There’s no doubt the Spanish property market is in better health in 2019 than for more than a decade. The domestic market is up, both in terms of transaction numbers and prices. Lower prices, rising employment and continuing low interest rates are helping. Meanwhile, the overseas market is at record levels. In fact, there are already 25% more foreign buyers in Spain in 2019 than at the peak of the market before the 2008 crash. All the signs show a sector continuing to expand. However, the property market remains patchy, very buoyant in some regions but flat in others.
I will take a look at who is buying what and where, from the perspective of the overseas market. However, I will also cover factors that may impact the Spanish domestic market in 2019. I will cite statistics and opinions from a variety of sources published throughout the year. These include official INE (Spain’s Institute of Statistics) figures and opinions from analysts and valuers.
Where the numbers come from
The Notaries produce the most reliable property market statistics. Consequently, I use those and ignore the Property Registries. Unfortunately, the INE uses both and it can be confusing if you don’t know which you are looking at. There are discrepancies between the two for the simple reason they are not counting the same thing. The Notaries’ returns count when a transaction actually happens, the date on which a purchase completes. On the other hand, the figures from the Property Registries reflect when that same purchase is inscribed in the registry. And that may be weeks, or even months, later. A purchase completed in a November or December may not make it into the registry until the following year.
And we are not talking a few percentage points out of sync. The Notaries counted 562,900 for the full year 2018. However, according to the Registries reckoned 464,683 was the right figure. That’s a discrepancy of 21%. And all because Notaries count a deal done and Registries count inscriptions, weeks or even months later. So, unless otherwise stated, the property statistics quoted in this report are those from the Notaries.
The Good News in Spain
Overall, unemployment continues to fall. It finished 2018 just below 15%, that’s the lowest in a decade. Youth unemployment is down to just over 30%. Mortgage approvals rose 10% in 2018 and interest rates remain low. Euribor, which sets the interest rate for the majority of Spanish mortgages ended 2018 at -0.147%. The number of domestic property transactions was up 11%. All autonomous regions registered price increases at some point during 2018, although there were fluctuations.
The Overseas Property Market in Spain
For lifestyle Spain is hard to beat, it’s relaxed and easy-going, safe and child-friendly. Life expectancy rose by ten years between 1970 and 2015. At 80yrs for men and 85yrs for women Spaniards have the highest life expectancy in Europe and are second worldwide. Japan does better but only by a few months. The climate suits all tastes. It ranges from four seasons with a proper winter and lots of snow in the north to the sub-tropical south. The micro-climate zones on the Mediterranean coasts of Andalucía have the best winter temperatures on the European mainland. And not for nothing are The Canary Islands often referred to as Europe’s Caribbean. Once again, Spain’s beaches and marinas have more Blue Flags than any other country in the world, a total of 691. In fact, Spain has occupied the top spot ever since the scheme began in 1987.
For the cultural tourist Spain has some of the oldest cities in the world and 47 UNESCO World Heritage sites. This puts it in third place globally, behind Italy (54) and China (53). Within Spain, Andalucía is the region with the highest number (8) of recognised sites. The latest one to be be awarded UNESCO status was the Medina Azahara near Córdoba in 2018.
Living well is affordable with food and drink prices below the E.U. average according to Eurostat. Spanish cuisine is world-class. For the third year running Spain has three restaurants listed in the top ten restaurants in the world, more than any other country. And there’s a total of seven in the top fifty. Sports and outdoor enthusiasts are spoilt for choice. Golf, tennis, equestrianism, skiing, wind & kitesurfing, mountain biking, rock-climbing, hiking, fishing – the list goes on and on. The result is that Spain has a quality of life that’s hard to beat.
The Overseas – Domestic Split
One of the most striking features of the overseas property sector during Spain’s long recession is how little it was affected by what was going on during the domestic economic meltdown. It’s true that the overseas market fell by about 75% after 2007. It would have been even worse but for the fact that many buyers were already locked into off-plan purchases made before the crash. But the decline hit bottom in the second half of 2010 and the number of foreign buyers has increased every year since. Meanwhile, the domestic property market was still falling in 2013. When the first upturn was registered in 2014, it was fully four years behind the overseas sector. That’s why any analysis of Spain’s property market has to look at the domestic and overseas markets separately.
Another all-time record
The most detailed breakdown of the overseas market is published half-yearly, first half in November, second half in May of the following year. So, we now know that 2018 was another all-time record for buyers from overseas. The overall property market in Spain rose 9.7% in 2018, with a total of 562,900 transactions. Of these 103,673 were attributed to overseas buyers, an increase of 3.56% compared to 2017.
Just how important international buyers are for the property market in Spain is underlined by the fact that this sector is already more than 25% larger than it was at the pre-crash peak in 2006. In contrast, the Spanish domestic sector is stillapproximately 30% smaller.
