spain during the first semester of 2021 were the highest since 2008. That’s a lot! Some of the properties that were available in the past months are starting to evaporate and high demand in addition to fewer homes on offer will push prices up (with a delay).  

2. Both Local and International Demand Is up and Will Increase Further

The economic outlook for Spain is positive. The Bank of Spain and the European institutions predict a 5-7% GDP increase for 2021 and 2022. That’s good news for local property buyers, and a good sign for banks to give financing. 

As mentioned earlier, international buyers have found their way back to Spanish property grounds with a different drive and desire. They gathered more savings during the restricted pandemic period and those from colder climes desire sunny destinations more than ever. Not only to go on holiday, but nowadays to work remotely too. About 90% of our current customers want a property with the ability to work from home. Their primary home is generally not Spain, but a colder country and they want somewhere to escape to enjoy the sun. That escape used to be for just a long weekend, but now we see clients coming for extended stays. 

3. A Widened Gap between Prices in Spain and Many Other Countries

After COVID-19 hit, property prices went up in a lot of countries—worldwide and in Europe, but in Spain they dropped. Idealista and Eurostat recently published a graph with the year-on-year evolution of the house prices in the EU, per country. Spain turned out to be the second to last country in that ranking (before only Cyprus).

At first sight, a 10% house price decrease in Spain might not seem a lot. But if you know prices in your own country go up by about 10%, that means the price difference goes up to 20%. Apply that to the budget of a house and you’re talking about a significant amount of money. 

4. Expect Price Increases for October to December 2021

During COVID-19, we saw a wider gap between the asking price (the one you see on sites like Idealista) and the actual deal price. That gap is now closing because the deal price is going up and negotiation potential is fading. But not everywhere and at the same time and magnitude. Small beach towns like Sitges with greater local and international demand see those price increases more significantly, as Barcelona city does.

5. More Intense Mortgage Wars between Banks and a Different Approach

Banks start having a different focus and approach when it comes to approving mortgages: 

  • More selective monitoring of the industry you’re working in. You’re active in aviation, tourism, events or hotels? Then chances are you’ll find it more difficult to get a mortgage.
  • More checks in your working contract. You need to justify a stable and recurring income. New jobs and a probation period in the contract are becoming red flags. Even if you keep working for the same international company and get relocated to the Spanish office with a new local contract containing a probation period.
  • Banks start asking for more guarantees. That can either be putting money in an investment fund, blocking a certain amount of money in a bank account or taking out specific insurance for if you should lose your job or source of income. Banks might even ask you to put another property (with no or a lower mortgage on it) as a guarantee. Or, they might give you a bigger loan if you do. 
  • On a wider scale, we even see a different kind of bank war happening. Some banks go beyond the 80% LTV (loan to value, or the percentage of the property value they finance) if certain requirements are met. Some banks that were not active in this mortgage race have changed position in the last weeks.

6. When Comparing Renting to Owning, Owning Keeps Winning in Most Cases

It’s a recurring real estate dilemma: should I shop renting and start buying my house? I just wrote a more detailed article about that topic and the conclusion is: in almost every case, owning is the better solution. 

Let’s make this more tangible with an example. Imagine you pay €1,000 rent per month for your rental home. That is €12,000 per year. For any financial plan or asset, you obviously need to look at a longer horizon. So let’s take 10 years. Then your total rental expenses will be €120,000 after these 10 years. That is money for your landlord. It’s gone—to make your landlord wealthier. 

Match this now to your income, and you get another perspective. Let’s take an average of €2,500 net income per month. Or €30,000 per year. When you need to pay €1,000 rent per month for the next 10 years, that means you need to work four of those 10 years to pay your rent. Because that money has gone to you landlord, it can’t be used for an investment, nor for a downpayment on a mortgage. 

Let’s say you have €100,000 in savings. That gives you several options:

  • You can rent a property of €1,000 per month for the next 8.3 years.
  • You can keep it on your bank account (but deposits can also start costing you money). 
  • You can  invest in stocks or investment funds.
  • You can use it as a deposit to buy a property of €250,000-€500,000 (60-80% LTV) or more (if LTV>80%). Let’s say you use the money to buy a property of €400,000. Then you can rent it out and receive rent corresponding to a €400,000 property, or sell it with the profit that a €400,000 property might give you. The financial leverage of this option is much bigger than the other options.  

It’s clear there are things happening in the market now that could make the message of my next article sound something like: “sorry, you’re too late.” But, I can’t stress enough for serious future buyers: get started now before it’s too late. We’re at the tipping point and if you wait too long and doubt too much, you might miss the opportunity to get a really good deal. Those who buy in the next few months, will save a lot of money.

Stay an Informed Player

If you want to be well-versed, save money, avoid disturbances and conflicts of interest, this is what you can do:

• Join our Real Estate Series with monthly Episodes (webinars) with no-nonsense insights & tips to make better decisions and avoid mistakes via our website at inspireapartments.com.

• Contact me to discuss your plans and receive my recommendations to evaluate your rent-or-buy situation (free first consultation). raf@inspireapartments.com.   

• Learn more on our website at inspireapartments.com.

Raf Jacobs is an economist, a lecturer at University of Barcelona for the Real Estate Executive Master Program and is the Founder & CEO of Inspire Property Experts (previously Inspire Boutique Apartments), a real estate advisory firm helping you make optimal decisions, guiding you from A to Z when buying in Spain. Our expertise is your success.

Sponsored by Inspire Property Experts.