If the pandemic taught us anything, it’s the value of things we usually take for granted: health, freedom of movement, and a breath of fresh air. So essential, so natural. And yet, it was all taken away from us, regardless of social status or nationality. Just like that.
Now the world has irremediably changed. We are no longer the same. People with resources, who value their freedom of movement, have started building contingency plans: a second residence overseas, double citizenship, and whatever can buy your freedom in case the world shuts down again.
Today, we no longer expect the best-case scenario to happen. We have a reserve fund and a plan B. We are now ready for whatever comes our way. We are prepared.
So whether you are looking for an investment that buys you the right to live in a sunny European country or are simply looking for an investment that can generate a decent return – you are in the right place.
This article discusses how good of an investment is the Spanish real estate. The first part covers all the essentials:
- Spain’s real estate market
- Costs you need to consider
- The return you can expect from your Spanish property
In the second part of the article, we are focusing on the factors that impact the return on your investment in Spanish real estate, such as:
- Spain’s economic stability
- The best areas to invest
- What do investors buy?
With no further ado, let’s start dissecting the real estate market in the eurozone’s fourth-largest economy.
1. Spain’s real estate market
With over 600,000 transactions last year, the Spanish housing market had one of its best years in 2022. However, things are about to change as the market shows signs of slowing down this year.
A fall in momentum for the Spanish property market
The Bank of Spain predicts a backdrop for the Spanish property market in 2023 due to financial uncertainty. Moreover, mortgages are getting even more expensive due to:
- high interest rates
- high inflation
- higher Euribor
Fewer property transactions
Experts expect yearly real estate transactions to fall from 600,000 to about 550,000 (still a healthy number!).
Prices drop in 2023
Housing prices in Spain had constantly risen since 2023, according to Statista’s Housing price index (HPI), which uses 2015 as the base year (when the index value was set to 100):
Since the base year (2015), housing prices in Spain have risen by 32%. Catalonia, the Balearic Islands, and Madrid are the Spanish regions with the steepest price increases over the past few years.
However, most experts agree that prices will drop in 2023, but the amount differs depending on the source. Prices will:
- drop 1 to 3%, according to Pisos.com
- rise 1%, according to ING
- rise 2%, according to BBVA
You can’t predict the market, but there is enough certainty that prices will rise below inflation, resulting in lower prices.
Average real estate prices in Spain
The region is the most important factor influencing property prices. We’ve discussed it in the past, but we can’t stress this enough. There are many Spains in Spain! Here is how property prices fluctuate based on the region:
However, the above infographic only tells part of the story since there’s been no price evolution in recent years. Here is a graph comparing the average cost of an apartment in Spain in Q1 2021 vs. Q1 2022:
While there’s a noticeable price increase in Madrid (3,700 €/sqm in 2021 vs. 3,750 €/sqm in 2022), there’s a sizable price drop in Barcelona (4,000 €/sqm in 2021 vs. 3,930 €/sqm in 2022). Again: it all depends on location, location, location.
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2. Costs you need to consider
As any investor knows, the costs associated with owning property, such as property taxes, maintenance, and repairs, can impact the overall return on investment.
The costs associated with owning property in Spain can include:
- Property taxes
- Maintenance and repairs
- Utilities
- Insurance
- Legal fees
- Community fees
- Furnishing and decorating
It’s essential to keep these costs in mind when evaluating the potential return on investment for Spanish real estate, but always keep in mind that there is no straight answer as to the number of costs you’ll incur.
Maintenance and repair fees vary greatly both on the quality of the building, but also on whether you choose to restore an old building or build a new one from scratch. Utilities also vary based on whether your property is energy efficient, and the list goes on.
Talk to an expert
An expert can provide a more accurate cost estimate for building and owning a property in Spain. They can also help you understand how such costs will impact your bottom line.
Get in touch today with an Arkavis expert who can correctly manage your expectations and help you build a realistic investment plan in Spanish real estate based on your budget.
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3. The return you can expect from your Spanish property
Spain is in the sweet spot for property investment, and here’s why. Spain has a solid property investment return: +10%. However, note that the return on real estate in Spain can vary widely depending on several factors, including location, demand, property type, and rental yield.
