Spain

Spain’s house price growth continues, despite falling demand

Lalaine C. Delmendo

Spain’s house prices continue to increase, despite weakening property demand and a slowing economy. Nationwide house prices rose robustly by 7% (3.68% inflation-adjusted) in Q1 2024 from the previous year, according to figures from the online property information site Idealista. This followed a full-year growth of 8.16% (4.9% inflation-adjusted) in 2023.

Official figures released by the government also showed continued house price growth in the country, albeit at a more moderate pace. Data from the Bank of Spain indicated that Spanish house prices increased by 5.32% to €1,842 per square meter (sq. m) in 2023 from a year earlier, following y-o-y growth of 3.25% in 2022 and 4.43% in 2021. When adjusted for inflation, house prices were up by a modest 1.99%.

Quarterly, house prices rose by 1.65% (1.28% inflation-adjusted) in Q4 2023.

On the other hand, the nationwide Instituto Nacional de Estadistica (INE) house price index showed a modest increase of 4.22% (0.93% inflation-adjusted) y-o-y in 2023. Quarter-on-quarter, the index fell by 1.05% (-1.41% inflation-adjusted) in Q4 2023.

Spain’s house price annual change

By property type:

  • Existing dwellings: prices increased modestly by 3.64% y-o-y in 2023 (0.36% inflation-adjusted), following a 5.3% price growth in 2022.
  • New dwellings: prices rose strongly by 7.47% in 2023 from a year earlier (4.07% inflation-adjusted), after rising by 6.16% in the previous year.

By autonomous regions, Andalucía saw the biggest y-o-y price growth in 2023 at 5.3%, closely followed by Navarra (4.67%), Ceuta (4.58%), Canarias (4.54%), Madrid (4.46%), Balears (4.39%), Cantabria (4.34%), Aragón (4.28%), and Valencian Community (4.24%).

More modest house price increases were seen in La Rioja (3.93%), País Vasco (3.87%), Murcia (3.84%), Cataluña (3.53%), Asturias (3.47%), Castilla y León (3.47%), Galicia (3.43%), Melilla (3.19%), Extremadura (2.2%), and Castilla – La Mancha (2.08%).

Spain House Price Indices graph

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.

From 2015 to 2019, house prices increased by an annual average of 2.5% (1.6% inflation-adjusted). After a slight house price fall of 1.85% (-1.13% inflation-adjusted) in 2020 due to the adverse impact of the Covid-19 pandemic, the Spanish housing market bounced back quickly in the following years, with prices rising by 4.43% in 2021 and 3.25% in 2022. Yet in real terms, house prices are down, amidst soaring inflation. 

SPAIN’S HOUSE PRICE INDEX, ANNUAL CHANGE (%)
Year Nominal Inflation-adjusted
2008 -3.21 -5.53
2009 -6.25 -6.39
2010 -3.53 -5.93
2011 -6.78 -9.27
2012 -10.02 -12.72
2013 -4.20 -4.32
2014 -0.26 0.25
2015 1.85 2.17
2016 1.47 0.49
2017 3.09 1.62
2018 3.86 2.11
2019 2.10 1.65
2020 -1.85 -1.13
2021 4.43 -1.31
2022 3.25 -3.13
2023 5.32 1.99
Sources: Global Property Guide, Bank of Spain, INE, Idealista

The continued increase in house prices is surprising given falling property demand. During 2023, home sales in Spain fell by 9.9% to 586,037 units as compared to a year earlier, according to Instituto Nacional de Estadistica (INE), following annual increases of 14.8% in 2022 and 34.8% in 2021 and y-o-y declines of 16.9% in 2020 and 2.4% in 2019.

Yet residential construction activity is gradually improving. In 2023, the number of housing starts rose by 1.1% y-o-y to 98,040 units, an improvement from an annual decline of 3.5% in the prior year, based on figures from the Ministry of Development. Likewise, housing completions also increased slightly by 0.7% to 80,473 units in 2023, in contrast to a 4.9% drop in 2022.

Overall, the Spanish economy expanded by a modest 2.5% in 2023 from a year earlier, on the back of continuing geopolitical uncertainty, persistent high inflation, and rising interest rates.

Spain’s economy is projected to slow further this year, with real GDP growth forecast of just 1.7%, based on figures from the European Commission. The Bank of Spain is a bit more optimistic, expecting an economic growth of 1.9% this year.

