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.
Here are the 5 factors that determine the real estate market in Spain.
Spain is 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 UK).
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!
Additionally, there are poor alternatives for your savings. No need to stay that the 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 investment strategy conversation. We help you evaluate and negotiate your best mortgage and build your investment business case!
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.
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.
We hope you find this interesting and look forward to helping you with your property plans in Spain!