This article is written by Raf, our local property finder in Barcelona, check the full profile of raf here.
My 10 predictions for the Spanish property market in 2019
Real estate in Spain is and will remain a hot topic this year
Foreign buyers are in love (and we have data evidence of this love!) with Barcelona, Madrid, Alicante, the Costas and the islands and there are many factors playing in your favour as a foreign buyers or investor. In 2018, 65.506 foreigners have bought a property in Spain. That is 1.259 per week (or 250 per working day!), +7,6% more than in 2017, and the 9th consecutive year of increased transactions. At the same time the property market has been strong too: there have never been as many home sales in the last decade as in 2018!
But that´s the past and that might not be the greatest compass for your future decisions! I see many changing factors impacting the real estate sector, some more fundamentally and longer term than others. In this article, I share my observations and opinion for the property market in Spain for the future; a topic that is relevant for many people thinking of buying in Spain. Going forward I will also bring real-life cases that exemplify situations that expose buyers to risks, problems and often irresponsible and unprofessional practices, so that you can identify potential issues before they hit you. I aim to provide you with everything you need to make a smart investment decision and ensure an optimal purchase process.
5 factors that determine the real estate market in Spain
A residential property market is fundamentally driven by the overall health of a country´s economy, and by the level of the interest rates (the cost of borrowing money). At very local levels in Spain, we can additionally speak about true expat-driven markets.
1. Spain is in an expansive economic cycle and a good economy means employment, increasing incomes, optimism & confidence, moderate inflation, etc. The FMI predicts the Spanish economy will grow stronger than the Eurozone: Spain +2,2% vs Eurozone +1,6% in 2019. That´s by the way also better than Germany, France (and the U.K.).
2. Interest rates are historically low in Spain. It has never been cheaper to borrow money from the bank. This is of enormous help for many buyers to access their dream property, and for investors to increase their financial returns (you use the bank´s money as a low-cost engine to create money for you). The ECB has confirmed that it will keep interest rates low till at least the end of 2019 (initially a hike was expected after summer). But watch out, interest rates won´t stay this low forever and banks will look for other ways to increase their margins!
3. Additionally, there are poor alternatives for your savings. No need to say that bank deposits, investment funds, bonds and stock markets have greatly disappointed. The Central Bank of Spain forecasts +11,2% return on residential properties in Spain for 2019. Compare that to the interest you get on your bank deposit! You can borrow money at 1,2-2,5% (and fix rates under 2%) and make 11,2% returns. It´s really worth having that strategy talk. We help you evaluate and negotiate your best mortgage and build your business case!
4. The expat-dimension: foreign buyers, often with higher available incomes than locals, make lifestyle choices with a property or properties in Spain and pay a premium for location or certain wow-factors. This is a very local effect, mainly in coastal areas and in parts of Barcelona and Madrid. This creates micro-markets that behave differently from similar markets without expat buying activity. Detailed local knowledge of these areas is vital to understand the implications and opportunities for you. It impacts buying prices but also your property´s performance on the rental or re-sale market.
5. Spanish property is cheap compared to many other countries, and Spain offers an unbeatable lifestyle and cost of living. For instance, Barcelona properties cost on average less than half the price of Paris properties, and the Spanish Coasts offer fantastic homes for prices that are probably just inexistent in your home country.
My 10 predictions, what can you expect for 2019?
1. The real estate market continues to be in an expansive cycle and will offer attractive opportunities in 2019. The number of purchase transactions and the property prices will continue a growth path overall. However the market will evolve very heterogeneously across the country and a one-approach-fits-all strategy does not exist. The very centres Madrid and Barcelona will show reduced growth, tier-2 cities will fuel the market (e.g. Alicante, Gerona, Malaga, Zaragoza,…), and the Costas will grow at a rather slow but steady pace.
2. Investing your savings in the right area will give you double digit (10-15%) returns in the next years. Investors will need to adjust their strategies more than ever and will have to go outside their comfort zone and take expert advice to materialize the new opportunities. If you leverage the bank to finance your purchase, your returns will even be higher and 15-20% is not unrealistic.
3. People who rent, will be able to buy their own property and have a monthly mortgage payback that is equal to and possible lower than what they have been paying as monthly rent. Without a need for large upfront down payments. Hundreds of thousands (and possibly up to 1 million) Spanish households are expected to switch from renting to buying in the next 3-4 years. This generates demand in areas that today still have not picked up much, and specifically close to those cities with strong economic activities/employment. This trend is expected to be a key driver for overall housing market growth across Spain. At the same time, a lot of rental properties will become free and this might in some areas cause downward pressure on the rental prices.
