What to expect from the Spanish Property market in 2024

BBVA projects that the lack of available properties will persist as a notable characteristic of the property market (in) Spain 2024, particularly evident in high-demand areas such as major provincial capitals, suburban zones surrounding major cities and tourist hotspots. This supply/demand cycle in crisis is one of the reasons why the experts forecast (for) 2024 a 3% increase in overall property prices for 2024, following a 7% surge observed in 2023.

According to Idealista, the supply of long-term rentals in spain property market, decreased by 12% by the end of 2023 following the enactment of the housing law in May, while short-term rental availability increased by 39%. More government policies are expected this year to compensate and the effects are yet to be seen.

Banks have reignited the mortgage competition with interest rates below 3% reappearing on the market, prompted by expectations of multiple interest rate cuts by the European Central Bank (ECB) throughout the year. This will make it easier to access mortgages and increase overall property transactions.

Overview of the Spanish property market.

The Property Market in Spain has showcased a steady and consistent growth trend, underpinned by Spain’s stable economy, robust infrastructure, competitive labour market and an exceptional quality of life, boasting outstanding healthcare, education and leisure opportunities, complemented by its inviting Mediterranean climate.

The growth trajectory of Spanish house prices underscores the reliability of the real estate market, making it an appealing option for investors seeking capital gains over time with minimal risk. In comparison to other Western European countries, property in Spain remains relatively affordable, providing investors with greater value for their investment.

Introduction to the current market

The current state of the Spanish property market in 2024 reflects a persistent imbalance between property supply and demand, notably concentrated in urban centres and popular tourist hubs. Despite facing challenges such as inflationary pressures and elevated interest rates, property values are anticipated to rise again. Shifts in rental trends have been observed, with a decline in long-term leasing and a corresponding uptick in short-term rental options. Government regulations, particularly surrounding rent controls and mortgage laws are significantly influencing the market conditions.

The commercial real estate sector demonstrates growth, especially within the hospitality and shared workspace sectors. External factors such as global economic shifts and technological advancements, including virtual reality tours and blockchain applications are also shaping the market landscape.

Historical performance

After a sustained period of robust growth in real estate prices in Spain, the market faced a substantial setback during the global financial crisis of 2007, culminating in the collapse of the Spanish property bubble. It wasn’t until 2016 that property prices began to show signs of positive recovery. According to Ceicdata‘s analysis spanning the past decade, 2017 marked the commencement of a steady upward trend in prices, albeit with a temporary halt during the COVID-19 pandemic.

Key drivers of the market in 2024

Inflation will continue to drive the Spanish property market in 2024. Investors are more optimistic as inflationary pressures are easing across Europe and Spain. This will positively affect property transactions and development.

International investors play a big role in driving the Spanish property market. Applications for Golden Visa, Digital Nomads and “senior living” are the most prominent and still a key factor for 2024.

European and Spanish legislation have the power to alter the trajectory significantly as it has done with rental properties in 2023. To tackle this, the government aims to tighten regulations for homeowners renting properties temporarily and is in the process of establishing a reference price index. Furthermore, new state legislation is being crafted to regulate the tourist housing sector, creating a framework for such accommodations. The ramifications of these initiatives on the Spanish rental property market remain to be seen.

Interesting read: Golden Visa in Spain  

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Economic factors

The Spain property market faces challenges from inflationary pressures and high interest rates.

As of February 2024, the Euribor stood at 3.609%. Inflation inevitably influences interest rate levels. As inflation rises, so do interest rates. This ripple effect of increasing interest rates extends across all sectors of the economy. However, the real estate sector is particularly sensitive to these fluctuations due to its heavy reliance on credit for property transactions and development.

Bankinter forecasts a moderation of the 12-month Euribor to 3.25% in 2024 and 2.75% in 2025. However, despite the predicted decrease in Euribor in 2024, Spain’s Construction Price Index will remain high, impacting new construction. Global concerns, such as the conflict in Ukraine, also affect this issue.

Government policies and regulations

The Spanish property market is affected by a regulatory framework. Firstly, a cap was set on long term housing rental in Spain and in “Stressed Areas,” where housing costs are high, rent controls are enforced. Tenants facing social or economic vulnerability can request extensions for paying rent of up to a year. These measures have brought about a change in the way landlords manage their rental properties; more than 25% have already switched from long-term rentals to short-term rentals, where this law is absent.

