Spanish real estate prices in 2022: property market forecast by industry experts

The Spanish real estate market begins the year 2022 with cautious optimism. A significant recovery of the economy, improved mobility and the transformation of some transactions to the online space, give hope that the new year will be productive for both sellers and buyers.

To understand what will happen to the prices of Spanish villas and apartments in 2022, which regions will be in demand for locals and foreigners, and what trends will affect the market as a whole, it is worth looking at the past year assessing its results.

The past year of 2021 was unprecedented in several decades, and not only in Spain. According to the Global Residential Cities Index from Knight Frank consulting company, in the third quarter of 2021, the median price of housing increased by 10.6% over the same period last year, showing the largest increase since 2005.

According to the National Institute of Statistics (INE), the price of housing in Spain increased by 4.2% in the third quarter of this year compared to the same period in 2020, and the average price per square metre is already at 1661 euros, the highest since the end of 2011.

Data from real estate portals show even higher figures for the average price per square metre.

The same year was a record-breaking for the number of real estate transactions in the past few years. This recovery was also due to the relaxation of quarantine measures and the pent-up demand, which could not be fully realised while businesses were paused.

In the context of the gradual recovery of the Spanish economy during 2021, the real estate market has shown a very positive trend, especially on the demand side.

According to the Spanish Institute of Statistics, as of October 2021 there have already been 468,000 sales transactions, an increase of 36% compared to 2020 and 8.3% compared to 2019. With the trend continuing in the last quarter, the year will close with around 545,000 transactions and this will be the highest since 2008.

One of the important outcomes of 2021 was the transition of certain categories from the buyers market to the sellers one. Demand exceeded supply, even in spite of rising prices. This was especially noticeable in new construction.

If before the builders were struggling for the client, now the most top-notch of them do not have time to close transactions, and the reservation of apartments almost coincides with the payment of the first instalment, so the best offers go to the one who came first.

Foreign buyers have returned to the market and pushed up prices in their traditional "resort" locations. For example, in Ibiza prices broke through the maximum established in the pre-crisis year of 2008.

At the moment, most real estate experts and the ones from the banking sector, are confident that the market will follow a steady recovery path in 2022 with moderate growth.

This view of the Spanish real estate market is influenced by the current condition of the economy as a whole, and internal, Spanish drivers, allowing us to hope for growth.

On average, experts predict a gradual increase in prices by 4-5% this year. But there are those who assess the potential of the market much deeper and see a price increase of up to 10%, especially in the new builds.

About 545,000 real estate transactions were recorded in 2021. For 2022, experts are predicting a slight decrease in activity due to reduced supply in the new construction market and the levelling off of pent-up demand. According to the research department of CaixaBank, next year, the temporary factors that stimulated the demand for housing will cease to act, and it will reduce the current sales by about 8%, the total number in 2022 will be about half a million.

If we consider an optimistic opinion, in case of a favourable situation with COVID-19, the market may grow through transactions carried out by foreigners and the total number of transactions will either be equal to the previous year (around 540-550 thousand), or may exceed them insignificantly.

According to the Registrars, foreigners purchased around 16,600 homes in Spain in Q3 2021, which demonstrates an 8% increase over Q3 2019, and is very close to the quarterly high of 17,300 homes reached in Q2 2018.

The sharp increase in real estate market activity in 2021 gave rise to talk about the possibility of a so-called bubble. The situation is of concern not only to the experts and market players, but also the Bank of Spain.

Yes, real estate prices have grown significantly, but unlike the situation with the recession in the past, this sharp increase was due to pent-up demand and balanced macroeconomic factors.

Home sales have peaked since the last boom in 2008, but unlike the last crisis, there is not as much supply now as there was then, and the mismatch between low supply and high demand could lead to an upward spiral.

Bank of Spain in analysing the risk of forming a bubble, said that despite the fact that the price of housing is already higher than it was worth in 2019, before the pandemic, and exceeds (albeit slightly) pre-pandemic rates in some regions, yet the market remains balanced and there is no clear evidence of overheating.

Risk of a housing bubble in Spain: buy now or wait?

One of the new realities of the housing market in Spain is the price gap between new and used homes. Until September 2021 the price difference between new and used properties increased more or less gradually, but in September it broke off upwards, reaching a difference of 34%. These are peak numbers for the last 6 years, never before has buying a new building cost so much more than a property on the secondary market.

Making predictions for 2022, experts are cautious - due to rising construction costs and shortages of materials, as well as the impact of COVID-19 on employment in the construction sector, prices and demand in the new year may not behave as planned.

The general trend of sharply increasing buyer interest in new homes had several factors at once, triggering a boom in new construction in 2021.

The prerequisites for this demand were laid several years ago and were related to legislative incentives for the transition to more energy efficient homes. Since June 2013, the Energy Efficiency Certificate (Certificación energética de edificios, CEE) became mandatory for most types of housing in Spain.

