During the latest quarter, Spanish house prices increased slightly by 0.15% (-0.78% inflation-adjusted) in Q2 2014. Residential property transactions surged 48% in Q1 2014 from a year earlier, according to the Instituto Nacional de Estadistica (INE).
The improvement is mainly driven by foreign property buyers, buying on the coast and in cities like Barcelona. “It’s crazy the number of investors coming in,” said Fernando Acuna of Aura real estate advisory firm. “I think 2014 is the year we will see a lot of transactions,” he added.
Britons accounted for 15% of all sales to overseas investors, followed by the French (10%), Russians (9%), and Belgians (7%), according to Spain’s society of property registrars.
Spanish house prices have been falling for six years, with a total decline of 40% (46% inflation-adjusted) from the values reached in Q4 2007, before the crisis. There have been 25 consecutive quarters of y-o-y declines:
- In 2008, Spanish house prices fell 8.75% (-10.05% inflation-adjusted)
- In 2009, house prices fell 6.57% (-7.23% inflation-adjusted)
- In 2010, house prices fell 3.85% (-6.67% inflation-adjusted)
- In 2011, house prices fell 8.17% (-10.28% inflation-adjusted)
- In 2012, house prices fell 11.34% (-13.82% inflation-adjusted)
- In 2013, house prices fell 9.19% (-9.44% inflation-adjusted)
House prices are still falling nationally, but most regions are showing remarkable improvement.
During the year to Q2 2014:
- In the Capital and Large Cities, house prices dropped 4.8%, a large improvement from annual declines of 11.5% in Q2 2013, and 13.5% in Q2 2012
- In Metropolitan Areas, house prices dropped 3.0%, far lower than from annual declines of 12.7% in Q2 2013, and 11.7% in Q2 2012
- On the Mediterranean Coast, house prices dropped 7.1%, an improvement from annual declines of 7.5% in Q2 2013, and 13.3% in Q2 2012
- In Balearic and Canary Islands, house prices increased slightly by 0.1%, in contrast with annual declines of 3.7% in Q2 2013, and 6.8% in Q2 2012
- In Other Municipalities, house prices fell just 0.1%, a remarkable improvement from annual declines of 11.5% in Q2 2013, and 7.3% in Q2 2012
Urban land prices remain weak, down 10% y-o-y in Q1 to an average of €141.5 per square metre (sq. m.), according to INE.
The Spanish economy expanded at its fastest clip for six years in Q1 2014, with a GDP growth of 0.4%, thanks to increased domestic demand. The economy is expected to grow by 1.2% in 2014, after contracting by 1.2% in 2013, and by 1.6% in 2012, and after meagre growth of 0.05% in 2011.
Analysis of Spain Residential Property Market »
The gross rental yield for apartments in Barcelona ranges from 3.80% to 4.70%, whereas in the centre of Madrid, rental yields are better, ranging from 3.91% to 4.92%. In Madrid-suburbs, rental yields range from 4.11% to 4.87%.
Prices per square metre (sq. m.) of apartments in Barcelona range from around EUR 3,300 to EUR 4,100. In the heart of Madrid, i.e., Chamartín, Chamberí, Retiro and Salamanca, prices per sq. m. range from around EUR 3,400 to EUR 3,800. In nearby upscale suburbs of Madrid such as Las Rozas, Majadahonda and Pozuelo de Alarcón, apartments are cheaper, with prices per sq. m. ranging from around EUR 2,600 to EUR 2,700.
The centre of Madrid fetches the highest rents per sq. m. Apartments here cost around EUR 11 to EUR to EUR 14 per sq. m. to rent per month or the equivalent monthly rental income of around EUR 970 for a 75-sq. m. apartment.
Apartments in the suburbs of Madrid cost around EUR 9 to EUR 11 per sq. m. to rent per month or the equivalent monthly rental income of around EUR 1,100 for a 120-sq.m. apartment to around EUR 2,300 for a 250-sq. m. apartment.
In Barcelona, rents per sq. m. per month range from around EUR 11 to EUR 14 or the equivalent monthly rental income of around EUR 950 for a 85-sq. m. apartment, to around EUR 2,300 for a 200-sq.m. apartment.
When buying property, take into consideration that round-trip transaction costs are moderate to high in Spain. See our Property transaction costs analysis in Spain and Residential property transaction costs in Spain, compared to the rest of Europe.
Property and Wealth: A special annual 3% tax is levied on the cadastral value of real estate owned by nonresidents.
Capital Gains:As of 01 For 2012 and 2013, capital gains tax is levied at progressive rates, from 21% to 27%.
Inheritance: Each beneficiary’s inheritance is taxed at progressive rates, from 7.65% to 34%, after certain tax-free amounts have been deducted.
Residents: Resident individuals are liable to tax on their worldwide income and assets at progressive rates, from 24.75% to 52% for 2012 and 2013.
For new properties, Value Added Tax, plus stamp duty, is imposed instead of property transfer tax.
Rent Control: The landlord and tenant have the contractual freedom to fix the rent and state the due date of payment. However, rent increases are tied to the Consumer Price Index and limited to once a year.
Tenant Security: The 1994 Urban Tenancy Act aimed to restore balance between the interest of landlords and tenants. It failed. Tenants are guaranteed tenure for five years. Courts are painfully slow in resolving cases of tenant eviction and compensation for rental arrears and damages.
The economic recovery continued in the second quarter, and the signs are positive – Spain’s economy is projected to grow by 1.2% in 2014, and another 1.8% in 2015, according to government estimates.
It has been a long, hard slog. Recession has been Spain’s normal condition for years. In 2013, the economy shrank by 1.2%, according to the IMF, and by 1.6% in 2012. In 2011, the economy grew 0.5%, but there were annual declines of 0.2% in 2010, and 3.8% in 2009.
Spain’s economy was fuelled by property during the boom decade from 1997 to 2007, when it grew by 3.8% each year. The building frenzy spread to all parts of Spain and ignited a crazy optimism, supported by cheap mortgage credit and by an unbelievable surge in residential construction. At the height of the housing boom in 2007, housing investment was no less than 7.5% of Spain’s GDP, significantly above the OECD average. The construction industry became a key employer of low-skilled workers. The increase in construction activity helped pull unemployment down from 24% in 1994, to 8.3% in 2007. Then the economy plunged into recession in late 2008. The country hasn’t seen significant growth since then.
With the situation reversed, Spanish unemployment now stands at 25.3% in Q1 2014, among the highest in the OECD and more than twice the euro area average of 11.8%. In June 2014, Spain’s inflation was 0.1%, according to INE.