Prices have continued to decline and properties have gotten cheaper since the bursting of the housing bubble, reversing some of the large increases of the real estate boom years, but not enough to revive the housing market. There is reason for optimism, however, as the Q4 2013 figures from Bank of Spain represent the smallest decline since end of 2010.
The outlook for the Spanish property market is looking more positive for 2014 with house prices rising in three regions. Madrid, Balearic and Canary Islands report year-on-year property price rises in Q4 2013 of 1.82%, 3.23% and 0.23%, respectively, according to the Spanish Ministry of Development.
However, house prices have declined overall with other regions exhibiting price declines y-o-y in Q4 2013:
- La Rioja recorded the steepest decline of 15.2%
- House prices in Cantabria, Castilla-La Mancha, and Aragon recorded double-digit declines of 11.95%, 11.72% and 11.25%, respectively
- In Castille and Leon, Cataluña, and Asturias, house prices dropped by 9.54%, 7.73% and 7.58%, respectively
- Andalucia registered a decline of 6.31%, followed by Murcia with 4.73% decline and Extremadura with 4.05% decline
- The three lowest declines were recorded at the Valencian Community (1.73%), Navarra (1.43%) and Galicia (0.9%).
In Q4 2013, the average house price stood at EUR 1,466.9 (USD 2,023.44) per square meter.
Land prices are also falling. The average land price in Spain dropped 21.09% to EUR 147.9 (USD 204.1) per sq. m. year-on-year in Q4 2013. The highest land price was registered in Madrid at EUR 270.7 (USD 373.4) per sq. m., followed by the Balearics at EUR 268.3 (USD 370.09) per sq. m. The cheapest land was in Castille and Leon, at EUR 59.9 (USD 82.63) per sq. m.
Latest government figures suggest that property demand from foreign buyers is helping to keep the Spanish property market afloat. Data from the Spanish Ministry of Development shows foreign demand to represent 1 in 6 property sales.
The total number of properties sold dropped 17.4% to 300,349 units in 2013 from the previous year. Of which, about 81.2% were in the second-hand property market while 18.8% were new housing.
In 2011, the economy recorded a meager growth of 0.5%, after experiencing annual declines of 3.8% in 2009 and 0.2% in 2010. In 2012, the economy slid to recession again and contracted 1.6%, according to IMF. GDP shrank 1.2% in 2013 from a year earlier, but grew 0.3% q-o-q in Q4 2013. This is the second quarter of expansion after over two years of recession and the fastest growth seen in six years. The Spanish government expects the economy to grow by about 0.7 % in 2014.
Analysis of Spain Residential Property Market »
The centre of Madrid fetches the highest rents per sq. m. Apartments here cost around EUR 12 to EUR to EUR 14 per sq. m. to rent per month or the equivalent monthly rental income of around EUR 900 for a 75-sq. m. apartment, to around EUR 2,400 for a 200 –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 700 for a 75-sq. m. apartment, to around EUR 2,100 for a 200-sq.m. apartment.
Apartments in the suburbs of Madrid cost around EUR 8 to EUR 10 per sq. m. to rent per month or the equivalent monthly rental income of around EUR 800 for a 75-sq.m. apartment to around EUR 1,800 for a 225-sq. m. apartment.
The gross rental yield for apartments in Barcelona ranges from 2.84% to 4.20%, whereas in the centre of Madrid, rental yields are better, ranging from 3.57% to 4.77%. In Madrid-suburbs, rental yields range from 3.39% to 4.14%.
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 economy plunged into recession in late 2008 when the real estate bubble burst. It managed to escape an 18-month long recession in early-2010, but has failed to record any significant growth since then. In 2011, the economy recorded a meager growth of 0.5%, after experiencing annual declines of 3.8% in 2009 and 0.2% in 2010. In 2012, the economy slid to recession again and contracted 1.6%, according to IMF.
Last Jan. 23 2014, Spain became the second euro zone country to exit its international bailout program, after Ireland.
GDP shrank 1.2% in 2013 from a year earlier, but grew 0.3% q-o-q in Q4 2013. This is the second quarter of expansion after over two years of recession and the fastest growth seen in six years. The Spanish government expects the economy to grow by about 0.7 % in 2014.
Spain saw a meaningful pickup in exports last year, but the housing and construction sectors are still lagging behind.
The construction industry is a key employer of low-skilled workers in the country. The increase in construction activity in the past helped pull unemployment down to 8.3% in 2007 from 24% in 1994. With the situation now reversed, the unemployment rate skyrocketed nearly 25% in 2012. Currently the unemployment rate stands at 26%, which the government hopes to trim down to 25% or less by the end of 2014, which is among the highest levels in the OECD and still twice the euro area average of 12%.