Spanish property prices – time to invest?

The past few years have had their ups and downs but where are we now when it comes to Spanish property prices? In this article we look at the trends and consider whether it’s a good time to buy property in Spain.

Spain, like most European countries, is feeling the pinch. There are expectations that the economy will continue to shrink in 2023 but can we expect a similar trajectory to that following 2008?

Then, the building industry in Spain was hit at its very nerve centre. The cranes stood still, skeleton developments froze and it became increasingly difficult to sell your property for the kind of money you’d bought it for.

Those who can remember this period clearly or were even involved in the buying and selling of property, such as ourselves, witnessed the impact on conveyancing. The bottom more or less fell out of the market with Spanish property prices taking a nose dive. It’s understandable that people are asking – will the same happen again?

Similarities but different

It’s true that, overall, we are seeing a shrinking economy with an expected fall in property prices. The European Central Bank is predicting that prices could drop by up to 9% in 2023 and 2024. However, this doesn’t mean that Spanish property prices will also slump to the same degree. There are different factors at play for that to happen.

Firstly, there is strong international demand here. Many Europeans, as well as those living further afield, recognize the benefits of having either a holiday home, a property to rent or even living in Spain.

Sunny skies are always in Spain’s favour, whatever the financial outlook might be. Property here is still attractive and all indications suggest that property is selling. After all, you get so much more for your money.

However, we can expect the buoyancy of 2022 to falter in 2023. Financial concerns will set in for some of those people looking to buy and realistically we can expect Spanish property prices to dip over the next few years, albeit for a temporary period.

Interest rates

One of the spanners in the works is mortgage interest rates. The European Central Bank raised interest rates for the first time in 11 years. The increase was from 0% in January to 2% by November and this was bound to have an impact on Spanish mortgage providers. We can now expect a reversal of the trend away from fixed rather than variable interest rates with a return to variable throughout 2023.

The impact of this is that more people will struggle to pay their mortgage. The ‘highly indebted’ category of people paying more than 40% of their monthly income to their mortgage providers is one that we can expect to see grow.

The knock-on effect is that demand for buying property will fall amongst lower-wage earners which will have repercussions through other strands of the market too, even up to some higher end property.  

The implications for second-hand property

The combination of increasing mortgages and rising prices generally will mean that many people will have less to spend and may delay an upgrade, for example.

However, the outlook isn’t dismal by any means and most property experts are suggesting that rather than a sharp drop there will be a temporary lull in Spanish property prices. Those sellers that do drop their prices slightly or at least take offers below their asking price should still find people ready to purchase.

Of course, location will be a key factor in this. It is expected that major city centres, ports and seaside locations, which remain popular with foreign buyers, will hold on better to their actual value than properties located in rural areas or less well-known towns and villages. Again, we can expect significant differences in trends of Spanish property prices depending on where it is.

And new build?

The outlook is generally more optimistic for new-build. During 2022 new-build property prices rose by 5%. Why? For many foreigners a new-build purchase is particularly attractive. Aspects of the final property can be customized, the prospective purchaser can feel more confident that the property will meet expectations in terms of energy use and building regulations.

Non-resident property owners can be reluctant to deal with day-to-day upkeep and repairs. A new-build property offers them an expectation that little will need doing to the property in the foreseeable future. Low maintenance is attractive when you’re a flight away from supervising the work.

The price of new-build should also hold steady or even increase due to the scarcity of these properties. There are many different reasons for this including the recent increase in basic house-building materials, such as concrete.

Also, in some popular areas there is relatively little free building land available. Most plots have already been developed and building land is in short supply particularly in seaside resorts. All these factors have an impact on Spanish property prices.

Property investment

Purchasing property in Spain remains a good investment alternative. For those with money to spare, keeping cash in the bank holds little benefit and will provide a minimal return. In short, your money is not working for you.

However, many people are reluctant to speculate, particularly at the moment, and this is where purchasing property to rent in the short or long term can be a good option. Investing in bricks and mortars offers a level of security and, for holiday homeowners, something they can enjoy too.

As inflation is rising faster than interest rates, this is providing an even greater motive for investing money. Whether the intention is to rent or enjoy yourself, many people will take advantage of the security of second home purchase above that of other investment options. This, in itself, should keep the market buoyant in popular areas.

The rental option

As we may see house prices dip, it would make sense for those anxious about leaving money in their accounts to invest in Spanish property. Whether you wish to rent out long-term, use your property as a holiday home or buy a property to renovate and sell on, securing your financial assets in this way makes sense.

If you do decide to go ahead we recommend that you do your research into different areas as Spanish property prices can vary substantially between coast and inland, north and south, re-sale and new build.

Always ensure that you have the property checked for legality and debts against it before paying your deposit and engage a reputable lawyer to ensure that the conveyancing process goes through smoothly.

There are also national and local rental obligations. For example, you will need to apply for a licence and keep the police informed of who is renting out your property. A number of advisors will be able to help you with this.

The final consideration is ensuring that you are tax compliant. Tax must be paid quarterly on the rent you collect. This applies whether you are resident or non-resident. For non-residents there are double tax agreements in place which ensure that you do not have to pay tax on rental income twice.

So?

Every property is different. However, for the next couple of years it is likely that Spanish property prices will dip slightly but not to the extent that they did post 2008 – and not for the length of time we saw then. With this in mind, if you have cash to spare and a will to invest it, then buying a property in Spain remains a very good option.