Spanish real house prices are still 35% below peak!

From 1996 to 2007, Spain’s national average house price rose by 197% (117% inflation-adjusted), one of Europe’s highest house price increases. The price of coastal properties surged 250% (155% inflation-adjusted) from 1996 to 2007, as hundreds of thousands of foreigners, mainly from the UK, France, and Germany, bought the property.

In Madrid and Barcelona, house prices rose 188% (109% inflation-adjusted) from 1996 to 2007, while prices in other inner provinces rose by 175% (101% inflation-adjusted).

Suddenly, in 2008, a housing slump battered the Spanish economy and brought spiraling unemployment. Developers were left with blocks of unsold properties and massive debts. Despite the price rises in recent years, nationwide house prices in 2023 were still about 14% (-35% inflation-adjusted) below peak levels.

Spain House Price Index graph

Land prices now falling

The average price of urban land transactions in Spain stood at €154.6 per sq. m in Q4 2023, down by 3.6% from the previous quarter and by 3.3% in the same period last year, according to the Ministry of Development.

Nine of the 17 autonomous communities where figures are available saw land price falls in Q4 2023. Though, land price movements vary considerably:

  • Madrid defies the national trend, with the average urban land price in the city rising by 11.6% y-o-y to €291.3 per sq. m, in Q4 2023. Though quarter-on-quarter, land prices fell by 2.1%.
  • In Andalucia, land prices fell by 6.3% y-o-y to an average of €152.3 per sq. m. On a quarterly basis, prices plunged by 13.3% in Q4 2023.
  • In Cataluña, the country’s second-largest region, land prices fell by a modest 2.3% y-o-y to an average of €170.4 per sq. m in Q4 2023. It was also lower by 5.8% as compared to the previous quarter.
  • In Castile-La Mancha, the average land price was €91.8 per sq. m in Q4 2023, down by 1.7% from the previous quarter and by 8.3% from a year ago.
  • In Galicia, land prices increased by a modest 2.1% y-o-y to an average of €96 per sq. m in Q4 2023 but plunged by 40% q-o-q.
  • In Castilla y Leon, the average land price increased 2.6% y-o-y to €77.9 per sq. m in Q4 2023. Quarter-on-quarter, prices were up slightly by 1.7%.
  • In the Canary Islands, the average land price increased 4.3% y-o-y to €250.8 per sq. m in Q4 2023. Quarter-on-quarter, prices were more or less steady.
  • In Valencian Community, the average land price was €173.8 per sq. m in Q4 2023, down by 4.4% from the previous quarter and by 1.1% from the same period last year.

Demand for land in the country is falling sharply. During 2023, the number of land transactions fell by 15% y-o-y to 22,387 units, following an annual decline of 11.7% in 2022, according to the Ministry of Development. Likewise, the value of land transactions plunged by 26.5% y-o-y to €3.31 billion in 2023, in contrast to a modest growth of 3.7% in 2022.

Spain Urban House Prices graph

Property demand weakening

Residential property transactions are falling. During 2023, home sales in Spain fell by 9.9% to 586,037 units as compared to a year earlier, according to Instituto Nacional de Estadistica (INE), following annual increases of 14.8% in 2022 and 34.8% in 2021 and y-o-y declines of 16.9% in 2020 and 2.4% in 2019.

By property type:

  • Existing dwellings: 475,443 units sold in 2023, down by 10.9% from the previous year.
  • New dwellings: 110,594 units sold, down by 5% from a year ago.

Seventeen of Spain’s 19 autonomous communities and provinces saw a decline in demand. During 2023, Melilla recorded the biggest fall in home sales of 25.3%, followed by Balears (-20%), La Rioja (-18.2%), Madrid (-16.1%), Canarias (-14.4%), País Vasco (-12.8%), Galicia (-12.3%), Andalucía (-11.5%), and Cataluña (-10.7%). A more moderate decline in home sales was also seen in Cantabria (-9.0%), Aragón (-8.2%), Extremadura (-8.0%), Murcia (-5.4%), Valencian Community (-4.1%), Castilla-La Mancha (-4.1%), Navarra (-4.0%), and Castilla y León (-3.1%).

