Spanish Property Market Forecast 2020: House Prices in Spain - Investment Analysis

Will the housing and commercial estate prices continue to rise? Let's have a closer look at the Spanish property market in the near future.
Arе wе going to face another real estate bubble? Is it better to buy property now or later? Will the real estate prices in Spain go down in 2020? 2019 was marked as a slow down in the housing market of Spain. Neither the amount of purchases, nor the prices or construction rate grew as they used to in recent years. Because we must bear in mind the fragmentation of the market, we will take a closer look at those parts of Spain that are of interest to foreign buyers.

1. Spanish Property Market in 2020 [updated after Covid-19 Lockdown]

In February 2020, the epidemic of coronavirus Covid-19 began, and Spain has become one of the most affected countries (in early June 2020 known about more than 27 thousand dead). For about three months, the country's economy as a whole, and the real estate market, in particular, were almost completely paralyzed.

We can say that now the real estate industry is trying to "find itself" in the post quarantine world. According to specialists of a leading Spanish bank Bankinter, the most number of potential buyers will postpone their transactions for 6-12 months, which means a significant drop in sales this year.

Experts are confident that in 2020, the Spanish housing, on the background of lower demand, will start to get cheaper. The only question is for how much and for how long. Thus, Carlos Ruiz, Director of the Institute for Economic Research of Spain, believes that the cost of local housing will decrease in proportion to the total losses of GDP in 2020, that is, from 5% to 10%. The most optimistic forecast presented by analysts from S & P Global Ratings: they predict -3.5% in 2020 and a return to price increases starting from 2022.

In the Spanish branch of Engel & Völkers are much more pessimistic: experts expect a decline in prices from 9% to 20% before the end of the year. The Department of Economic Theory at the University of Barcelona has a similar prediction. Professor of Economics Gonzalo Bernardos believes that Spanish homes and apartments will lose about 13% of the price this year. Finally, the market will be able to return its "before quarantine" position no earlier than 2023.

If we talk about what has already happened on the Spanish real estate market, it is worth noting: at the moment the pandemic has not had time to hit hard on price trends. Most likely, if significant changes will manifest themselves, then only in 6-12 months.

At the moment, the situation looks as follows (as of June 2020): the average cost per square meter of housing in Spain - 1.730 €/m2, which is 1% more than in June 2019. The price per square meter of house for rent - 11.4 €/m2, which is 4% more than in June 2019.

The cost per square meter of housing in June 2020

Balearic Islands - 3.105 €/m2 (+4.2% per year)
Madrid - 2.783 €/m2 (-1.4% for the year)
Basque Country - 2.597 €/m2 (+1.4% per year)
Catalonia - 2.226 €/m2 (+0.1% per year)
Canary Islands - 1.854 €/m2 (+3.2% per year)
Andalusia (Costa del Sol) - 1.646 €/m2 (+6% for the year)
Province of Alicante - 1.596 €/m2 (+3.8% for the year)

2. 2019 Spanish property market

Although in December 2019 housing sales rose 1.8% compared to December 2018, last year ended with an annual decrease of 3.3%, the first drop since 2013, hardly surpassing the half-million operations. Nevertheless, sales once again exceed 500,000 transactions for the second consecutive year since 2008.

Transactions with resale properties have dropped by 4.2% year-on-year, breaking a point of six consecutive years of increases. Meanwhile, operations on new homes increased 1.2%, the best figure since 2014, and continue three years of positive growth. Even so, only 18.5% of the properties were new and 81.5% resale.

Activity of foreigner buyers on the Spanish property market also slightly declined in 2019, compared to 2018: from over 65,400 operations in 2018, to just 63,000 transactions last year (-3.7%). The part of the home purchase made by foreigners during 2019 was 12.5% of the total transactions (503,875 property units, -2,5% compared to 2018).

Comunitat Valenciana (27.1%), Canarias (25.3%) and Murcia (18.6%) were the most demanded regions in the last quarter of 2019. The British, French and Germans are still the main foreign buyers. However, their weight on total transactions of British has continued to drop since the announcement of Brexit.

