Spain’s housing market improving

Lalaine C. Delmendo | January 20, 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).

Source: Banco de Espana

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 house price index region

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.


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
Sources: Bank of Spain, Global Property Guide

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 residential transactions

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.

Pandemic temporarily restrains foreign homebuying

Before the 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 Asia and Russia. Any non-EU national bringing more than €500,000 to invest is automatically granted a Spanish residency permit. Overall, the country granted a total of 6,529 Golden Visas to main applicants from 2014 to H1 2021, with Chinese and Russians accounting for 32% and 25% shares, respectively.

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

However, foreign homebuying slowed recently, mainly due to the COVID-19 pandemic. And Golden Visas approved in 2020 plunged by 40.6% from the previous year. In fact in the first half of 2021, there were just 232 Golden Visas granted to foreigners, down by 66% from the same period last year. 

Spanish real house prices still 33% 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 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).

Spain house price index type

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 from 2015 to 2019, nationwide house prices are still about 21% (-33% inflation-adjusted) below peak levels.

Land prices rising again; transactions surging

The average price of urban land transactions in Spain rose by 6.2% to €146 per sq. m in Q3 2021 from a year earlier, in contrast to a 15.2% y-o-y fall in Q3 2020, according to the Ministry of Development.

Ten of the 17 autonomous communities where figures are available saw land price increases during the year to Q3 2021:

  • In Madrid, average urban land prices increased slightly by 1.9% to €294.3 per sq. m., in contrast to a 14.6% y-o-y fall in Q3 2020.
  • In Andalucia, land prices rose by 12.5% to an average of €163.1 per sq. m, compared to a y-o-y decline of 15.1% in the prior year.
  • In Cataluña, the country’s second largest region, land prices fell by 4.4% y-o-y to €158.2 per sq. m, following an annual fall of 10.1% in a year earlier.
  • In Castile-La Mancha, the average land price was up 4.4% to €85.5 per sq. m, in contrast to a 3.7% y-o-y decline in Q3 2020.
  • In Galicia, land prices fell slightly by 1.8% to an average of €83.8 per sq. m, after plummeting by 18% a year earlier.
  • In Castilla y Leon, the average land price surged 15.2% to €61.2 per sq. m, in contrast to an annual decline of 20% a year earlier.
  • In Canary Islands, average land price plunged 15.1% to €170.7 per sq. m, following a y-o-y fall of 17.8% in Q3 2020.
  • In Valencian Community, average land price fell by 5.3% y-o-y to €152.6 per sq. m, after increasing slightly by 1.9% in Q3 2020.

Spain urban land prices

During the first three quarters of 2021, the number of land transactions soared 133% y-o-y to 22,119 units, and their value increased 135% to about €3.11 billion, according to the Ministry of Development.

Construction activity increasing

In the first three quarters of 2021, housing starts increased strongly by almost 30% y-o-y to 73,263 units, in contrast to a decline of 21.2% during 2020. Likewise, housing completions rose by 14% y-o-y to 62,406 units, following a growth of 8.3% last year.

Yet these figures were far below the 1998-2008 annual average starts and completions of 500,000 units and 460,000 units, respectively.

Spain residential construction

During 2020, Spain’s total housing stock reached 25.88 million, up slightly by 0.3% from a year earlier, according to Ministerio De Transportes, Movilidad y Agenda Urbana. Andalucia accounted for the biggest share of 17.2%, followed by Cataluña (15.3%), Valencian Community (12.4) and Madrid (11.7%).

Yields are moderately good

Gross rental yields on property in Spain are now moderately good, according to Global Property Guide’s research on Spanish yields. In some places in Spain, buying an apartment has increasingly become more attractive in recent years from a yields perspective – a completely new situation for Spain. But it only applies to the smallest-sized apartments.

For apartments in Barcelona’s Ciutat Vella, gross rental yields – the return earned on the purchase price of a rental property, before taxation, vacancy costs, and other costs – ranged from 4.40% to 5.15%.

Similar yields, or maybe slightly lower, can also be had in Madrid. All these yields figures are higher than the previous year, when yields were higher than the previous year. Spain is once again beginning to look a possible investment destination.

New rent control to be introduced to rein in rent increases

Rental prices have risen by more than 46% from Q3 2015 to Q3 2021.

To rein in housing costs surge in recent years, Spain has recently approved a plan to introduce rent controls and increase taxes on some vacant homes in the country. The salient features of the housing bill include:

  • Limiting the amount landlords with multiple residential properties can increase rentals;
  • Increasing taxes for owners who leave multiple homes empty, and;
  • May require some new real estate developments to set aside some properties for social housing.

“It was urgent to combat the abusive rise in prices, to fight the growing inequality and degradation that was taking place,” said Spain’s Minister of Transport, Mobility and Urban Issues Raquel Sanchez. “It’s a way out of the labyrinth where many people find themselves because they can’t pay for the house they want to buy or find a home to rent at reasonable prices.”

