Spanish housing market continues to grow stronger
Lalaine C. Delmendo | February 05, 2019
After eight long years of house price declines, Spain's housing market finally returned to growth in Q1 2016. Spanish house prices had fallen by a total of 41.9% (46.8% inflation-adjusted) from Q4 2007 to Q3 2015, based on figures from TINSA. There were 31 consecutive quarters of y-o-y declines.
Demand continues to rise strongly. In the first eleven months of 2018, home sales in Spain surged 10.6% to 481,220 units from the same period last year, after annual rises of 15.4% in 2017, 14% in 2016 and 11.5% in 2015, according to the Instituto Nacional de Estadistica (INE). The continued increase in transactions was mainly driven by foreigners buying homes on the coast and in cities like Barcelona and on the Costa del Sol, one of the country's most popular areas with overseas purchasers. Most foreign homebuyers are Britons, French, Germans, Belgians, Italians and Swedes.
Construction activity is picking up again. During the first seven months of 2018, the number and area of residential building permits increased by 7.7% and 9.5%, respectively.
Foreclosures fell by 11.8% during the first three quarters of 2018 from the same period a year earlier to just 18,721 dwellings, based on figures from the INE. Foreclosures for existing dwellings dropped 16.1% but increased 10.2% for new dwellings.
The outlook for Spain's housing market is upbeat, with sales expected to increase from about 500,000 units last year to between 625,000 and 650,000 in 2019, according to TINSA. Nationwide house prices are projected to rise by between 5% and 7% this year.
The Spanish economy grew by about 2.6% in 2018, after growth rates of 3% in 2017, 3.2% in 2016, 3.6% in 2015, and 1.4% in 2014. The European Commission expects Spain's economy to expand by 2.2% this year and by another 2% in 2020.
Foreigners have a right to buy and resell all kinds of property - residential, commercial or land, with no limits.
Gross rental yields in Spain have returned to normal
Gross rental yields on apartments in Barcelona´s Ciutat Vella - the return earned on the purchase price of a rental property, before taxation, vacancy costs, and other costs - range from 4.00% to 5.15%. Similar yields, or maybe slightly lower, can also be had in Madrid. Not great, though not untypical for cities like Madrid and Barcelona. Yields on the very smallest apartments now offer reasonable returns. But then smaller apartments tend to need more maintenance, so a higher yield is justified.
Prices of apartments. Prices per square metre (sq. m.) of apartments in Barcelona range from around EUR 4,300 to EUR 6,000, or around EUR 225,000-300,000 for a 50 sq. m. apartment. In the heart of Madrid, i.e., Chamartín, Chamberí, Retiro and Salamanca, prices per sq. m. range from around EUR 4,700 to EUR 5,900, or around EUR 265,000 to 290,000 for a 50 sq. m. apartment. There´s very little price-difference between the two cities, and for all practical purposes costs are around the same.
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 3,100 to EUR 3,800.
Rents of apartments. Rents are similar in the two cities, maybe slightly lower in Madrid, so that 50 sq. m. apartments will cost around 950-1,100 euros per month, while 120 sq. m. apartments will cost around 1,750-2,500 euros a month.
Conclusion: All these yields figures are higher than last year, which was higher than the previous year. Spain is once again beginning to look a possible investment destination.
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.
Taxes are high in Spain
Rental Income: All property owners are subject to a flat tax of 24% on gross rental income.
Property and Wealth: A special annual 3% tax is levied on the cadastral value of real estate owned by nonresidents.
Capital Gains: Capital gains tax realized by nonresidents are subject to flat rate of 19%.
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 19% to 45% for 2012 and 2013.
Total transaction costs are moderate in Spain
The total roundtrip transaction cost is around 9.50% to 15%. This includes the Property Transfer Tax, which varies from 6% to 10% depending on the autonomous region, and the real estate agent’s commission, which is around 2.5% to 3%.
For new properties, Value Added Tax, plus stamp duty, is imposed instead of property transfer tax.
Law and slow courts benefit tenants
Spain’s rental market is extremely pro-tenant.
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.
Spanish economy remains robust, despite Eurozone slowdownSpain’s economy started to recover in 2014, with GDP expanding by 1.4%, according to the International Monetary Fund (IMF). In January 23, 2014, Spain became the second euro zone country to exit its international bailout program, after Ireland. The Spanish economy grew by a healthy 2.6% in 2018, from growth rates of 3% in 2017, 3.2% in 2016, 3.6% in 2015, and 1.4% in 2014, despite the Eurozone’s economic slowdown.
However, it has been a long, hard slog. Recession has been Spain’s normal condition for years, mainly due to the adverse impact of the global financial meltdown and the Eurozone debt crisis. The economy shrank by 1.7% in 2013, according to the IMF, by 2.9% in 2012 and by 1% in 2011. In 2010, the economy grew by a meager 0.01%, after a contraction of 3.6% in 2009.
The European Commission expects Spain’s economy to expand by 2.2% this year and by another 2% in 2020.
Spanish unemployment fell to 14.45% in 2018, down from an annual average of 22.6% from 2010 to 2016 and the lowest level in a decade, according to INE. Despite this, Spain’s unemployment is still the second highest in the OECD, next to Greece.
About 566,200 more jobs were created in 2018 – the biggest annual increase since 2006. As a result, the number of job seekers dropped 462,400 in 2018 from a year earlier, to 3.3 million people.
Inflation stood at 1.7% in 2018, from 2% in 2017, -0.2% in 2016, -0.5% in 2015, -0.2% in 2014 and 1.4% in 2013, according to INE. Inflation is expected to remain at 1.7% this year, based on figures from the European Commission.
Spain narrowed its budget deficit to around 2.7% of GDP in 2018, down from 3.1% in 2017, 4.5% in 2016, 5.3% in 2015, 6% in 2014, 7% in 2013 and 10.5% in 2012. The deficit is expected to fall further to 2.1% of GDP this year and to 1.9% in 2020.
Spain’s gross public debt stood at about 96.9% of GDP in 2018, from 98.3% in 2017, 99% in 2016, 99.4% in 2015 and 100.4% in 2014. It is expected to fall slightly to 96.2% in 2019.