Reasons to invest in real estate in Spain

The Spanish real estate market is changing to adapt to the situation. Segments such as hotels and retails have been affected by the restrictions on mobility and the closures of businesses, while others such as residential rentals are being boosted due to the increase in the supply, since many owners who used to rent their homes to tourists have now decided to rent them for housing.

These and other changes mean that the Spanish real estate market is different than what it used to be a few years ago, and that there are a number of aspects that make it interesting for investing in real estate in Spain. These are some of the reasons you may consider for buying a property in Spain as an investment:  

  • The need for housing will always exist. We all need a roof over our heads, so the need for housing is not going to disappear. The demand for it has changed though, since, due to the pandemic, many people have become aware of the fact that their homes don’t meet their expectations and are now looking for a bigger one, with a garden or a terrace, or that is located on the outskirts of large cities. The latest report of the Property Registrars highlights important aspects such as the following:
    • The average square feet of vacant housing has increased to 110.9 square meters.
    • The weight of the large capitals in total sales and purchases has been reduced. In fact, Madrid registered in the last quarter a weight of 42.7% compared to 57.7% in 2015.
    • The sale and purchase of single-family homes has increased by 2.10 points.
  • Profitability. If you buy a property in Spain as an investment, you are looking to make profits out of it. According to data from the study Trends in the Real Estate Sector by Valuation Society, the gross profitability average of rentals in Spain was 7.9% in 2020. However, there are provinces where the profitability may be higher, based on the analysis of urbanData Analytics: Segovia (8.9%), Zamora (8.6%), Lérida (8.2%) or Toledo (8.3%).
  • Revaluation in high-demand areas: investing in properties located in central areas of large cities and tourist centers with high demand continues to be a winning alternative. There is a clear revaluation of housing and stores in high-demand areas due to the growing demand and shortage of supply.

As an example, in April 2021 a record was broken in the luxury housing market in Madrid when a property was sold for a value of €14,600,000.00, a record both for the total amount paid and the price per square meter.

  • The price of housing for sale and rent. Although a sharp fall in housing prices in Spain was expected in 2020, this has not been the case, and the main real estate portals, such as Fotocasa, have detected that the sale and purchase prices of housing have continued to increase. By the end of March 2021, the average increase in the price of homes for sale was 2.9% on an inter-annual variation. Prices on rentals, on the other hand, have been decreasing in large cities such as Barcelona, Madrid or Valencia. However, in other areas prices continue to rise, such as in La Rioja or Asturias.

The growth in demand keeps the real estate market active, but it is the investor, the owner of the properties, the one who benefits the most from the returns on his or her  investments made in Spain.

  • Low interest rates. The price of money remains low in Spain, making it interesting for foreign investors to buy and apply for financing. On the other hand, interest rates in Europe are expected to remain low during 2021 and 2022.

The fact that interest rates remain low in the European community generates an impulse to buy housing and obtain higher profitability in regard to other assets, in addition to being an asset that has a low risk if we compare it with, for example, the purchase of shares.

  • The arrival of European funds. European funds will give a major boost to the Spanish real estate sector in order to help overcome the situation caused by the coronavirus. These funds have several objectives: to boost economic recovery and job creation, and to contribute to a more resilient economy. The European Union is expected to distribute 750,000 million euros among the Member States to achieve the aforementioned objectives.
  • The strength of the new housing market. New construction has proved immune to the coronavirus as it closed 2020 with a 7.2% increase in transactions, and a 6.5% increase in the average price. In addition, it has adapted to the changes in demand detailed above, which favors transactions. On the other hand, demand is shifting from second-hand to new housing as users find it easier to manage the sale of their old home in order to access financing and to have better qualities in their homes.
  • Good weather and standard of living. Along with all of the above, another aspect that drives foreigners to decide to invest in real estate in Spain is the good weather in most of its regions, which brings quality of life and well-being.

As you have seen, there are many good reasons to invest in real estate in Spain, and, whenever it comes to paying a large amount of money, it is important to have the help of a specialized advisor in real estate sales and purchases by foreigners, to make sure that you comply with the law and carry out all the procedures correctly.

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Contributing Advisors