Energy efficiency has become particularly relevant in the light of the enormous increase in electricity tariffs. If in January 2021 the average cost per megawatt hour was 42.51 euros, by the end of December 2021, this figure rose by almost 10 times, reaching 380 euros per megawatt hour.

While 95% of new homes commissioned after 2016 already have an energy consumption rating of at least "C", and newer homes are approaching "A", the secondary properties built before that time are almost all (81% of properties) rated "E", "F" or "G". Buyers do not want to live in such homes and pay inadequate bills.

The pandemic has also played its role, forcing a change in buying habits and buyers' requirements. Now people want more personal space, giving preference to modern floor plans with large terraces and equipped common areas.

Forced distant work, which for some has become a permanent form of work, has increased the requirements for the availability of home environments for work: a separate room for a home office becomes one of the requirements when choosing a home.

In addition, the New Home Confidence Index rose to 53.1 points out of 100 during the fourth quarter, surpassing the break-even point. With a steady increase in prices of 30% (from the launch of the project to the delivery), new buildings in Spain become an investment tool, especially with instalment payment directly from the developer.

But apart from the positive aspects, the worldwide economic situation had a significant impact on the new builds market. According to Eurostat, developers and buyers in 2022, will face an increase in the cost of construction by almost 12% per year. According to the National Confederation of Construction, in one form or another, 75% of projects in 2021 faced a shortage of resources (both building materials and labour).

Add to this a dismal situation with permits for new construction in Spain. During the 2021, 100,000 new construction visas were issued, the same as in 2018 and 2019, and clearly below projected demand. Although analysts suggest that this number will increase slightly in 2022, from 110,000 new homes according to CaixaBank Research estimates, and up to 130,000 properties according to Brains Real Estate estimates. If these optimistic projections don't pan out, we'll have a shortage of new homes in 2022, with all the consequences that come with it.

This increased demand, rising construction costs and a reduction in the number of permits for new construction have already caused a natural increase in prices.

In new homes, the average cost reached 2551 euro/m2 at the end of 2021. All autonomous regions have registered an annual increase, ranging from + 1.9% in Extremadura to + 4.1% in the Balearic Islands.

And this trend not only continues in 2022, but intensifies. We have already mentioned that the new housing market has become a seller's market, dictating its terms. First and foremost for the buyer this means that there will not be much time to make a decision about a purchase, a profitable option will be quickly taken away by other willing buyers.

And the initial stage of making an agreement with a deposit does not require the buyer to transfer much money, or lengthy paperwork. The main thing here is the willingness to make a quick decision.

See all new builds in Spain

If in the first quarantine year there was a slight outflow of buyers from large cities to the coast and rural areas, in 2021, sales increased sharply in the regions with the highest business activity: Madrid, Malaga, Valencia and, to a large extent, Barcelona. With the growing number of people working remotely, interest in cities such as Seville, Alicante and Murcia is gaining momentum.

Real estate experts identify 6 markets, which in 2022 will register an increase in interest from buyers. These include the capital cities of Madrid and Barcelona, the Balearic Islands, as well as Valencia, Alicante and Malaga.

In contrast to the Spaniards, foreigners' interest was mainly concentrated in the traditional tourist destinations and resort areas.

The largest weight of foreigners in the percentage of housing purchases of all transactions was recorded in the Balearic Islands (34.3%), the Canary Islands (23.6%), the Valencian Community (19.7%), the region of Murcia (17.4%), Andalusia (11.3%) and Catalonia (11%).

It is these regions that will continue to increase the foreign presence in 2022. The interest in the islands has not recovered fully and the number of real estate transactions among foreigners there has not reached its peak.

Virto Property experts hope for a productive year, as for now it is safe to say that with the recovery of international geographical mobility and the return of confidence in controlling the pandemic, foreign demand in Spain continues to grow, helping to maintain a high level of activity in the real estate market.

For 2021, we have seen a fairly rapid change in Spanish real estate buyer behaviour. While online real estate transactions were more of an exotic method before 2019, in 2021 the majority of transactions at our agency took place online.

This rapid change in behavioural factors in an industry as conservative as real estate is certainly due to a pandemic. But it has an undeniable advantage: the speed of the transaction has increased, and buyers have a relatively free move when applying for a residence permit.

Resurgence of demand for Spanish property among foreigners is also due to its high investment attractiveness. The liquidity of apartments and flats on the coast and in developed places continues to grow. In Spain there are new property formats that meet the needs of the market: colivings, homes for retirees, along with the familiar types of investment in apart-hotels.

Of course, much of the demand from buyers will depend on the economic and epidemiological situation, but now the opportunity to conduct transactions remotely and to purchase a house or apartment in Spain relatively fast.

Learn more about the trends that will influence the real estate market in Spain in 2022.