Only Asturias and Ceuta saw an increase in home sales last year, of 5.7% and 1.6%, respectively.

Andalucia accounted for the biggest share in home sales last year at 20.3%, followed by Valencian Community with 16.4% share, Cataluña with 15.6% share, and Madrid with 11.9% share.

Spain Residential Property Transactions graph

The Spanish Golden Visa

Before the Covid-19 pandemic, foreign homebuyers accounted for about 12% to 20% of all home sales in Spain annually, sharply up from just a 4.24% share in 2009. In 2018, foreign homebuyers bought over 65,500 homes in Spain, up 7.4% from a year earlier, following annual growth of 13.7% in 2017. The Balearic Islands are especially attractive to foreigners with about one-third of total demand coming from foreigners, mainly due to its white-sand beaches and sunny Mediterranean landscape. It is followed by the Canary Islands, Valencian Community, Murcia, and Andalucia.

The Golden Visa scheme, applicable since 30th September 2013, has increased interest not only from the Middle East but also from Asia and Russia. Any non-EU national bringing more than €500,000 to invest is automatically granted a Spanish residency permit.

In 2019, Spain approved 1,422 Golden Visas to main applicants, by almost 20% from a year earlier. Of which, 681 Golden Visas were granted to foreigners via the real estate option – up 13.7% from the previous year and the highest figure ever recorded.

However, foreign homebuying slowed recently due to the Covid-19 pandemic. Golden Visas granted to foreigners were just 162 in H2 2020 and 232 in H1 2021 – two of the lowest ever seen since the program was launched. Interest from foreigners started to increase again in the second half of 2022, as the overall situation normalized. In H2 2021, Spain granted 833 Golden Visas to main applicants, up from 574 in H2 2019.

Overall, the country granted a total of 7,425 Golden Visas to main applicants from 2014 to 2021, with Chinese and Russians accounting for 32% and 25% shares, respectively.

While no official figures have been released yet for the past two years, interest in foreign residency in Spain through property investment is rising again. According to recent research conducted by Astons, the Spanish Golden Visa scheme is the best option for international investors looking for Golden Visas.

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

However, there is a growing clamor to end the scheme. In February 2023, center-left political party Más País proposed a bill to scrap or drastically amend the country’s Gold Visa program, arguing that it pushes house prices and is detrimental to the economy. Then in December, renewed support to end the program came from the country’s government coalition partner Sumar. While no official agreement has been reached yet, the government is considering introducing tougher requirements for applications.

Residential construction activity gradually improving

During 2023, the number of housing starts rose by 1.1% y-o-y to 98,040 units, an improvement from an annual decline of 3.5% in the prior year, based on figures from the Ministry of Development. Andalucía accounted for the biggest share in housing starts at 22.2%, followed by Madrid (15.2%), Cataluña (13%), and Valencian Community (11.9%).

Likewise, housing completions also increased slightly by 0.7% to 80,473 units in 2023, in contrast to a 4.9% drop in 2022.

Housing starts fell to an annual average of just 64,000 units in 2009-2021, from an annual average of 445,000 units in 1995-2008. Similarly, completions also dropped to an average of 64,000 units annually in 2011-2021, from 419,000 units in 1997-2010.

Currently, Spain’s total housing stock totaled more than 26.8 million units, up slightly by 0.3% from a year earlier. Andalucia accounted for the biggest share of 17.2%, followed by Cataluña (15.3%), Valencian Community (12.4%), and Madrid (11.7%).

Spain Housing Construction graph

Good rental yields

Gross rental yields on property in Spain stood at 6.17% in Q1 2024, slightly up from 6.09% in Q3 2023, according to research conducted by the Global Property Guide in February 2024.

In the country’s major cities:

  • In Madrid, apartments offer gross rental yields ranging from 3.26% to 7.76%, with a city average of 5.3% in Q1 2024.
  • In Barcelona, gross rental yields for apartments range from 4.04% to 8.76%, with a city average of 6.27%.
  • Valencia offers rental returns ranging from 3.74% to 8.43%, with a city average of 7.17%.
  • In Córdoba, apartment rental yields are around 4.98% to 6.96%, with a city average of 6.38%.
  • In Alicante, gross rental yields range from 4.36% to 7.38%, with a city average of 6.39%.
  • Seville apartments offer rental returns from 3.61% to 6.52%, with a city average of 5.67%.
  • In Palma de Mallorca, rental yields range from 4.5% to 5.77%, with a city average of 5.14%.
  • In Murcia, rental yields range from 4.21% to 8.72%, with a city average of 7.07% in Q1 2024.

