Spanish housing market continues to grow stronger

Lalaine C. Delmendo | February 05, 2019

Spain houses for saleSpanish house prices rose by 6.49% in 2018 from a year earlier (5.25% inflation-adjusted) to €1,493 per square metre (sq. m) – the biggest annual rise since 2006, according to TINSA. Quarter-on-quarter, nationwide house prices increased 1.7% during the latest quarter (1.34% inflation-adjusted)

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.


Year Nominal Inflation-adjusted
2008 -8.75 -10.04
2009 -6.57 -7.31
2010 -3.85 -6.64
2011 -8.17 -10.31
2012 -11.34 -13.82
2013 -9.19 -9.41
2014 -2.96 -1.94
2015 -1.71 -1.73
2016 1.67 0.10
2017 4.47 3.32
Sources: TINSA, Global Property Guide

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.

Local house price variations

Spain house price index region

Most regions showed strong house price rises during 2018.

  • In capitals and big cities, house prices surged 8.7% y-o-y to an average of €1,591 per sq. m in 2018, according to TINSA.
  • In metropolitan areas, house prices rose by 3.5% to an average of €1,349 per sq. m. in 2018 from a year earlier.
  • On the Mediterranean Coast, house prices rose by 6.7% y-o-y to an average of €1,497 per sq. m.
  • In the Balearic and Canary Islands, house prices soared 10.6% y-o-y to an average of €1,511 per sq. m.
  • In the rest of municipalities, house prices rose by a modest 2.9% to an average of €1,401 per sq. m.

Currently, the most expensive housing in Spain is in San Sebastian, a resort town on the Bay of Biscay in the mountainous Basque community, at an average price of €3,383 per sq. m., according to TINSA. It is followed by Barcelona, with an average price of €3,380 per sq. m., Madrid (€2,965 per sq. m.), Bilbao (€2,219 per sq. m.), and Cadiz (€2,014 per sq. m.).

Housing cycle

Spain house price index type

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).

The boom ended abruptly in 2008. The 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 the past three years (2016 to 2018), nationwide house prices are still about 35% (-43% inflation-adjusted) below the peak levels seen before the global crisis.

Urban land prices falling, despite strong demand

Spain land prices

The average price of urban land transactions in Spain fell by 4.3% to €155.1 per sq. m in Q3 2018 from a year earlier, according to the Ministry of Development.

All autonomous communities saw either land price declines or miniscule price rises during the year to Q3 2018:

  • In Madrid, average urban land price fell by 13.8% to €251.8 per sq. m.
  • In Andalucia, land prices increased by a meager 0.6% to an average of €160.6 per sq. m.
  • In Cataluña, the country’s second largest region, land prices dropped 4.6% to an average of €174.7 per sq. m.
  • In Castile-La Mancha, average land price fell sharply by 16.6% to €84.6 per sq. m.
  • In Galicia, land prices fell by 6% to an average of €84.7 per sq. m.
  • In Castilla y Leon, average land price fell by 18.4% to €55.5 per sq. m.
  • In Canary Islands, average land price increased slightly by 1.7% to €199.4 per sq. m.
  • In Valencian Community, average land price rose by 2.5% to €160.6 per sq. m.

During the first three quarters of 2018, the number of land transactions increased 7.2% y-o-y to 16,022 units while the value of land transactions rose by 8.1% to almost €2.73 billion over the same period, according to the Ministry of Development.

Transactions continue to rise strongly

Spain residential property transactions

Home sales in Spain surged 10.6% to 481,220 units from the same period last year, in the first eleven months of 2018, after increasing 15.4% in 2017, 14% in 2016 and 11.5% in 2015, according to the Instituto Nacional de Estadistica (INE).

The number of transactions for second-hand houses rose by 10.4% to 394,872 units in the first eleven months of 2018 from a year earlier, according to the INE. Likewise, transactions of newly built houses increased 11.5% y-o-y to 86,348 units.