As usual, the coastal provinces of Spain are of the highest demand among foreigners. Alicante (42.3%), Balearic Islands (35.1%), Santa Cruz de Tenerife (30.7%), Girona (28.3%), Malaga (27.2%) and Las Palmas (20.4%), were places of the highest interest at the end of the year.

In 2019, the price of housing registered an increase of 7.2%, but still 11.9% lower than the absolute maximum of 2007. The latest number also contrasts with the growth of prices registered in 2018, which was around 10%.

3. Expert opinions on the Spanish property market. Trends

We expect the slowdown to continue in the residential market during 2020, both in housing sales, prices and new construction.
— The director of the Research Department of Tinsa, Rafael Gil Moreno
Thus, he foresees an "exhaustion of the expansionary cycle" in this market that he attributes to the economic situation.

What is the reason for the growth to slow down? On the one hand, due to the maturity of the cycle which the sector is entering throughout Europe and, on the other, the difficulties in accessing housing after the price growth that has happened in recent years. In other words, since supply does not cover demand in specific places of Spain, such as the metropolitan areas of Madrid or Barcelona, it pulls prices up. Still, at the same time, being so expensive, the market slows down due to lack of access, and as a result, the growth slows down.
Spanish Property Market
Real Estate compass

Are we approaching another crisis?

For now, almost no one sees an economic crisis coming soon. "We are quite far from entering another recession in the real estate sector," summarizes Arturo Díaz, executive director of the Residential division of Savills Aguirre Newman. In his opinion, the Spanish market has reached " a stable phase with moderate growth in prices and quite decent sales rates".

Nevertheless, a final prognosis can be made no earlier than June 2020, when the impact of the economic slowdown after the pandemic will be obvious.

Which innovations to expect?

2020 will be a crucial year in home-oriented technological development. Advances in home automation and smart systems became the centre of attention among some big companies in the sector.

An example of this is smart lockers, which are gaining popularity in large cities. In a world of online shopping where still one of four home deliveries fail due to the absence of people at home, this innovative system appears as a real solution. These lockers are installed in common areas of buildings and owners can access it with a simple code or an app.
Technology is revolutionizing and changing the sector. We cannot lose sight of sustainability. In 2020, the European directive on the energy efficiency of buildings came in power, which establishes that, by the end of the year, all new constructions must support almost zero energy consumption.
— Nuria Serranos from BNP Paribas to El País
The CEO of Vía Célere also has an opinion, which is related to another relatively new trend in the sector.
We must continue working on the industrialization of the construction process.
— Morales Plaza to El País

4. Current real estate prices in Spain

The price of housing in Spain has shown a decrease of 0.3% in February, currently being € 1752 per square meter. But if we compare the current price to February 2019, we can see the increase of 3.4%, according to the latest Idealista real estate price index.

By communities, the most significant price drop was registered in Castilla y León (-1.3%) and Catalunya (-0.7%), followed by Galicia (-0.4%), Andalusia (-0.3%), Aragón and Cantabria, with -0.2% in both cases. In contrast, prices remained stable in the Balearic Islands, Valencian Community, Madrid and Navarra.

The opposite case is Extremadura, which has experienced an increase of 1.6%, followed by the Canary Islands (0.6%), La Rioja and Murcia, with a 0.5% property price growth in both cases.

The Balearics is the most expensive autonomy, with € 3060 per square meter, followed by Madrid (€ 2796) and Euskadi (€ 2576). The cheapest are Castilla-La Mancha (€ 868), Extremadura (€ 902) and Murcia (€ 1051).

San Sebastián is again the most expensive city in Spain with a current property price of € 4545, followed by Barcelona (€ 4104) and Madrid (€ 3725).
The prices scale
The prices scale
Price per m2 and annual variation in all regions of Spain:
However, even though the average price of housing in most provinces is between 900 and 1,250 EUR, we can still see provinces such as Ciudad Real, Lugo or Toledo, where the price of housing does not exceed 660 euros/m2.

