New investment opportunities in the Spanish property market

According to data from the Spanish Ministry of Development, the number of foreigners buying Spanish property has increased over the last seven years, with foreign buyers now accounting for 16% of the Spanish property market.

Spain’s real estate market nosedived in 2008 with property prices plummeting by approximately -3.2%. However, after experiencing periods of turbulence, low property prices strengthened Spain’s economic prosperity by increasing market activity from both foreign and local buyers.

Many factors contributed to the recovery of the Spanish housing market, such as the pre-Brexit pound to euro (GBP/EUR) exchange rate, which traded above EUR 1.40. Other investment opportunities in sectors such as tourism and infrastructure have attracted foreign buyers in neighbouring EU countries as well as Russia and China.

The coronavirus pandemic has impacted the recovery of Spain’s property market, as it came to a standstill during the beginning of 2020.

Spain’s economy relies heavily on the travel and tourism sector, and according to the Spanish General Council of Notaries, in the first six weeks of lockdown in Spain, only 1% of pending housing transactions were completed.

Unlike other EU member states such as Germany, that allowed property visits and were able to rely on digital technology to assist in housing sales, Spain’s strict coronavirus lockdown halted a vast majority of buyers and sellers.

Under Spain’s lockdown restrictions, property visits were banned, and individuals were unable to take out mortgages, or rely on public notaries.

However, property investors have seen the housing market stall as an opportunity and have stayed active in the Spanish property market to take advantage of faltering prices.

Some Spanish real estate agents have said that during the coronavirus crisis, influential, highly-liquid investors asked to receive “opportunity lists” of bargains they may only have a small window to catch.

The Spanish government’s furlough scheme and mortgage payment holiday have helped to mitigate the impact of the epidemic by protecting jobs and the international rating agency S&P Global Ratings suggest an average drop of between 3% – 3.5% in 2020.

Inevitably, there will be regional variations as the S&P expect steeper declines in larger cities such as Madrid and Barcelona. In contrast, coastal areas such as Alicante and Palma may see little reductions.

Despite the shock caused by the coronavirus, the S&P forecast the Spanish property market will make a quick recovery in 2021 and that sellers should remain optimistic. Fiscal action taken by the European Central Bank (ECB) has also limited economic headwinds in the market.

Anais Lopez, Fotocasa’s Communications Director, which is Spain’s second-largest property portal said property demand might increase due to confinement, as many Spaniards have realised “their current property isn’t suitable for their needs.”

He went on to say: “This new demand could be significant to the recuperation of the housing sector in the next few months.”

Take advantage of Spain’s buyer-friendly market

Despite the financial setbacks of COVID-19, the second half of 2020 began to see a rise in demand from foreign buyers, particularly from the UK. The coronavirus pandemic seems to have created a sense of adventure amongst property buyers, with many now feeling compelled to fulfil their dreams of living abroad.

Spanish property site, Kyero, saw 18% growth in UK visitors viewing Spanish properties as estate agents predict a significant rise in foreign buyer activity in 2021. It’s predicted that five of the best regions for Spanish property investors will be:

Madrid

Madrid is the most populous city in Spain, so it’s no surprise that this remains a prime target for foreign buyers looking to invest in Spanish property. Property prices in Madrid remain consistently high, with price per square metre in March 2020 reaching as high as EUR 5,048. Madrid is also renowned for its thriving nightlife and being home to two of the world’s biggest football clubs.

Barcelona

Known as a cultural hub, Barcelona has a slightly higher yield of 3.5% in comparison to Madrid’s 3%, making it a property hotspot for foreign buyers. Close to popular towns such as Costa Brava, it is situated in an ideal location.

Southern Spain

Andalucía is a Spanish hotspot for UK expats, with more located here than any other Spanish region and with over 300 days of sun each year, it’s easy to see why.

Malaga is also a popular choice for property investment given the gross average rental yield is 4.66 in the city centre and 5.24 outside.

Investing in Spanish property amid the coronavirus crisis

Without being physically able to visit a property, investors can take several steps to reduce the risk of potential losses when purchasing a property in Spain.

Source a registered and experienced property lawyer, who can help you evaluate the legal requirements of the property through the corresponding Land Registry.

It is advisable to have the help of veritable real estate agents as with support from your lawyer; they can assess the physical characteristics of the property to ensure quality, safety and security standards are met.

It is also suggested that you speak with a currency exchange provider, such as Halo Financial, who are authorised and regulated by the Financial Conduct Authority (FCA).

Through careful currency management, Halo Financial can minimise the risks associated with fluctuating exchange rates while offering competitive exchange rates to maximise your currency exchange.

At the time of writing, the pound to euro (GBP/EUR) exchange rate is trading at EUR 1.10. However, Brexit negotiation tensions with the EU could soon trigger a decline in the pound’s (GBP) valuation.

Halo Financial offers several foreign exchange rate contracts such as forward contracts and spot contracts that will protect foreign exchange volatility by locking in a desirable rate. Please speak with one of their currency exchange specialists for further advice.