Almost all autonomous regions and cities saw rising demand. During the first eleven months of 2018, Murcia recorded the biggest jump in sales of 24.4%, followed by Castile-La Mancha (20%), La Rioja (18.9%), Melilla (18.6%), Navarra (18.1%), Asturias (15.7%), Valencian Community (15.7%), Andalucia (13.5%) and Cantabria (13.2%). Strong sales increases were also seen in Galicia (12.6%), Aragón (11.9%), Castilla y Leon (9.6%), Extremadura (8.8%), País Vasco (8.5%), and Madrid (8.2%). There were also modest sales rises in Canarias (5.5%) and Cataluña (3.9%). Only Balears and Ceuta saw sales declines of 2.7% and 3.2%, respectively.

Home sales reached almost 468,000 units in 2017, up 15.4% from a year earlier and the highest level since 2008 – an indication that demand is back at its pre-crisis levels.

Foreign demand surging

In the first half of 2018, a total of 53,359 homes in Spain were purchased by foreigners, up by 5.6% from a year earlier.  This dwarfs the 33,000 home sales registered in H1 2007 when the Spanish housing market was at its peak.

Foreign homebuyers account for about 18.7% of all home sales in Spain in H1 2018.

Foreign investors started to return to the Spanish property market in 2014. In 2017, foreign homebuyers bought over 61,000 homes in Spain, up from about 53,500 from a year earlier, based on figures released by Property Registrars, representing about 13.1% of all home sales in Spain, from 13.25% in 2016, 13.18% in 2015, 13.01% in 2014 and just 4.24% in 2009.

Britons remain the number one foreign homebuyers, making 14% of all home purchases by foreigners in H1 2018, followed by the French (7.9%), Germans (7.8%), Romanians (7.3%) and Moroccans (6.9%). Other buyers include Swedes, Belgians, Italians and Chinese.

The Golden Visa scheme, fully applicable since 30th September 2013, has resulted in 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. Since 2015, it has been even easier to obtain the Golden visa.

Since its introduction, the Golden Visa scheme attracted 3,140 applicants. Chinese and Russian investors represent more than 60% of all money invested in the said scheme. Spain received €2.33 billion in foreign investment as a result, according to Spanish newspaper El Pais. An overwhelming majority of applicants choose real estate acquisition as a qualifying investment.

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 was followed by Canary Islands, Valencian Community, Murcia, and Andalucia.

Foreign demand is expected to remain robust in the coming years. "With regards to foreign buyers, we expect sales from US, Canadian, Middle East and Chinese buyers to continue an upward trend, especially in the cities, whilst we also expect that the Scandinavians, French, Dutch and Germans will account for a bigger proportion of sales and the British a smaller proportion due to Brexit, in the coastal regions such as Marbella and the Costa Brava," said Stijn Teeuwen of Lucas Fox International Properties.

Spanish interest rates are amazingly low

Spain interest rates

Following post-crisis European Central Bank (ECB) key rate reductions, the average mortgage rates in Spain dropped to 2.61% in December 2012, to 2.11% in December 2013, to 1.89% in December 2014, to 1.53% in December 2015, to 1.29% in December 2016 and to 1.21% in December 2017. In November 2018, the average mortgage rate in Spain remains unchanged at 1.21%, according to the European Central Bank (ECB).

In November 2018:

  • The interest rate for housing loans with initial rate fixation (IRF) of up to 1 year stood at 1.76%, down from 2.29% a year earlier.
  • The interest rate for housing loans with IRF between 1 and 5 years was 4.11%, down from 4.7% a year earlier.
  • The interest rate for loans with IRF of over 5 years was 1.2%, unchanged from a year earlier.

Spain’s housing market has traditionally been extremely vulnerable to interest rate changes, because 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.

However, there has been a continuous decline in the share of adjustable rate mortgages in recent years. Last year fixed rate mortgages represented more than half of all new loans contracted, according to the Spanish Mortgage Association.

New mortgages are rising

In 2018, the Spanish mortgage market contracted to about 42.7% of GDP, down from 45% of GDP in 2017, 48.1% in 2016, 51.3% in 2015 and 61.5% in 2011, according to the European Central Bank (ECB).

