Spain’s housing market cooling rapidly, amidst economic slump

Lalaine C. Delmendo | January 26, 2021

After five consecutive years of modest house price increases, Spain’s housing market is cooling rapidly again, amidst an economic slump caused by the COVID-19 pandemic.  Nevertheless Spain is once again looking like a possible investment destination, as yields rise.

Spain houses for sale

Spanish house prices rose slightly by 1.68% during the year to Q3 2020 (2.2% inflation-adjusted), a sharp slowdown from the previous year’s 4.68% rise, according to the Instituto Nacional de Estadistica (INE). On a quarterly basis, house prices increased 1.15% in Q3 2020 (1.67% inflation-adjusted).

By property type:

  • Existing dwellings: prices rose by a minuscule 0.76% during the year to Q3 2020 (1.27% inflation-adjusted), the slowest growth in six years.
  • New dwellings: prices continue to rise strongly by 7.46% y-o-y in Q3 2020 (8.01% inflation-adjusted), slightly up from the annual rise of 6.64% in Q3 2019.

By autonomous regions, Melilla saw the biggest y-o-y price growth during the year to Q3 2020, at 4.87% (5.4% inflation-adjusted), followed by Ceuta (4.38%), Balears (3.35%), Murcia (3.04%), Asturias (2.72%), Aragón (2.5%), Castilla y León (2.23%), and Valencian Community (2.04%).

Minimal house price increases were seen in Galicia (1.92%), País Vasco (1.86%), Navarra (1.73%), Cataluña (1.73%), Canarias (1.43%), Castilla - La Mancha (1.38%), Cantabria (1.38%), Andalucía (1.25%), Madrid (1.21%), and La Rioja (1.19%). House prices were unchanged in Extremadura.

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.

House prices rose by an annual average of 2.5% (1.6% inflation-adjusted) from 2015 to 2019.


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
Sources: Bank of Spain, Global Property Guide

Demand is now falling sharply. Home sales in Spain fell sharply by 21.2% to 339,986 units in the first ten months of 2020 compared to the same period last year, after a modest annual decline of 2.4% in 2019, according to the Instituto Nacional de Estadistica (INE). The number of transactions for second-hand houses was down by 22.8% y-o-y while transactions for newly built houses dropped 14.3%. All of the autonomous regions saw falling demand.

Foreign demand, which buoyed the Spanish housing market in recent years, is also falling rapidly. In the first half of 2020, home sales to foreigners plummeted by 37% from a year earlier, according to the latest figures from the Association of Spanish Notaries.

Spain house price index region

Standard & Poor’s projects a 1.4% decline in Spanish house prices by end-2020.

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

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

Home sales plunging

Home sales in Spain fell by 21.2% to 339,986 units in the first ten months of 2020 compared to the same period last year, after a modest annual decline of 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).

All autonomous regions saw falling demand. During the first ten months of 2020, Ceuta recorded the biggest fall in sales of 68.1%, followed by Valencian Community (-25.7%), Madrid (-24.3%), Balears (-24%), Cataluña (-23.8%), Canarias (-23.8%), Navarra (-23.4%), Andalucia (-18.9%), Galicia (-18.9%), Pais Vasco (-18.4%), and La Rioja (-18.1%).

Sales were also falling in Castilla y León (-16.5%), Melilla (-16.5%), Castilla La Mancha (-16.5%), Aragón (-15.5%), Cantabria (-15.2%), Asturias (-14.1%), Murcia (-13.6%), and Extremadura (-12.1%).

Spain residential transactions

After reaching a decade high of almost 518,000 home sales in 2018, demand slowed slightly in 2019, with a 2.4% fall in sales.  Yet it remained the second highest level since 2008.

Foreign demand falling sharply

Foreign investors started to return to the Spanish property market in 2014. 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. However, foreign homebuying slowed in the past two years and the COVID-19 pandemic has aggravated the situation in 2020.

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.