Secondly, the revisions to the Spanish Mortgage Law in 2023, to mitigate the impact of rising Euribor rates on variable mortgages, comes at the cost of banks and financial institutions exercising a greater prudence for financing.

Perhaps the more Spain complies with ESG legislations in sustainability, energy efficiency and social housing the more laws will play a role in the Spanish Real Estate market.

Interesting read:  Why are Costa del Sol Properties in such high demand?

Regional market analysis

As it is published in the Expansion, January 2024 closed with prices lower than they were in the same month of 2023 by 2.6% in Badajoz, 2.5% in Lugo, 1.9% in Zamora, and 0.4% in Vitoria. Others, such as Salamanca or Almería, saw increases of less than 1%.

The increases in housing prices varied across the Spanish geography, but there were significant rises in major capitals and along the Mediterranean coast. The capitals with the highest year-on-year advances were Teruel (21.8%), Santa Cruz de Tenerife (19%), Málaga (17.6%), and Madrid (16.6%). Barcelona experienced a much lower increase of 4.7%.

According to Fotocasa, the three most expensive autonomous communities in January 2024 are the Balearic Islands, Madrid and Basque Country. The cheapest are in the Region of Murcia, Castilla-La Mancha and Extremadura.

Hotspots for investment

According to the consultancy firm, Colliers, Madrid ranks among the top six cities for real estate investment in Europe in the upcoming year. It emphasizes industrial, logistics, and multifamily units as the most appealing assets, along with the hotel sector in Spain. The study emphasizes that stability will be crucial throughout the year, noting that investors and developers are now more cautious than ever about how and where they deploy capital. For many, this entails prioritising cities that offer liquidity, especially during riskier economic periods, like Madrid, Barcelona and Málaga and properties along the Mediterranean coast.

Interesting read: Cost of buying a house in Spain 

Investment opportunities in Spain 2

Emerging markets

Investors are increasingly directing their focus towards alternative sectors that offer enhanced returns and resilience. These include data centres, life sciences, healthcare, senior housing, student housing, self-storage, and single-family rentals. These sectors are particularly appealing due to their ability to weather economic fluctuations and adapt to changing consumer preferences.

Despite a downturn in 2023 and only a partial recovery anticipated in 2024, professionals in the Life Sciences Real Estate (LSRE) sector widely agree on its robust long-term fundamentals and strong investor interest. The sector’s growth has been propelled by advancements in biotechnology, medical research and development, generating an unprecedented demand for suitable spaces. Madrid has emerged as a leading hub for life sciences in Europe, experiencing a surge in investment and heightened demand for infrastructure dedicated to research and development in the field.

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Residential property market trends

Low supply and high demand continue to drive residential property prices upward in 2024, with no forecasts indicating a change or a correction in this trend.

Energy certification is becoming increasingly relevant, not only as a regulatory requirement but also as a determining factor in purchasing decisions. Buyers are seeking properties that not only meet their current needs but also reflect their commitment to a sustainable lifestyle.

The implementation of the Housing Law has led to a rise in coliving arrangements. Numerous property owners have transitioned from long-term rentals to short-term rentals, resulting in a supply shortage. Additionally, rental contracts signed prior to 2019 will be subject to a 3 percent cap on price increase in 2024. Idealista states that at the end of January 2024, the rental market in Spain had experienced a 10.6% increase from January 2023, with the average price reaching €12.4/m2

Interesting read: Property conveyancing in Spain

Commercial property market outlook

The commercial real estate market in Spain is projected to achieve a growth rate of 1.62% by the conclusion of 2024. Notably, Spain retains its position as one of the most dynamic hotel investment markets in Europe. Alberto Martín, Associate Investment Director of Christie & Co in Spain and Portugal, anticipates that the first quarter of 2024 will outgrow the investment volumes recorded in 2023. This surge is due to the ongoing transactions nearing closure and a robust interest from international investors with an expected increase in participation from domestic investors. In 2023, hotel investment in Spain soared to a total volume of €4.052 billion, marking the third consecutive year of exceeding €3 billion. Simultaneously, the popularity of co-working spaces has surged, attracting freelancers, startups and larger corporations due to their flexibility, cost-effectiveness and networking atmosphere. Customer preferences towards office settings are open layouts, collaborative spaces and amenities such as gyms and cafes. This evolution underscores a heightened emphasis on work-life balance and the creation of dynamic work environments.

