The Spanish Property Market 2024
The idea that the Spanish property market would experience a post-pandemic meltdown, similar to the market crash of 2008, was, quite clearly, wrong. In contrast, it has enjoyed increased interest, not just from the long-established markets of British, Scandinavian and other European nationalities but from all over the world. Overseas demand is pushing market share in the most prime locations way beyond the national average of 20%. The Spanish property market would certainly be in a very different place without overseas buyers.
The overseas property market is most active at the higher price levels and the 2023 statistics indicated that it does not seem to be unduly affected by global inflation, higher energy prices and interest rates. If anything, it seems there is a sense that Spain is seen as something of a safe haven for property investment at the present time. Interestingly, tourist boards and property developers in southern Spain recently started marketing campaigns focusing on the region as a warm winter location with the potential for lower energy costs.
The domestic and overseas property markets in Spain have always been disconnected. This became even more evident during the post-2008 recovery. The overseas sector was already growing again while the domestic sector was still declining. The near-collapse of the Spanish banking system and consequent mortgage drought brought the domestic market to a virtual standstill. In contrast, overseas buyers were cash-rich and no bank was going to lend to them anyway.
We see this disconnect will differentiate between the two sectors for the foreseeable future. Spanish buyers are more mortgage dependent and therefore, exposed to higher interest rates. Foreign buyers at the upper levels of the market rarely need a mortgage. It’s true that many opted for a fixed-rate, long term loan in recent years but not because they needed it. They were just such good deals and made financial sense. However, for the time being, the higher Euribor interest rate, around 4% at the end of 2023, in contrast to being negative between 2015 and 2021, make them less attractive. In addition, Spanish banks are currently less keen on lending to borrowers whose earnings are not in Euros.
And as to where prices are going in 2024, it really comes down to the demand/supply imbalance. The current market in prime locations is one with a serious lack of supply, above all in the resale sector. Even before Covid-19 arrived there was a supply side deficit in the quality resale sector in prime locations and this has been exacerbated by the increase in international buyers entering the market over a short time period without an increase in supply. And what they are looking for, that is, high quality properties in top condition in prime locations, is precisely what is in such short supply and it doesn’t look like the demand/supply imbalance will be changing any time soon. One would imagine that the higher prices being achieved in the resale market would tempt more sellers into the market. alleviating the supply-side deficit somewhat, but that doesn’t seem to be happening so far.
Nevertheless, if you buy at the right price in a prime location, Spanish property is still relatively affordable. There’s potential for substantial capital growth in the medium term and excellent rental yield potential. The sun continues to shine and the quality of life is rated one of the best in the world. And there seems to be little doubt that with the WFH and WFA options becoming a reality for many more people post-Covid, that home will be in Spain.
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