Spanish Property Market in 2024

Overview of Recent Trends

The Spanish property market has demonstrated remarkable resilience over the past few years, showing strong activity and performance, particularly in 2022. Despite facing significant economic and geopolitical challenges, such as the ongoing Ukraine war and rampant inflation, the market thrived, with sales reaching levels reminiscent of 2007. Property prices consistently trended upward throughout 2022. However, towards the end of the year, the market showed signs of cooling, with slightly subdued sales and price growth. Despite this, 2023 saw the second-highest sales in over 15 years, only surpassed by the boom of 2022, with sales figures 24% above the 10-year average, despite headwinds like higher interest rates and inflation.

Sales and Price Trends

In 2023, the Spanish housing market experienced a soft landing after the mini-boom post-pandemic. Data from the National Institute of Statistics (INE) indicated that home sales for the first 11 months of 2023 totalled 550,215 transactions, a 9% decrease compared to the same period in 2022 but 17% higher than in 2019, the last normal year before the pandemic. This indicates a return to pre-pandemic normality in regions of significant interest to foreign buyers, such as Malaga and the Balearics. In Alicante, the sales boom continued almost unabated in 2023, fuelled by strong foreign demand, with sales ending up 34% above 2019 levels and close to record highs.

Foreign demand played a crucial role in the market’s resilience in 2023. The number of home sales involving foreign buyers in the first nine months of the year was down 6% compared to 2022 but up by 41% compared to 2019 – Source The Olive Press. This figure was also 45% higher than the 10-year average, marking the second highest on record. Regionally, foreign sales were down 19% in Andalucía and 28% in the Balearics but increased by 6% in the Valencian region.

House Prices and Economic Factors

House price evolution in 2023 was driven by firm demand and a chronic shortage of homes for sale in major cities and popular coastal areas. According to the INE, the average Spanish house price increased by 4.5% year-on-year, reaching levels last seen in Q1 2008, in nominal terms. However, in real terms, Spanish house prices are still 25% below their 2008 peak. In contrast, according to Eurostat, EU house prices declined by an annualized 1% in Q3, 2.1% in the Euro area, and 10.2% in Germany, indicating that Spanish house prices are holding up much better than in most other EU countries. Regionally, house prices increased by 4% in the Balearics, and 5% in Andalucía and the Valencian region.

The positive price trend can be attributed to several factors. The good performance of the labour market and the availability of accumulated savings by households during the pandemic have allowed demand to grow. However, several factors have also contributed to the contraction in sales. Economic growth moderated from 5.5% in 2022 to around 2.5% in 2023 – Source BBVA Research. The rapid and substantial rise in interest rates made financing more expensive, creating uncertainty about future economic conditions. Additionally, regulatory uncertainty, particularly aspects of the Housing Rights Law, has discouraged the purchase of homes for investment purposes.

Regional Dynamics and Future Outlook

In terms of regional dynamics, the rise in housing prices in some of the most stressed areas has significantly outpaced the growth of household gross disposable income, potentially discouraging housing demand. For instance, between January and September 2023, prices in the Balearic Islands grew by 8.5% year-on-year, in the Canary Islands by 6.3%, in Andalusia by 5.5%, and in Madrid by 4.0%.

Despite the contraction in sales, construction activity has not kept up with demand. The number of permits to start new homes was around 110,000, contrasting sharply with the nearly 250,000 new households formed annually on average in 2022 and 2023. This gap is primarily due to a lack of finalized land, long and slow urban planning processes, and regulatory uncertainty. Other contributing factors include companies’ difficulty in finding labour, rising costs and scarcity of some key materials, and the rise in interest rates.

The persistent interest in new builds and their limited production has led to higher price increases for new homes compared to used ones. In the first three quarters of 2023, prices for new builds grew by 6% compared to the same period in 2022, while the year-on-year increase for used homes was 3.3%. On average, housing prices in Spain increased by 3.4% during this period, although high inflation prevented significant real-term growth.

Looking ahead to 2024, the sector is expected to continue progressing and consolidating a trend change as 2025 approaches. Sales may contract again but with less intensity, mainly due to the persistence of relatively high interest rates. The strong performance of the labour market ensures that transactions will remain around 600,000, higher than the average between 2015 and 2018. Regulatory uncertainty will continue to affect investment decisions, and some aspects of the Housing Rights Law could disrupt the market’s functioning, such as rent price controls based on an index developed by the Ministry of Housing and Urban Agenda.

Market Challenges and Long-term Prospects

The Spanish housing market faces several challenges in the long term. The aging workforce in the construction sector is a major concern, with the average age increasing by eight years between 2007 and 2022 – Source BBVA Research. This implies that a generational shift will be necessary in the coming years in a context of labour shortages. Training workers and investing in the industrialization of construction processes should be priorities to improve the sector’s productivity and mitigate the labour supply shortage. Additionally, implementing a migration policy that helps regulate the arrival of workers to needed sectors would be beneficial.

Reducing regulatory uncertainty is also crucial for the market’s stability. Prioritizing agreements between different administrations when legislating, establishing consensual initiatives, and avoiding unsuccessful measures from other regions would provide more social benefits. Increasing the housing supply is a key policy that could have the most significant impact on the market, addressing the main problem of housing shortages in Spain.

The Spanish property market in 2024 is expected to experience stability amid various challenges. Despite potential contractions in sales and moderate price increases, the market will likely track sideways at the current level, supported by strong labour market performance and continued foreign demand. The market’s resilience will depend on addressing long-term challenges such as labour shortages, regulatory uncertainty, and the need for increased housing supply. With these factors in mind, the sector is poised for a potential recovery and growth in 2025 and beyond.

 International Buyers in the Spanish Property Market

Key Trends and Figures Despite rising interest rates and a cost of living crisis, international buyers are a significant part of Spain’s housing market, accounting for 14.9% of real estate transactions in Q2 2023 – Source Inmo Investments, totalling 22,706 sales Source Spanish College of Property Registrars. This is the second-highest quarterly figure since 2013, only surpassed by Q3 2022’s 15.9%. Pre-pandemic, the highest was 14.3% in Q4 2015. Since Q1 2022, foreign property sales have consistently exceeded 20,000, showcasing the global appeal of Spain’s real estate.

British Buyers Lead but Decline in Share British buyers remain the top foreign property purchasers in Spain, with 1,998 transactions between April and June 2023. However, their share decreased from 9.0% in Q1 2023 to 8.8% in Q2. Historically dominant, British buyers peaked at nearly 25% in 2015 but have seen a decline, barely exceeding a 10% market share in recent years.

Emerging International Buyers Sales to other nationalities have surged, leading to record-breaking figures since Q4 2021. Germans follow the British, with 1,646 property sales (7.3%), and French buyers at 6.6% with 1,490 sales. Other notable buyers include residents of Morocco (1,219), Italy (1,185), Romania (1,169), Belgium (1,156), and the Netherlands (1,047). Smaller, yet significant shares come from Poland (3.9%), Russia (3.4%), China (3.1%), Sweden (2.9%), Ukraine (2.7%), and Ireland (1.7%).

This data underscores the diversified and growing interest of international buyers in Spain’s property market, ensuring its continued dynamism and appeal.