4. Rental prices have gone up strongly in the last years and will likely normalise, stabilise in the next years and probably slightly decrease in some of the hot areas. Again here, in markets where foreigners / expats love to buy, this effect might be different due to their willingness to pay a premium for location.
5. Brexit continues to make U.K. (potential) buyers worry. Nobody can predict what the impact will be, but what is clear that, independent from the outcome of the Brexit, it generates uncertainly. And in uncertain times, people get interested properties above any other type of investment. We receive more questions than ever before from U.K. buyers that are preparing their scenarios. The U.K. buyers are still the largest nationality buying in Spain with on average 192 property acquisitions every week.
6. The political tension between Spain and Catalonia did initially create worries with investors. However investors look at returns, probabilities and risks, and they see that the probabilities for a bad outcome are very low. And second home or expat buyers tend to care more about the lifestyle, and that won´t change by political debates.
7. The government (national and regional) is evaluating options to “control” the market. However, these measures seem to be rather based on simple populist electoral talking, and clearly lack a sound economic foundation. I see it very likely that these measures will produce the opposite effect: higher rental prices and higher buying prices in the areas where the government would exactly like to achieve the opposite.
8. Proptech: there is a lot of buzz about this. I see significant over promises, and think many of today´s proptech initiatives will disappear, while many new ideas will be launched. Adding services to pure technology is in my view a critical way to create differentiated value and to convince customers to pay. I do believe strongly in big data applications (we have tested many and are using the best!) to support taking better purchase or sale decisions. They add clear value and generate insights that one simply cannot attain without combining tons of data.
9. Mortgage conditions will change. The good news is that the European Central Bank has decided to keep interest rates low for the rest of the year, but banks will try to compensate their additional costs imposed from recent regulatory changes with incremental charges to buyers. Watch out for new hidden costs; competition between banks is fierce. We have seen creative and totally unacceptable and shameless practices from some of the largest Spanish banks with regards to trying to charge buyers hidden costs.
10. Second homes in the coastal areas will remain very attractively priced. Prices have not seen considerable recovery yet (except for some very specific areas) and great opportunities exist. Prices as well as the type of buyers and tourists vary strongly between regions and villages, so don´t just look at the price!
- 2019 offers opportunities that won´t last forever.
- Define your goals and then develop the best strategy. The property market will evolve very heterogeneously across the country. There is no one-strategy-fits-all for Spain.
- If you plan to buy home (first or second residence), be mindful of the market changes. Your reference points from the past might no longer be a good compass.
- Investing your savings in the right area can give you double-digit returns in the next years. Don´t buy where you would have bought two years ago.
- If you buy, think financially smart and leverage the bank. There are more options than you might think.
A vision for a better future
Our mission is to make the real estate sector more transparent and provide buyers with everything they need to make a smart investment decision and ensure an optimal purchase process. We firmly believe that buying in Spain can be a complex journey through a minefield and requires expert navigations skills to complete a purchase unscathed, specifically for international buyers. This can be done better, and that´s what we do: truly help buyers & investors.
If you are looking to buy in Spain, we would suggest that you read our earlier paper on Property hunting: 6 essential reasons for loving your Spanish real estate shopper. This paper is very interesting and gives you some of the important reasons why working with a property hunter is very useful for foreigners looking to buy in Spain. You will find specific samples our independent local partners worked on in Alicante, Valencia, Barcelona and Madrid. If you are looking to buy a property in Madrid, you can read our first “Case study” written on Property hunting in Madrid. Last but not least, here was our analysis we wrote in January 2019: What return will you make on your Spanish Property in 2019?
About Raf and his team, our Property hunter in Barcelona.
We help clients locate, purchase and renovate property in Barcelona. In the last months, we have helped our clients with our Property services Finder in Barcelona in 22 home purchase operations and for a total purchase value of 6.5 million € . Thanks to a consolidated experience, a deep knowledge of the market and a unique network that allows us to find properties outside the market.
Raf is active in Barcelona since 2001 and with his team he helps you from A to Z with everything that is related to buying and investing in Spain. Raf is an economist, specialised in finance, member of the Board of Directors of the Spanish Association for Property Finders/ Buyer Agents, ex management consultant, and known from his radio shows and international seminars on the property market and buying in Spain. Raf is a guest lecturer at university for a Real Estate Master Programme, and is the Founder & CEO of a boutique real estate buyer advisory firm. Originally from Belgium, Raf lives in Barcelona with his wife and two daughters. In his free time you find him enjoying a glass of good Spanish wine or behind his piano (or both).