In 2019, Spain granted 681 Golden Visas to foreigners via the real estate option – up 13.7% from a year earlier and the highest figure ever recorded. Overall, the country granted a record 8,061 Golden Visas in 2019, up sharply by 22.6% compared to 2018.

However due to the pandemic, Golden Visas approved via the real estate investment option fell to just 114 in the first five months of 2020, compared to 285 in the prior year. Chinese real estate investors fell from 180 to 65 over the same period while Russians fell from 21 to 6.

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.

In recent years, 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.  Britons remain the number one foreign homebuyers in Spain in H1 2020, making about 14% of all home purchases by foreigners.

Spanish real house prices still 32% 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

The boom ended abruptly in 2008 in a housing slump which battered the Spanish economy, and brought spiraling unemployment. Developers were left with blocks of unsold properties and massive debts.

Despite the price rises in the past five years (2015 to 2019), nationwide house prices are still about 23% (-32% inflation-adjusted) below the peak levels seen before the global crisis.

Land prices are falling sharply

The average price of urban land transactions in Spain plummeted by 15.2% to €137.5 per sq. m in Q3 2020 from a year earlier, in contrast to a 4.5% y-o-y increase in Q3 2019, according to the Ministry of Development.

Spain urban land prices

Thirteen of the 17 autonomous communities where figures are available saw land price declines during the year to Q3 2020:

  • In Madrid, average urban land prices fell by 14.6% to €288.9 per sq. m, in stark contrast to a whopping 34.4% increase in Q3 2019.
  • In Andalucia, land prices fell by 15.1% to an average of €145 per sq. m, compared to a y-o-y increase of 6.4% in the prior year.
  • In Cataluña, the country’s second largest region, land prices fell by 10.1% y-o-y to €165.5 per sq. m, in contrast to an annual rise of 5.3% in a year earlier.
  • In Castile-La Mancha, the average land price was down 3.7% to €81.9 per sq. m., following a slight increase of 0.4% in Q3 2019.
  • In Galicia, land prices plummeted by 18% to an average of €85.3 sq. m, in sharp contrast to a y-o-y growth of 22.7% a year earlier.
  • In Castilla y Leon, the average land price plunged by 20% to just €53.1 per sq. m, in contrast to a y-o-y growth of 19.6% a year ago.
  • In Canary Islands, average land price plunged 17.8% to €201.2 per sq. m, in contrast to a y-o-y rise of 22.7% a year earlier.
  • In Valencian Community, average land price increased slightly by 1.9% to €161.2 per sq. m, following a y-o-y fall of 1.5% in Q3 2019.

The number of land transactions fell by 28.6% y-o-y during the first three quarters of 2020, and their value fell by almost 43%, according to the Ministry of Development.

No more housing oversupply

Spain’s housing market is now close to being balanced after being massively oversupplied. The oversupply reached its peak in 2010, when the surplus stock amounted to 931,615 homes, according to the Institute of Business Practices (el Instituto de Práctica Empresarial or IPE). With home sales of about 430,000 units per year from 2014 to 2019 and completions of just about 50,000 annually, it is believed that the housing glut has been finally corrected. In fact, some allege there is now a housing shortage.

Spain residential construction

However construction activity is slowing again, after reaching a seven-year high in 2018. During 2019, the number and area of residential building permits fell by 13.7% and 5.5%, respectively. While no official figures for 2020 yet, it is estimated that the pandemic has caused construction activity to fall by double-digit figures.

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% in 2019.

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.

Rental demand shifts to less-densely populated locations

In Q3 2020, the average rent across Spain fell by 0.7% from the previous quarter, according to Fotocasa, one of the leading property portals in Spain. Spain’s major cities such as Barcelona and Madrid saw the biggest quarterly decline as tourists vanished and as local interest shifted to less densely-populated areas due to the pandemic.

However year-on-year, nationwide rental prices remain 12% higher in Q3 2020.

“Many Spaniards are considering leaving the big cities and going to live in outlying areas where they can find bigger, brighter and more spacious homes,” said Fotocasa’s Anais Lopez.