This follows a government decree, which went into effect in March 2019, that also limits rent increases and expand tenant protection and rights. Among the major changes, the measure caps annual rent hikes at the rate of inflation within the contract period; extends the duration of the rental contract from 3 years to 5 years (or 7 years if the landlord is a business entity); and introduces a state benchmark index for rental prices that will be used to gauge the current state of the market. The said law has been applied to new lease agreements signed on March 6, 2019 onwards.

€1 billion set aside for social housing

Earlier this year, the government announced that it will invest €1 billion of EU COVID-19 recovery funds in social housing.

Part of Spain’s broader housing plan is an initiative to offer young adults aged 18 to 35 €250 a month to spend on rent for up to two years to help them “have access to decent rental housing”, said Spain’s Prime Minister Pedro Sánchez. Though it will only apply to those who earn less than €23,725 annually.

“We are talking about a fair economic recovery and this means facilitating access to housing, especially for those who are most vulnerable to precariousness, such as our young people,” stated PM Sánchez.

Mortgage market shows little improvement

In the first ten months of 2021, new home mortgages rose by 23.6% to 348,376 compared to the same period last year. The total amount of mortgage loans outstanding increased slightly by 0.8% y-o-y to about €511.3 billion, according to the ECB. Yet despite ultra-low interest rates, it remains far below the annual average of 1.13 million new home mortgages granted from 2003 to 2008. Last year, the size of the mortgage market as a percent of GDP increased to about 45.2%, but mainly due to the contraction in the country’s GDP because of the pandemic.

Spain housing loans outstanding

Spanish interest rates are low

This weak mortgage market is surprising. In October 2021, the average mortgage interest rate in Spain was 1.1%, slightly down from 1.2% a year earlier, according to the European Central Bank (ECB).

Spain interest rates

In October 2021:

  • The interest rate for housing loans with initial rate fixation (IRF) of up to 1 year stood at 1.41%, down from 1.65 in October 2020.
  • The interest rate for housing loans with IRF between 1 and 5 years was 4.18%, down from 4.38% in the previous year.
  • The interest rate for loans with IRF of over 5 years was 1.09%, slightly down from 1.19% a year earlier.

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

Spain mortgage by interest rate

However, there has been a continuous decline in the share of adjustable rate mortgages in recent years. In October 2021, fixed rate mortgages represented 47.9% of all new loans contracted, up from 41.9% share a year earlier and from just about 3% a decade ago, according to INE.

Foreclosures rising again

Foreclosures rose by 14.6% to 15,100 dwellings during the first three quarters of 2021, following an annual decline of 31.2% in 2020, according to the INE.

By dwelling type:

  • Existing dwellings: 13,419 units in Q1-Q3 2021, up by 24.1% a year earlier
  • New dwellings: 1,681 units, down 28.9% a year earlier

Of the autonomous regions and cities, Canary Islands registered the biggest y-o-y increase in foreclosures of almost 146% in the first three quarters of 2021, followed by País Vasco (101.4%), Ceuta (70.6%), Extremadura (55%), Madrid (44.5%), Navarra (43.2%), Castile-La Mancha (37.7%), Andalucia (35.5%), Asturias (18.5%), and Cataluña (12.8%). Modest increases were seen in La Rioja (5.9%), Valencian Community (3.6%) and Aragón (1.5%).

Spain foreclosures

In contrast, foreclosures fell in Cantabria (-74.9%), Melilla (-50%), Balears (-38%), Castilla y Leon (-22.1%), Murcia (-10.4%) and Galicia (-5.6%).

Cataluña, Andalucia, and Valencian Community accounted for about 63% of all foreclosures during the first three quarters of 2021.

Spanish economy remains fragile, unemployment high but falling

In 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.

Spain gdp inflation

Economic growth slowed to 2% in 2019, as consumer demand waned and business investment weakened. Then the COVID-19 pandemic has aggravated the situation, with the economy plunging by a huge 10.8% during 2020. Spain was one of the hardest hit by the pandemic in the region, and its recovery lagged behind its neighboring countries.

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.

Spanish unemployment fell to 14.57% in Q3 2021, down from the previous year’s 16.26% but still slightly up from Q3 2019’s jobless rate of 13.92%, according to INE. Unemployment in Spain averaged about 22% from 2010 to 2017 before falling to an annual average of 14.7% in 2018-19.

In December 2021, inflation jumped to 6.7% - the fastest pace since 1989, according to INE’s flash data. This is far from an average of 1.1% from 2010 to 2020.

Spain’s budget deficit increased rapidly to about 11% of GDP in 2020, sharply up from a shortfall equivalent to 2.9% of GDP in 2019, mainly due to a surge in government spending amidst the pandemic. The deficit is expected to fall slightly to 8.1% of GDP this year, according to the European Commission. Spain’s gross public debt will remain high at about 120.6% of GDP this year, from 120% in 2020 and 95.5% in 2019.

A socialist government and the biggest budget in Spain´s history

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.

Spain unemployment

Recently, the parliament approved the biggest budget in Spain’s history, with billions of euros from EU’s huge COVID-19 recovery fund. The passage of the 2022 budget amounting to a record €240 billion boosts the chances that Sánchez’s minority government will survive until the end of its mandate in late 2023.



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