5. Spanish property price forecast for 2020

  • The real estate portal considers that the property prices will grow between 2% and 4% this year, while the rental rates may rise between 4% and 6%.

  • Fotocasa makes a rather pessimistic prediction: according to them, property prices will rise between 1% and 2%. The rental prices will increase by 2.5%.

  • The Association of Builders Promoters, who are the employers of construction companies, predict sale prices to increase by 3.5-5% in 2020.

  • Moody's rating agency supposes that the Spanish real estate market will be the most expensive housing market in Europe in 2020. They predict the property prices in Spain to grow by 5.5%.

  • The Bankinter bank has noted that the sale prices will grow between 1% and 2% this year. As for Euribor, they believe that it will remain below zero, between -0.27% and -0.17%.

Source: El País.

In general, all the analysts who give percentages point between 2% and 6%. In this way, the purchase and sale of homes in 2020 faces a moderation or a slow down of both prices and the number of operations.

6. Spanish real estate market after Brexit

Brexit would mark the revolution in purchasing of real estate by foreigners in Spain. First reason is a devaluation of the pound and, therefore, the increase in the price of housing for the British buyer. Also, some of the prospective buyers from the UK have already decided to delay their purchase decision until they know more about what Brexit is bringing them.
The flags separated by the crack
Specific segments of the housing market in Spain may experience a drop in the prices of their properties. This is the case of the Costa del Sol, Costa Blanca, Balearic Islands and Canaries.
Among the types of properties most affected could be apartments and single-family homes in urbanizations near a beach at a price above 300,000 EUR.

Also, the Brits could put their homes for sale on the Spanish coast, increasing the stock. Well, it is already the case, but not on a big scale. Some experts predict a worrying increase in the stock. At the same time, the market is not ready to absorb this offer so that such properties would become part of the unsold housing stock in the medium and long term.

Others think that British homes may be an investment opportunity because they would be priced below the market for a faster sale.

Uncertainty surrounds Brexit and housing in Spain. Both Spain and the United Kingdom have strong relations at the level of trade and population. These are more than enough reasons why both countries will undoubtedly sign bilateral agreements that lessen the consequences of the British exit from the EU, including the effects on the real estate sector. Here you can read how to obtain Spanish residence for the UK citizen.

7. Conclusion

International corporations continue thinking about coming to the Spanish real estate market. It is no accident that two giants such as El Corte Inglés and Berkshire Hathaway Homeservices, owned by Warren Buffet, have decided to enter the market simultaneously this year.

The property-owned housing market in Spain will face a moderation in its prices and the volume of sales in 2020. Experts highlight that price variations will continue to fluctuate according to geographic area and stress that there is a problem of accessibility to housing. The rise of prices both for buying and renting will be smoothed out.

The effect of the Mortgage Law, which has slowed down the sale and mortgages in 2019, could begin to moderate. Now is a perfect time for lease, especially for young families. In essence, price growth slows down; rental prices are growing, interest rates in banks at historical minimum, negative Euribor.

After closing 2019 with over 100,000 construction permissions for the first time in 10 years, experts say that second-hand housing will continue to lead the market in the short term. As we have seen in various studies, the construction of new properties will continue to grow during 2020, with an estimate of 94,000 new homes, compared to 79,000 in 2019. This means a growth of 18.4%, making the sector enjoy healthy growth in this matter. All in all, experts suggest that 2020 is an excellent year to buy and perhaps not so good to sell.

Although there are reasons to be alert, there are no warning signs, since the factors that can affect the real estate sector the most are quite stable: sustained growth of employment, recovery of wages, favourable financial conditions, steady demand and supply of housing construction.

Spanish Property Market Forecast 2019: House Prices in Spain - Investment Analysis
Real Estate Market after Covid19 — expectations, prices, influence
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