According to statistics released by the Central Bank of Spain in March 2022, the return expected on the residential Real Estate market in Spain is 10%.
This performance comes from two sources:
- gross rental yield estimated at 3,7%
- capital gain estimated at 6,3%
Higher returns are typically seen in tourist-friendly areas with high demand for rental properties. It’s essential to keep in mind that real estate is a long-term investment, and the ROI can fluctuate over time based on market conditions, economic factors, and other variables.
Trends
3 main trends remain active in the Spanish real estate market.
More mortgages
If we compare this to 2019, the year before Covid-19, the number of new mortgages in 2022 was up to 24% higher. Mortgage rates in Spain are very close to the lowest levels ever at 1,6%.
Bigger houses outside the city
People are either buying or building bigger houses outside big cities.
Rising prices (*that are falling when adjusted for inflation)
Property prices are growing by an average of 1,3% every quarter. However, when adjusted for inflation, property prices have slowly begun to fall since the last quarter of 2022. Price fluctuation also varies from one region to another. Go back to this article’s first section for a more accurate price analysis.
However, the increasing price trend over the past few years is undeniable. Five years ago, a 100 m2 apartment was worth an average of €200.000. Today it is priced at around €250.000.
Now that we’ve covered the basics, let’s dive into some of the factors that directly impact your returns when investing in Spanish real estate.
Spain’s economic stability
The stability of the Spanish economy and real estate market is essential to consider. So how economically stable is Spain?
Spain’s economy has been generally stable in recent years, following a period of significant economic difficulties in the late 2000s and early 2010s. The country has implemented various reforms to improve its economic stability, including reducing its budget deficit, reducing unemployment, and improving competitiveness.
However, like many economies, Spain continues to face challenges, including a high public debt, a high unemployment rate, and a slow-growing economy. Additionally, the COVID-19 pandemic has significantly impacted the global economy, including Spain, with a drop in economic activity and an increase in unemployment.
Spain: Political stability
Spain reached its political stability maximum rank of 0.58 in 2021 in the Political stability index (where -2.5 is weak and 2.5 is strong). The index of Political Stability and Absence of Violence/Terrorism measures perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including politically-motivated violence and terrorism.
Spain: Economic freedom
Spain’s world rank is 41 in the 2022 Index of Economic Freedom, making Spain the 41st freest in the 2022 Index. According to the heritage.org:
Spain is ranked 26th among 45 countries in the Europe region, and its overall score is below the regional average but above the world average.
The best areas to invest
The location of the property is important. Properties in popular tourist destinations, such as Barcelona and Madrid, are likely to appreciate more quickly.
What do investors buy?
The demand for properties in a particular area is also important. Properties in high-demand areas are likely to appreciate in value more quickly.
The real estate areas with the highest demand in Spain can vary depending on the market conditions and economic factors. However, some areas that are typically in high demand include:
- Madrid
- Barcelona
- Costa del Sol
- Valencia
- Marbella
Madrid
Madrid is the capital city and one of the largest metropolitan areas in Spain, with a strong demand for both residential and commercial properties.
Barcelona
Barcelona is a popular tourist destination known for its cultural and historical attractions and has a strong demand for residential and rental properties.
Costa del Sol
The Costa del Sol is a popular coastal area in the south of Spain, known for its sunny beaches, and has a high demand for holiday rental properties.
Valencia
Valencia is a coastal city in eastern Spain with a growing economy and strong demand for residential and rental properties.
Marbella
Marbella is an upscale coastal city in southern Spain known for its luxurious lifestyle and high demand for holiday rental properties.
These areas have consistently demonstrated strong demand for real estate in the past. Still, it’s important to remember that market conditions can change, and it’s always best to consult an expert to determine the most up-to-date information.
In conclusion: Is real estate in Spain a good investment?
It is as long as you do your due diligence and choose the best investment path.
We are Arkavis, and we help expats build their dream homes in Spain, regardless of whether the property is an addition to their portfolio, a retirement dream, a ticket to a second citizenship, or all of the above.
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