Where is the Action?
I said in the introduction to this report that, in spite of lots more good news, the market is still patchy. This really stands out when you look at the variation between the autonomous regions. Way out in front is the Comunidad Valenciana with 30,211 foreign buyers, up 9.3%. Andalucía is in 2nd place up 6.25% with 18,919. In contrast, regions not located in the Mediterranean hotspots don’t fare so well. Cantabria welcomed just 322 buyers from overseas in this period while Extremadura was the lowest with 293.
The reality is that around 65% of all Spain’s property sales in the first half of 2018 occurred in the Mediterranean coastal regions on the mainland and in the Balearics and the Canary Islands. That’s because these are the places the majority of international buyers head for. And when you add the Madrid region to the mix, the market share rises to 70%, making it easy to see how uneven the recovery is.
And the same patchy recovery pattern occurs within regions as well. Andalucía, Spain’s largest autonomous region, is a good example of this. About 20% of all property transactions in Spain take place in Andalucía. However, Andalucía has eight provinces and 29% of all transactions occur in just one province, Málaga. Moreover, the city itself, plus Marbella, Estepona and Mijas account for 44% of all purchases in the province. So, one third of Andalucían purchases occur in one province while nearly half of purchases in that province occur in relatively small area. It’s obvious there’s not much going on elsewhere.
However, two leading Mediterranean destinations registered fewer foreign buyers compared with the same period in 2017. Cataluña’s total of 15,186 foreign buyers was down 1.26%. Perhaps the region’s political turmoil following the Independence referendum in October 2017 is part of the explanation. In recent years overseas investors have been an important part of the region’s property market. I’m also wondering if the much tighter control of Barcelona’s tourist rental market is acting as a deterrent. And I don’t just mean the serious buy-to-let investor, I also include second home buyers who want some rental income to cover running costs. I discuss these restrictions in a blog here.
However, the decline in the Balearics is a bit more puzzling. The 3,173 overseas purchasers represented an 11.2% decrease. One reason might be high prices fuelled by lack of supply. In 2018 overseas buyers in the Balearics paid an average €2,887 per square metre. That’s more than double the price paid in the Comunidad Valenciana (€1,331 pm2) and 60% more than in Andalucía (€1,705). Also, Mallorca, the main market of the Balearics, introduced much more restrictive tourist rental laws in 2018. Perhaps these are partly responsible for the fall in overseas buyers.
Who is Buying
Surprise, surprise, it’s still the Brits in the lead. In spite of so much negativity on the part of many commentators and market analysts, almost willing the British market to collapse to back-up their argument, it is proving remarkably resilient. I wasn’t one of the doom and gloom brigade, I looked at the figures rather than speculate. In the full year after the Brexit referendum there were just 816 fewer UK buyers compared with 2016. The impact on the wider overseas market was zero, given that foreign buyers increased by 12,478 over the same period.
What’s in Demand – Resales v New Build
The appetite for new-build properties seems unstoppable, with contemporary and minimalist architecture at the top of everyone’s list. However, the supply side of new apartments and houses has lagged way behind demand since the recovery began. Inevitably, this imbalance has skewed new-build prices.
Lack of Supply
In 2018, building licence approvals across Spain totalled 75,051, up 19% on 2017’s figures, the best annual total since 2011. The most active region was Andalucía with 19,314 licence approvals, an increase of 56.2% and 25% of the total. But it’s important to remember that Spain lost 96% of its construction sector falling from a high of 735,000 licence approvals in 2006 to a low of 31,200 in 2013. So while building approvals are growing it’s a slow process and the supply side is unlikely to improve significantly in the short term. And even if building licence numbers suddenly increases in 2019 the inevitable time lag between approval and a project being ready for sale means no immediate improvement.
Lack of well-priced, top quality properties in prime locations is also a feature of the current resale market. However, available stock is more in balance with demand. And there’s no sign that buyers in the resale sector are paying excessive asking prices.
There is a close link between rental yields in Spain and the health of the Spanish tourism sector. Currently, Spain is the second most visited country in the world. According to Ministry of Tourism statistics about 35% of Spain’s 80m+ tourists do not stay in hotels. Obviously, some will have their own homes, or stay with family and friends, but that leaves a serious number of overseas visitors renting privately. As a result, rental yields make letting a property in Spain an interesting option. And not just for the buy-to-let investor but also as a way to cover a property’s running costs. Across the board, top quality, prime located properties were 100% occupied in high season in 2018.
There is high demand for both long and short term rentals. However, it is absolutely essential that the location is the best and the property must be in 5* condition. What used to be considered luxury items, such as free wifi, flat screen t.v. & satellite, high quality interiors and equipment, are now standard requirements. It doesn’t have to be a grand detached villa. There is just as much demand for smart two bedroom apartments in the right location.