Spain housing loans

However, new housing loans are increasing sharply. During the first ten months of 2018, the total number of new home mortgages increased 10.7% y-o-y to 295,418 – of course, far from the average of 1.13 million new home mortgages granted every year from 2003 to 2008. New home mortgages, by amount, rose even more – by 16.6% y-o-y to €36.3 billion over the same period.

Foreclosures falling

Foreclosures fell to just 18,721 dwellings during the first three quarters of 2018, according to the INE.

By dwelling type:

  • Existing dwellings: 14,887 units, down 16.1% a year earlier
  • New dwellings: 3,834 units, up 10.2% a year earlier

Spain foreclosures

Of the autonomous regions and cities, Ceuta registered the biggest decline in foreclosures of 87.5% y-o-y during the first three quarters of 2018, followed by Pais Vasco (-50.3%), Melilla (-50%), Andalucia (-35.1%), Balears (-28.8%), Madrid (-24.2%), Navarra (-22.2%), and Aragon (-20.6%). Foreclosures also declined Murcia (-12%), Valencian Community (-9.7%), and Cataluña (-3.3%).

Foreclosures were still rising in La Rioja (171%), Asturias (95.5%), Cantabria (64.3%), Castile-La Mancha (38.9%), Extremadura (36.6%), Castilla y Leon (9.1%), Galicia (5.3%) and Canarias (3.7%).

Rents rising, yields back at normal levels

Average apartment rents in Spain rose by 2.7% y-o-y to €8.22 per sq. m., after rising by 8.8% during 2017, according the real estate portal Fotocasa.

“The average rental price continues to rise in Spain, but at a much lower rate than it did a year ago, when we registered double-digit year-on-year increases,” said Beatriz Toribio of Fotocasa.

“Even so, the data reveals strong price tensions in the main capitals of the country, which is striking considering that in many of them we have already exceeded the maximum prices we recorded in 2007 and 2008.”

Nationwide rents have risen by 18% in the last four years. Nine of the ten municipalities that recorded the highest increase in rents in the past four years are located in Catalonia. Gavà recorded the highest rent increase of 67% from 2013 to 2017, followed by Barcelona (48%), Castelldefels (45%), Sant Cugat del Vallès (42%), L´Hospitalet de Llobregat (38%), Esplugues de Llobregat(38%), Rubí (38%), Sitges (37). %), Cornellà de Llobregat (35%) and Madrid (28%).

Madrid is the most expensive community to rent existing homes, with an average monthly rent of €12.92 per sq. m. in October 2018, according to Fotocasa. It was followed by Catalonia with an average rent of €12.09 per sq. m., Basque Country (€9.76 per sq. m.) and the Balearic Islands (€9.66 per sq. m.).

The cheapest rental housing is found in Extremadura (€4.63 per sq. m.) and Castilla-La Mancha (€5.01 per sq. m.).

Gross rental yields on property in Spain have returned to normal, according to Global Property Guide research conducted in August 2018. In some places in Spain, but only for the smallest sized apartments, buying an apartment is now attractive from a yields perspective, a completely new situation for Spain.

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 - range 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 last year, which was higher than the previous year. Spain is once again beginning to look a possible investment destination.

No more housing oversupply; construction rising again

Spain’s housing market is now close to balanced after being massively oversupplied in the past several years. The oversupply of homes 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). Partly due to strong demand, the surplus of homes fell by 41% from 662,761 homes in 2014 to just 389,000 homes in 2015.

Spain residential constructions

With home sales of about 410,000 units per year from 2014 to 2017 and completions of just 51,000 annually, it is believed that the housing glut has been finally corrected recently.

Now, construction activity is picking up again. In 2017, residential building permits increased 12.9% y-o-y to 24,946 – the highest level in six years but still far below the annual average of 160,000 from 2000 to 2007.

Then during the first seven months of 2018, the number and area of residential building permits increased further by 7.7% and 9.5%, respectively.

Spanish economy remains robust, despite Eurozone slowdown

Spain gdp inflation

Spain’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.

Spain unemployment

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.


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