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July

Spanish property market returning to full strength

Published: Tuesday 17 July 2018

In the late 1990s, Spain witnessed a property boom the like of which had never before been seen in the country. With dizzying price rises, investors from across Europe, the UK in particular, poured into the country to invest in their own Iberian property.

Making money from Spanish property

However, whereas once the thought of owning a second home in Spain was driven only by lifestyle factors, by the early noughties things had started to change. Around half of Spanish property buyers now had a new motivation behind their purchase – the chance to make money.

The return on investment opportunities associated with owning a Spanish property were simply huge. Investing in a property in the country was seen by many as a failsafe get rich quick scheme. Then everything changed.

Crunch! The property bubble bursts

In 2008, the Spanish property bubble burst in spectacular fashion. Crippled by the global credit crunch, Spain, like many other countries, entered a lengthy recession. Domestic and overseas investors were suddenly unable to pay back their property loans, while numerous developers ran out of money mid-construction. This left many of those who had invested in off-plan resorts in limbo. Property prices plummeted across the country. By 2014, average property values in many regions of Spain were less than half of what they had been ten years earlier.

Fortunately, myriad recent data shows that the Spanish property market is finally starting to leave the dark days behind. The country’s economy is growing again, property prices are rising steadily and overseas investors are finally returning in droves to the market.

Resurgence in Spanish sales

It was only once Spain finally moved out of recession in 2014, that things started to improve. The property market started to stabilise and investor confidence slowly started to return.

In truth, strong economic growth – 3.1 percent in 2017 – has provided the main shot in the arm for the country’s once beleaguered housing market. Boosted by this growth, close to 465,000 property sales or purchases were recorded in 2017.

This was "the highest annual figure since 2008,” a report by Spain's national property register revealed. What’s more, it represents a rise of close to 15 percent from 2016. 

And an increase in purchases has led to a rise in prices. The same report revealed that property prices increased by an average of 7.6 percent in Spain during 2017 compared to the previous year.

This resurgence has continued into 2018.  According to Spanish property valuation firm Tinsa, the price of new and second-hand housing was up by 5.4 percent in the year to April 2018. It is the highest growth rate recorded by the company since the third quarter of 2007.

That’s not all. According to the government’s central statistics unit, Spanish property sales were up by nearly 30 percent in April 2018, compared to the same month a year earlier. The data shows that a total of 42,014 properties were sold in April, with year-on-year transaction increases recorded in all of Spain’s 17 regions.

However, in spite of this growth, official figures reveal that average property prices in Spain are still 21 percent lower than they were in 2007, at the height of the real-estate bubble.

It is this more manageable price increase that has prompted many experts to believe there will be no repeat of the late noughties property crash. Lessons, it appears, have been learned.
 
Luxury House in Mallorca, Spain - Halo Financial

Overseas investment in Spain

Unsurprisingly, as the Spanish property market has strengthened, overseas buyers have once again come flooding back into the market.

Around 16,500 of the properties sold in Spain during the first three months of this year were bought by foreigners. This compared to around 15,000 purchases made by overseas investors in the last three months of 2017.

Around 14.6 percent of the purchases made by these overseas buyers during the first quarter of this 2018 came from British investors.

Confidence is returning – Brexit or not…

While there is little doubt that the outcome of June 2016’s Brexit decision following the EU Referendum adversely affected British interest in Spanish property, confidence is undoubtedly returning.

In the immediate aftermath of the Brexit vote, British interest dwindled. Uncertainty regarding the UK’s future relationship with other EU countries, not to mention the sudden and sharp decline of the Pound’s strength against the Euro, convinced many would-be investors to stay away.

In recent months, though, things have started to change. Back in October 2017, Spain’s foreign minister Alfonso Dastis told the Andrew Marr show that his government would make sure the lives of ordinary Britons in Spain are “not disrupted” even if Britain leaves the European Union without striking a withdrawal deal.

The Spanish authorities have made it clear that they will still welcome British investment post Brexit and this has certainly increased British investment confidence.

Currency market consistency?

Another boon has been a more consistent currency market.

Sterling made steady gains against the Euro for much of the early part of 2018. In fact, the Pound hit an 11-month high against the Euro in April. The stronger Pound has certainly inspired more Brits who dream of owning a home in Europe to take the plunge.

In fact, recent figures show that Brits spent 66 percent more in Sterling terms on Eurozone property in the first four months of 2018 compared with the same period last year.

Since the April high, however, the Pound-Euro currency exchange rate has dipped slightly (although it is still more favourable than it was throughout much of 2017). This volatility means that anyone planning to invest should consider a currency exchange strategy to ensure they get the best value. This is where using a foreign currency exchange specialist like Halo Financial is essential.

Halo Financial understands why the exchange rates are moving and just what impact this has on a currency transaction. What’s more, they can also explain how to make your money go further and give you a range options on exactly when you wish to exchange, and how much you should exchange at a time.

Spain still popular with overseas buyers

German and French (8 percent) investors are the next biggest buyers of Spanish property. This is followed by Belgians (7 percent), Swedes and Italians (both 6 percent), Chinese buyers (4 percent) and Russians (3 percent).  

The future of the Spanish property market

While, without the aid of a crystal ball, it’s impossible to say exactly what will happen next with Spain’s property market, most experts are optimistic.

Analysts at CBRE predict that property prices in Spain will have risen by roughly six percent by the end of this year. However, in some regions the increases will be much higher than others. For example, the company predicts that prices in Madrid, Valencia, Malaga and the Balearic Islands could rise by as much as 10 percent in this period.

While the same company forecasts that prices will then slowdown to around three percent growth in 2019, this should not be seen as a bad thing.

“Considering what the Spanish property market has been through in the last ten years, slow and steady growth is what’s needed now. Spiralling, out of control price rises are most certainly not,” commented Dan Barker, head of private client and partnerships at Halo Financial.

“Providing this steady growth continues, the country’s economy remains strong and the UK’s relationship with Spain remains healthy post-Brexit (which we have every confidence it will), then there’s no reason for would-be investors to be put off of owning a home in Spain.”

“But, as with so much at this time of Brexit uncertainty, plenty depends on what happens in March 2019 when the UK waves goodbye to the EU! This makes it all the more important to keep a close eye on the markets and see how it affects your property purchase and investment plans.”

You can also keep up with the latest news on property abroad and how it affects the currency markets in our informative news section.