Rent increase cap set at 3% in 2024

Recently, the Spanish government announced a rent increase cap of 3% in 2024, up from the prior year’s 2%.

  • For large homeowners or those with more than ten properties, the limit will be 3%. Even if there is agreement on the increase, it can never be higher than the set cap.
  • For small owners or those with less than ten properties, the rent increase will be agreed upon by both parties. If there is no agreement, the increase will be a maximum of 3%.

In the past two years, the Spanish government implemented a rent increase cap of a maximum of 2% to help protect the 30% of people who rent properties in Spain, shielding them from the adverse impact of surging inflation.

Before the rent increase cap, many landlords could by law, increase rents on a yearly basis based on the Consumer Price Index (CPI), a measure that represents inflation. For instance, if the rental agreement was due to be renewed and the inflation rate for the year was 10%, then the landlord could raise the rent by a maximum of 10%.

New mortgage loans falling, size of the mortgage market continues to shrink

During 2023, the total amount of new home mortgages in Spain dropped 19.5% y-o-y to €54.11 billion, according to INE figures, in contrast to annual growth of 17% in 2022 and 26.3% in 2021.

Similarly, the total number of new mortgage loans fell by 17.9% last year to 381,064 compared to a year earlier, after rising by 11% in 2022 and 23.8% in 2021. This was also far below the annual average of 1.13 million new home mortgages granted from 2003 to 2008.

As a result, the total value of mortgage loans outstanding declined by 3.2% to €495.91 billion in 2023, following a slight decrease of 0.2% in 2022 and an annual increase of 1.2% in 2021. Before this, total mortgages outstanding suffered an average decline of nearly 3% from 2012 to 2020.

The size of the mortgage market as a percent of GDP stood at about 34% of GDP in 2023, down from 38.1% of GDP in 2022, 42% in 2021, and 45.1% in 2020, based on estimates from the Global Property Guide. This is also far from the annual average of 60% of GDP from 2007 to 2014.

Spain Housing Loans Outstanding graph

Spanish interest rates are rising

Following the ECB repo rate, interest rates in Spain have generally increased sharply in recent months. In February 2024, the average interest rate for new housing loans in Spain was 3.68%, up from 3.52% a year earlier and 1.52% two years ago, according to the European Central Bank (ECB).

By initial rate fixation (IRF):

  • Floating rate and up to 1-year IRF: 4.39% in February 2024, up from 3.83% in the same period last year and 1.33% two years earlier
  • 1-5 years IRF: 4.13%, up from 4.02% in the previous year and 1.61% two years ago
  • 5-10 years IRF: 3.98% in February 2024, down from 4.7% a year earlier and 4.13% two years ago
  • Over 10 years IRF: 3.12%, up from 2.99% in February 2023 and 1.35% in February 2022

Spain ECB Rate and Interest Rates for New Housing Loans graph

For outstanding housing loans, the average interest rate was 3.71% in February 2024, up from 2.52% in the previous year and 1.1% two years ago.

By maturity:

  • Up to 1-year maturity: 4.05% in February 2024, higher than the 3.05% in February 2023 and 1.37% in February 2022
  • 1-5 years maturity: 6.19%, up from 5.28% in the previous year and 4.47% two years ago
  • Over 5 years maturity: 3.7%, up from 2.51% a year earlier and 1.09% two years ago

Spain Interest Rates for Outstanding Housing Loans graph

Spain’s housing market has traditionally been extremely vulnerable to interest rate changes, given that before 2004 more than 80% of new mortgages had IRF of less than 1 year, a proportion which rose to 90% from 2005 to 2006.

However, there has been a continuous decline in the share of adjustable-rate mortgages in recent years. In 2022, fixed-rate mortgages represented 65.8% of all new loans contracted, up from 43.6% share three years ago and from less than 5% a decade ago, according to INE. However, in 2023, the share of fixed-rate mortgages had fallen again to 54.2%, amidst the ECB’s decision to pause in interest rate hikes.

