Market in Depth

Spain's housing market improving

Lalaine C. Delmendo | January 27, 2022

After slowing last year due to the COVID-19 pandemic, Spain is once again looking like a possible investment destination, as yields rise.

Spanish house prices rose by 2.59% (-0.78% inflation-adjusted) to €1,662 per square metre (sq. m) during the year to Q3 2021, its best showing in two years, according to the Bank of Spain. On a quarterly basis, house prices increased slightly by 0.75% in Q3 2021 (0.45% inflation-adjusted).

The nationwide Instituto Nacional de Estadistica (INE) house price index showed a y-o-y increase of 4.21% (0.78% inflation-adjusted) in Q3 2021.

By property type:
  • Existing dwellings: prices rose by 4.29% during the year to Q3 2021 (0.86% inflation-adjusted), the biggest growth since Q3 2019.
  • New dwellings: prices rose by 4.07% y-o-y in Q3 2021 (0.65% inflation-adjusted), slower than the annual rise of 7.46% in the previous year.

By autonomous regions, Canarias saw the biggest y-o-y price growth during the year to Q3 2021, at 6.95%, closely followed by Cantabria (6.88%), Balears (6.78%), Melilla (6.66%), Murcia (6.29%), Andalucía (6.04%), Galicia (5.79%) and La Rioja (5.12%).

Modest house price increases were seen in Valencian Community (4.97%), Asturias (4.61%), Aragón (4.46%), Castilla y León (4.23%), Ceuta (3.38%), Cataluña (3.28%), Navarra (3.28%) and Castilla - La Mancha (3%). There were minimal house price rises in Extremadura (2.86%), Madrid (2.84%) and País Vasco (1.35%).

Spain's housing market only returned to growth in 2015, having fallen by 36.3% (-42.9% inflation-adjusted) from Q3 2007 to Q1 2015, with existing home prices falling by as much as 43.1% (-49% inflation-adjusted), based on figures from INE. There were 24 consecutive quarters of y-o-y declines.

Sales are rising strongly.  Home sales in Spain soared 35.9% to 467,509 units in the first ten months of 2021 compared to the same period last year, after annual declines of 16.9% in 2020 and 2.4% in 2019 and y-o-y rises of 10.8% in 2018, 15.4% in 2017, 14% in 2016 and 11.5% in 2015, according to the Instituto Nacional de Estadistica (INE).

Eighteen of Spain's 19 autonomous communities and provinces are seeing surging demand. During the first ten months of 2021, Melilla recorded the biggest increase in sales of 59.4%, followed by La Rioja (44.1%), Castilla y León (42.2%), Andalucía (41.5%), Castilla - La Mancha (41%), Madrid (40.7%), Navarra (39.1%), Cantabria (38.2%), Cataluña (36.8%), Valencian Community (35.8%), Galicia (34.9%), and Aragón (34.4%). Sales were also rising in Murcia (29.2%), Extremadura (28.5%), Asturias (27.9%), Balears (24.8%), Canarias (18.4%), and País Vasco (16.2%).

Only Ceuta registered a decline in home sales of 31% during the first ten months of 2021.

Housing starts increased strongly by almost 30% y-o-y to 73,263 units in the first three quarters of 2021, in contrast to a decline of 21.2% during 2020.

Spain houses for sale
All this is happening even though the Spanish economy plunged by a huge 10.8% during 2020, in contrast to a 2% growth in 2019, mainly due to the COVID-19 pandemic. Recently, the European Commission downgraded its 2021 economic growth forecast for Spain to 4.6%, almost two percentage points less than its earlier estimated of 6.5%. This is in line with the Bank of Spain's projections of a 4.5% growth this year.

Foreigners have a right to buy and resell all kinds of property - residential, commercial or land, with no limits.

Analysis of Spain Residential Property Market »

Rental Yields

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.

Read Rental Yields »

Taxes and Costs

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 9.50% to 22.50%.

Read Taxes and Costs »

Buying Guide

Total transaction costs are moderate in Spain

Spain luxury houses for saleThe 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.

Read Buying Guide »

Landlord and Tenant

Law and slow courts benefit tenants

Spain properties for saleSpain’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.

Read Landlord and Tenant »


Spanish economy struggling again, unemployment remains high

In January 23, 2014, Spain became the second euro zone country to exit its international bailout program, after Ireland. The Spanish economy has consistently outperformed much of Europe since. The economy grew by more than 3% annually from 2015 to 2018.

However, it has been a long, hard slog. Recession had been Spain’s normal condition for years, due to the global financial meltdown and the Eurozone debt crisis.

Spain gdp unemployment
In 2019, economic growth slowed to 2%, as consumer demand waned and business investment weakened.

The COVID-19 pandemic has dramatically hurt Spain’s already weakening economy. The Bank of Spain expects the economy to have contracted by 11.1% in 2020, but to rebound with 6.8% growth this year. The European Commission and the IMF were more pessimistic, projecting 2020 contractions of 12.4% and 12.8%, respectively.

Spanish unemployment rose to 16.26% in Q3 2020, up from the previous year’s 13.92% but still lower than the annual average of about 22% from 2010 to 2017, according to INE.

Inflation is expected at -0.2% in 2020, from 0.8% in 2019, according to the European Commission.

Spain narrowed its budget deficit to around 2.9% of GDP in 2019, down from 2.5% in 2018, 3% in 2017, 4.3% in 2016, 5.2% in 2015, 6% in 2014, 7% in 2013 and 10.5% in 2012. However, the deficit is estimated to have risen dramatically again in 2020 to about 12.2% of GDP due to the pandemic, according to the European Commission. Spain’s gross public debt surged to 120.3% of GDP in 2020, up from 95.5% of GDP in 2019.

Spain gdp inflation
In November 2019, Spain’s governing Socialists, led by Prime Minister Pedro Sánchez, won the country’s fourth election in four years, but they remain short of a majority. In January 2020, Sánchez successfully formed a minority coalition government with the left-wing Podemos party. Sánchez had taken over as prime minister in June 2018, after his conservative predecessor Mariano Rajoy lost a parliamentary vote of confidence amidst a long-running corruption trial involving members of his Popular Party.