I thought property price rises would squeeze yields. However, demand is so outstripping supply that doesn’t seem to be happening. In general, an apartment or townhouse can achieve 8% gross yield if available for short term lets throughout the year. A similar property let long term can achieve 5%-6%. At the top of the market a detached beachside property can gross 10%+ in the short term market. In all cases, location and interior finishes are key.
It seems likely that demand for short-term holiday rentals is only going to increase. Spain’s international tourism sector has experienced remarkable growth in the last decade. In 2007 59m overseas visitors was an all-time record but that figure had increased to 81m by the end of 2017. With 78.3m foreign tourists counted between January and November 2018 it seems probable that full-year figures will, once again, top 80m. There are also signs that improved marketing to pitch Spain as a year-round destination is paying off. In 2018 the three winter months, January through March, plus October and November, showed the biggest monthly increases. This indicates there is improving rental potential throughout the year and not just in the traditional high season summer months.
Analysis of the 2018 tourism statistics show that the number of foreign tourists declined in both July and August 2018. It seems the loss was the result of the recovery in cheaper package-holiday destinations such as Tunisia, Morocco and Egypt rather than fewer high-end tourists. And the very high demand for the most expensive rental properties seems to bear this out. In fact, I think that Spain has probably come to the end of year-on-year higher tourist numbers for the present and 80m± is the maximum it can accommodate with current infrastructure. The most important thing, in my view, is that there are no losses at the top of the market and that the quality sector grows.
Important for Yields
When I am working for a client whose brief requires reliable rental income I target certain areas and ignore others. In addition, I look for a type of property and reject others. Get the location wrong, even by just a few kilometres and income may be halved. As well as pinpointing the right location in a particular area you need to be in the right region because some have legislated against short term holiday lettings, pressured by the powerful hotel lobby and disgruntled locals. This is particularly true in city centres, such as Barcelona and Madrid, Valencia, Palma and Málaga where tourist lettings have overrun some districts. So, if rental income is a requirement of your buying plan then check the legislation in that autonomous region because there are differences.
Nevertheless, many property owners in Spain like the idea of covering running costs and don’t want the property empty for long periods of time. But the days of leaving a set of keys at the local bar and crossing fingers that no emergencies will arise are over. You need to be ‘rental ready’
Spanish Fixed Rate Mortgages
It’s a fact that the majority of all overseas buyers in Spain since the property crash have been cash-rich. Obviously, the principle reason for this is that Spanish banks were drowning in bad debts and new mortgages were scarce. Only a massive bail-out from the European Central Bank prevented widespread collapse. And even when a foreigner passed the status checks the amount a bank offered dropped from 100% to 60% of the value. Buyers needed a much bigger deposit than previously and those actually needing a mortgage to purchase struggled to get approval.
In contrast, the banks are very keen indeed to lend to international buyers who don’t require a mortgage. One of the first questions I ask potential clients is whether they they are cash buyers or if they need finance. I do this because I believe it is better to get an indication of borrowing potential before I start a property search. When the answer comes back that they are cash buyers I always ask if they are aware of the fixed rate mortgages currently available in Spain. Most are not. However, once they knew all my recent clients who had intended to buy with cash have opted to take the maximum they could borrow. The typical response has been ‘where do I sign’?
Euribor is the interest rate which fixes the majority of Spanish mortgages and it’s been in negative territory since February 2016. It closed 2018 at -0.147%, rising slightly in each of the last 3 months of the year. In the recession fixed rate mortgages disappeared from the market. Now about 40% of all new Spanish mortgages are fixed rate loans. Indeed, the majority of international buyers are opting for fixed rate over variable rate loans. My advice to cash buyers, irrespective of the currency, is to protect their capital and take a Spanish mortgage.
Spoilt for Choice
There are many products to chose from with fixed terms from 5 – 25 years, interest rates from 2.5% and up to 70% LTV. There are a lot of variables, such as country of residency, amount required, location of purchase. However, there are no restrictions on nationality or purchase price. A good broker is essential. Status is scrutinised very carefully but in general the process is straightforward and quick. In the case of some of my clients we have even had banks competing for the business.
Spanish Property Market – Conclusions
It is essential to do the research and compare asking prices for new property with comparables in the resale sector. If you buy at the right price, Spanish property is still relatively affordable. There’s potential for substantial capital growth in the medium term and excellent rental yield potential. But, buying at the right price for the current market is key. In addition, Spain is perceived as a relatively safe and stable country. There’s no doubt that Spain’s property and tourism markets have benefitted enormously from instability and insecurity elsewhere. Hopefully, that won’t change. If it doesn’t I predict international buyers will head for Spain in even higher numbers in 2019. The sun continues to shine and the quality of life is one of the best in the world. What’s not to like?
Written by ©Barbara Wood in thepropertyfinders.com