In terms of commercial investment and development opportunities for the coming years, studies suggest the predominant sectors start with student accommodation, medical office buildings, private healthcare provision clinics and those around the generation, storage, or utilisation of renewable energy. In particular, solar farms and solar energy generation.

Impact of remote work and e-commerce

Demographics and social trends also play an influence on the Spanish property market. The increasing prevalence of telecommuting has emerged as a key factor driving up international demand. Office spaces are having to adapt to new working conditions allowing for more collaboration and co working space. Residential and commercial properties are changing to mixed used, rural areas and city peripheral properties are seeing a surge in international residents with larger properties to accommodate working from home. This feeds the demand/supply cycle. Caixa Research states this is one of the causes of the continuous increase in the prices of residential properties.

Interesting read: Digital Nomad Visa in Spain 

Investment opportunities and risks

The property market is as challenged as it is, all while addressing mounting responsibilities concerning environmental, social, and governance (ESG) legislations in short and long term. Understanding the factors influencing rental income and property value is becoming increasingly important to respond to these challenges.

The ongoing imbalance between supply and demand in Spain’s primary cities is expected to create opportunities for investors for residential property, especially in influential cities.

Savills report on key variables that will drive the real estate investments for 2024 are particularly in sectors such as coliving, student housing, senior living and urban logistics.

Social housing is presently the sole component of the ‘S” in ESG legislation. In Spain, 2023 marks the lowest year for social housing since 2009. To comply with ESG, Spain has adopted new laws that include measures to increase the supply of affordable housing, prevent tensions in the rental market and support young people and vulnerable groups in accessing housing as well as adopting measures to support landlords.

Sustainable real estate is also at the forefront of ESG legislation so it has potential to be a good investment opportunity

Impact of global economic trends

Global economic trends impact real estate investment worldwide. Economic growth boosts demand and property prices, while recessions lead to declines. Foreign investment can drive up prices but may create affordability and stability concerns.

The Russia-Ukraine war has significantly impacted the construction industry, particularly in the building materials market. Metal prices surged post-war, while increased freight costs and trade route disruptions in the Middle East have led to delays and higher expenses. The Construction Price index in Spain at the end of 2023 is 128.6, still 30% higher than pre war times. Higher construction and labour costs slows down construction rate for the real estate sector thus directly affecting the supply/demand cycle that is keeping our property prices in steady rise.

Do you need a professional help for “Property Market”?

Technological advancements and the property market

A pioneering consultancy firm integrating technology and innovation into real estate and financial sectors, highlights a 20% surge in technology investments by real estate firms in 2023, with an anticipated 10% increase in 2024. This surge reflects a profound shift in the Spanish property market landscape driven by cutting-edge technologies.

Virtual Reality (VR) Tours is the most used example of this technological implementation: interesting read.

It enables global buyers to explore properties remotely with immersive 360-degree views, an incredibly realistic experience, enticing prospective buyers to explore various rooms, evaluate property layouts and gauge spatial dimensions with precision. Augmented Reality (AR) together with VR, enables developers and agents to enhance property showcases with immersive visualisations and customization options. like personalising interior designs, room layouts and furniture arrangements.

The adoption of Smart Home Technology utilising the Internet of Things (IoT) is also streamlining property transactions and management processes, enhancing efficiency and convenience. Blockchain technology, renowned for its role in cryptocurrencies like Bitcoin, is gaining traction in real estate, ensuring transparent, tamper-proof and secure property transactions through decentralised ledger systems.

Technology also impacts customer experience in the real estate sector. AI revolutionises the industry by delivering personalised customer experiences, facilitating rapid property valuations and offering predictive market analysis. Additionally, customers benefit from property software that provides real-time information on property listings, pricing and market trends, enhancing their decision-making process and overall satisfaction.

Need help for buying properties in Spain

When buying a house, several searches are typically conducted to gather essential information about the property and its surrounding area. These searches provide valuable insights into potential issues or liabilities that could impact the property’s value, legal status and overall desirability.

Engaging in legal representation can play a crucial role in the home-buying process as they conduct appropriate legal checks on the property, complete necessary legal work for the purchase and ensure compliance with lender requirements if obtaining a mortgage. Legal representatives identify any title or planning issues and facilitate the transfer of property ownership from the seller to the buyer.

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