This was supported by data released by another leading property site Idealista. “The lockdown and increase of remote working in Spain has led to a shift in housing demand, generating increasing interest in housing in villages with fewer than 5,000 inhabitants.”

From January to June 2020, the share of potential homebuyers looking for properties in such locations rose from 10.1% to 13.2%, according to Idealista. Also, the number of flats listed for rent surged 115% in Madrid and 92% in Barcelona between January to September 2020.

Rent control law introduced

In March 2019, a new government decree regulating rental dwellings in Spain went into effect, in an effort to limit 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 new law has been applied to new lease agreements signed on March 6, 2019 onwards.

Spanish interest rates are amazingly low

Following post-crisis European Central Bank (ECB) key rate reductions, average mortgage rates in Spain dropped to 1.29% in December 2016, and have held more or less steady since. In October 2020, the average mortgage rate in Spain was 1.2%, slightly down from 1.22% a year earlier, according to the European Central Bank (ECB).

Spain interest rates

In October 2020:

  • The interest rate for housing loans with initial rate fixation (IRF) of up to 1 year stood at 1.65%, down from 1.8% in October 2020.
  • The interest rate for housing loans with IRF between 1 and 5 years was 4.38%, up from 4.25% in the previous year.
  • The interest rate for loans with IRF of over 5 years was 1.19%, almost unchanged from 1.21% 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 2020, fixed rate mortgages represented 48.9% of all new loans contracted, up from 45% share a year earlier, and from just about 3% a decade ago, according to INE.

Mortgage market remains weak

Despite ultra-low interest rates, the Spanish mortgage market continues to contract - to about 41.1% of GDP in 2019, down from 61.5% in 2011. This year, the size of the mortgage market as a percent of GDP is estimated by the Global Property Guide to increase to about 46% - but not because of increase in the volume of mortgage loans but mainly due to a contraction in the country’s GDP due to the pandemic.  In fact in November 2020, the total amount of mortgage loans outstanding fell by 1.6% y-o-y to about €507.1 billion, according to the ECB. 

Spain housing loans

New home mortgages fell 7.4% y-o-y to 278,837 during the first ten months of 2020 – far below the annual average of 1.13 million new home mortgages granted from 2003 to 2008.

The average mortgage term is now 24 years, according to INE.

Foreclosures are falling

Foreclosures fell by 38.4% to 13,195 dwellings during the first three quarters of 2020, following an annual increase of 4.7% in 2019 and y-o-y declines of 5.3% in 2018, 32.9% in 2017, 31.2% in 2016 and 14.8% in 2015, according to the INE.

By dwelling type:

  • Existing dwellings: 10,827 units in Q1-Q3 2020, down by 32.7% a year earlier
  • New dwellings: 2,368 units, down 55.7% a year earlier

Of the autonomous regions and cities, Extremadura registered the biggest y-o-y fall in foreclosures of 69% in the first three quarters of 2020, followed by Galicia (-54.5%), Castile-La Mancha (-54.2%), Melilla (-50%), Andalucia (-47.7%), Cataluña (-47.2%), Murcia (-46.8%), Canarias (-44.6%) and Asturias (-40.3%).

Spain foreclosures

Foreclosures also fell in Castilla y Leon (-33.4%), Valencian Community (-21.3%), Madrid (-18.6%), Aragón (-17.6%), Navarra (-4.4%), and Balears (-3.9%).

In contrast, foreclosures continue to rise in Ceuta (8 times more), La Rioja (2 times more), and Cantabria (37.8%) while it was unchanged in País Vasco.

Cataluña, Andalucia, and Valencian Community accounted for about 61% of all foreclosures during Q1-Q3 2020.

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 inflation

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 unemployment

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.

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.


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Comments | May 01, 2020

I know it might be quite early to tell but do you have any data about how the Spanish housing market is standing after Q1 and the COVID lockdown effects?

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