Market in Depth

Spain's house price rises decelerating, but outlook remains upbeat

Lalaine C. Delmendo | January 15, 2020

Spanish house prices rose by 4.68% during the year to Q3 2019 (4.36% inflation-adjusted), a slowdown from the prior year's 7.16% growth and the slowest pace since Q4 2016, according to the Instituto Nacional de Estadistica (INE). On a quarterly basis, house prices increased 1.58% in Q3 2019 (2.26% inflation-adjusted).

By property type:
  • Existing dwellings: prices rose by 4.41% during the year to Q3 2019 (4.08% inflation-adjusted), the slowest growth in three years.
  • New dwellings: prices rose by 6.64% y-o-y in Q3 2019 (6.31% inflation-adjusted), following annual rises of 7.17% in Q2 2019, 10.35% in Q1 2019, 8.03% in Q4 2018 and 6.13% in Q3 2018.

The Bank of Spain reports lower house price rises. During the year to Q3 2019, nationwide house prices rose by a modest 3.07% (2.75% inflation-adjusted). On a quarterly basis, house prices were up by a minuscule 0.05% in Q3 2019 (0.73% inflation-adjusted).

After seven long years of house price declines, Spain's housing market only returned to growth in 2015. Spanish house prices had fallen by a total of 36.3% (-42.9% inflation-adjusted) from Q3 2007 to Q1 2015, with existing home prices falling by as much as 43.1% (-49% inflation-adjusted), based on figures from INE. There were 24 consecutive quarters of y-o-y declines.

Demand is slowing gradually. Home sales in Spain fell by 3.1% in the first ten months of 2019 compared to the same period last year, to 427,638 units, after increasing by 10.8% in 2018, 15.4% in 2017, 14% in 2016 and 11.5% in 2015, according to the Instituto Nacional de Estadistica (INE). The number of transactions for second-hand houses dropped 4% but increased slightly by 1.3% for newly built houses.

The surge in home sales in recent years was mainly driven by foreigners buying homes on the coast and in cities like Barcelona and on the Costa del Sol, one of the country's most popular areas with overseas purchasers. Most foreign homebuyers are Britons, French, Germans, Belgians, Italians and Swedes.

Construction activity is weakening again, after reaching a seven-year high in 2018. During the first seven months of 2019, the number and area of residential building permits fell by 23.7% and 10.6%, respectively.

Foreclosures rose by 11% during the first three quarters of 2019 from the same period a year earlier to 21,039 dwellings, based on figures from the INE. Foreclosures for new dwellings increased by 36.9% and by 4.4% for existing dwellings.

Despite slowing economic growth, the outlook for Spain's housing market remains upbeat, with house prices expected to rise by 5.5% in 2020,the largest rise of eight European countries included in a recent Moody's forecast. According to Moody's the Spanish housing market now faces low risks due to stringent mortgage lending conditions and the rise in popularity of fixed rate mortgages. In October 2019, fixed rate mortgages represented 45.3% of all new loans contracted, up from 39.8% share in a year earlier, and from just about 3% a decade ago, according to INE.

Spain houses for sale
In 2019, the economy expanded by 2%, a slowdown from the prior year's 2.4% growth and the slowest expansion since 2014. The Bank of Spain expects economic growth to slow further to 1.7% this year and 1.6% in 2021. In fact, the European Commission is even more pessimistic, projecting the Spanish economy to grow by just 1.5% this year and by 1.4% next year.

Foreigners have a right to buy and resell all kinds of property - residential, commercial or land, with no limits.

Analysis of Spain Residential Property Market »

Rental Yields

Gross rental yields in Spain have returned to normal

Gross rental yields on apartments in Barcelona´s Ciutat Vella - the return earned on the purchase price of a rental property, before taxation, vacancy costs, and other costs - range from 4.00% to 5.15%. Similar yields, or maybe slightly lower, can also be had in Madrid. Not great, though not untypical for cities like Madrid and Barcelona. Yields on the very smallest apartments now offer reasonable returns. But then smaller apartments tend to need more maintenance, so a higher yield is justified.

Prices of apartments. Prices per square metre (sq. m.) of apartments in Barcelona range from around EUR 4,300 to EUR 6,000, or around EUR 225,000-300,000 for a 50 sq. m. apartment. In the heart of Madrid, i.e., Chamartín, Chamberí, Retiro and Salamanca, prices per sq. m. range from around EUR 4,700 to EUR 5,900, or around EUR 265,000 to 290,000 for a 50 sq. m. apartment. There´s very little price-difference between the two cities, and for all practical purposes costs are around the same.