Spain Mortgages Constituted According to Interest Rate graph

Foreclosures continue to fall

Foreclosures fell sharply by 23.8% y-o-y to 13,053 dwellings during 2023, following an annual decline of 17.2% in 2022 and an increase of 9.4% in 2021, based on figures from INE.

By dwelling type:

  • Existing dwellings: 11,889 units in 2023, sharply down by 20.9% a year earlier, following a drop of 17.5% in the prior year
  • New dwellings: 1,164 units, down by a huge 44.7% from the previous year, after falling by 15% in 2022

Of the autonomous regions and cities, Balears registered the biggest y-o-y decline in foreclosures in 2023 of 47.1%, followed by Aragón (-42.7%), Galicia (-37.8%), Navarra (-33.7%), Castilla y León (-33.1%), Murcia (-31.8%), Cantabria (-31.3%), and Asturias (-31.1%).

Others that experienced a decline in foreclosures also included Extremadura (-29.3%), Valencian Community (-26.1%), Castilla – La Mancha (-25.1%), Andalucia (-23.7%), Ceuta (-22.2%), Madrid (-19.9%), Canarias (-18.2%), País Vasco (-14.9%), Cataluña (-13.8%), and La Rioja (-9.3%). Only Melilla saw an increase of 50% last year.

Cataluña, Andalucia, and Valencian Communities accounted for about two-thirds of all foreclosures in 2023.

Spain Foreclosures graph

The economy slowing, but labor market remains healthy

On January 23, 2014, Spain was the second euro zone country to exit its international bailout program, after Ireland. The Spanish economy has consistently outperformed much of Europe since. 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.

The Spanish economy grew by an annual average of 2.8% from 2015 to 2019. Then the Covid-19 pandemic broke out, causing consumer demand and business investment to plunge. The economy contracted by a huge 11.2% in 2020 – one of the hardest hit in the region and the country’s worst performance in recent history. Spain recorded a real GDP growth rate of 6.4% in 2021 and another 5.8% in 2022, enough to fully offset the decline in the preceding year.

During 2023, the economy expanded by a modest 2.5% from a year earlier, on the back of continuing geopolitical uncertainty, persistent high inflation and rising interest rates.

Spain GDP Growth and Inflation graph

Spain’s economy is projected to slow further this year, with real GDP growth forecast of just 1.7%, based on figures from the European Commission. The Bank of Spain is a bit more optimistic, expecting an economic growth of 1.9% this year.

“Real GDP growth is forecast to moderate to 1.7% in 2024, unchanged from autumn, owing to the combination of several factors,” said the European Commission. “On the external side, the fading impetus of the tourism sector and the still weak economic situation in Spain’s main trading partners are projected to limit the dynamism of exports. On the domestic front, the lagged impact of interest rate hikes is set to weigh on domestic demand, especially in light of the still elevated, albeit declining, internal and external debt-to-GDP ratios.”

In March 2024, nationwide inflation stood at 3.2%, up from 2.8% in the previous month but slightly down from 3.3% in the same period last year, according to INE. Inflation reached a nearly four-decade peak of 10.8% in July 2022. These figures are far from an average of just 1.1% from 2010 to 2020 and well above the ECB’s target of 2%.

Spain’s budget deficit was equivalent to 3.7% of GDP in 2023, according to the Bank of Spain, an improvement from shortfalls of 4.7% of GDP in 2022, 6.7% in 2021, and 10.1% in 2020. However, it remains above the pre-pandemic deficit of 3.1% of GDP recorded in 2019. The government aims to reduce the deficit to about 3% of GDP this year.

The country’s gross public debt was estimated to have declined to 107.5% of GDP in 2023, down from 115.9% in 2022, and is projected to stabilize further at around 106.5% of GDP in 2024, according to the European Commission. The debt level reached an all-time high of 120.3% of GDP in 2020 due to the introduction of pandemic-related stimulus packages.

The labor market continues to improve. The nationwide unemployment stood at 11.76% in Q4 2023, as compared to 11.84% in the previous quarter and 12.87% a year earlier, according to INE. Over the same period, male unemployment was 10.3% while female unemployment was higher at 13.36%.

Unemployment in Spain averaged about 22% from 2010 to 2017 before falling to an annual average of 14.1% in 2018-23.

Spain Unemployment Percentage graph

Sources:

Spain - More data and information