In nearby upscale suburbs of Madrid such as Las Rozas, Majadahonda and Pozuelo de Alarcón, apartments are cheaper, with prices per sq. m. ranging from around EUR 3,100 to EUR 3,800.

Rents of apartments. Rents are similar in the two cities, maybe slightly lower in Madrid, so that 50 sq. m. apartments will cost around 950-1,100 euros per month, while 120 sq. m. apartments will cost around 1,750-2,500 euros a month.

Conclusion: All these yields figures are higher than last year, which was higher than the previous year. Spain is once again beginning to look a possible investment destination.

When buying property, take into consideration that round-trip transaction costs are moderate to high in Spain. See our Property transaction costs analysis in Spain and Residential property transaction costs in Spain, compared to the rest of Europe.

Read Rental Yields »

Taxes and Costs

Taxes are high in Spain

Rental Income: All property owners are subject to a flat tax of 24% on gross rental income.

Property and Wealth: A special annual 3% tax is levied on the cadastral value of real estate owned by nonresidents.

Capital Gains: Capital gains tax realized by nonresidents are subject to flat rate of 19%.

Inheritance: Each beneficiary’s inheritance is taxed at progressive rates, from 7.65% to 34%, after certain tax-free amounts have been deducted.

Residents: Resident individuals are liable to tax on their worldwide income and assets at progressive rates, from 19% to 45% for 2012 and 2013.

Read Taxes and Costs »

Buying Guide

Total transaction costs are moderate in Spain

Spain luxury houses for saleThe total roundtrip transaction cost is around 9.50% to 15%. This includes the Property Transfer Tax, which varies from 6% to 10% depending on the autonomous region, and the real estate agent’s commission, which is around 2.5% to 3%.

For new properties, Value Added Tax, plus stamp duty, is imposed instead of property transfer tax.

Read Buying Guide »

Landlord and Tenant

Law and slow courts benefit tenants

Spain properties for saleSpain’s rental market is extremely pro-tenant.

Rent Control: The landlord and tenant have the contractual freedom to fix the rent and state the due date of payment. However, rent increases are tied to the Consumer Price Index and limited to once a year.

Tenant Security: The 1994 Urban Tenancy Act aimed to restore balance between the interest of landlords and tenants. It failed. Tenants are guaranteed tenure for five years. Courts are painfully slow in resolving cases of tenant eviction and compensation for rental arrears and damages.

Read Landlord and Tenant »


Spanish economy slowing, but unemployment continues to fall

Spain’s economy, the eurozone’s fourth largest economy, started to recover in 2014 with GDP expanding by 1.4%, according to the International Monetary Fund (IMF). In January 23, 2014, Spain became the second euro zone country to exit its international bailout program, after Ireland. The Spanish economy has consistently outperformed much of Europe since.

However, it has been a long, hard slog. Recession has been Spain’s normal condition for years, mainly due to the adverse impact of the global financial meltdown and the Eurozone debt crisis. The economy shrank by 1.7% in 2013, according to the IMF, by 2.9% in 2012 and by 1% in 2011. In 2010, the economy grew by a meager 0.02%, after a contraction of 3.6% in 2009.

In 2019, economic growth slowed to 2%, as consumer demand waned and business investment weakened.

Spain gdp unemployment
The Bank of Spain expects economic growth to slow further to 1.7% this year and 1.6% in 2021. The European Commission is even more pessimistic, projecting the Spanish economy to grow by just 1.5% this year and by 1.4% next year.

Spanish unemployment fell to 13.92% in Q3 2019, down from the previous year’s 14.55% and from an annual average of about 22% from 2010 to 2017, according to INE. Despite this, Spain’s unemployment is still the second highest in the OECD, next to Greece.  The total number of unemployed is 3.1 million.

Inflation is expected to remain low at 1.1% this year, according to the European Commission.

Spain narrowed its budget deficit to around 2.3% of GDP in 2019, down from 2.5% in 2018, 3% in 2017, 4.3% in 2016, 5.2% in 2015, 6% in 2014, 7% in 2013 and 10.5% in 2012. The deficit is expected to fall further to 2.2% of GDP this year, according to the European Commission.  Spain’s gross public debt stood at an unremarkable 96.7% of GDP in 2019.

In November 2019, Spain’s governing Socialists, led by Prime Minister Pedro Sánchez, have won the country’s fourth election in four years, but remain short of a majority. In January 2020, Sánchez successfully formed a minority coalition government with the left-wing Podemos party. Sánchez took over as prime minister in June 2018, after his conservative predecessor Mariano Rajoy lost a parliamentary vote of confidence amidst a long-running corruption trial involving members of his Popular Party.

Get GPG fortnightly newsletters delivered to your inbox

A quick summary of global real estate trends.