The Property Market in Spain - An Overview
Spain is widely regarded as a desirable place to live due to its 300 plus days of sunshine per year, the average cost of living, the robust infrastructures, the low crime rate and the European legal security it offers. As such, it has historically been a favorable territory for population growth.
Currently boasting a population of 48 million, Spain is experiencing growth of approximately 600,000 citizens annually. A portion of this growth is attributed to natural population growth (23%) and a significant influx of permanent residency seekers from other countries. In 2023, there were 110,000 property sales to non-Spanish buyers out of a total of 600,000 registered transactions.
Population growth varies across the country, with the top five cities experiencing the most significant increases (between 2018 and 2021) being Madrid (173,000), Barcelona (105,000), Málaga (54,000), Valencia (41,000) and Murcia (39,000).
Spain's population is distributed across 26 million homes, with the Bank of Spain estimating that nearly four million of them are vacant, many of which are in rural regions like Asturias or Extremadura. Of the total number of homes, the National Statistics Institute (INE) estimates that half of them are over 40 years old, equating to almost 14 million homes that do not meet today's comfort and quality standards.
It is also important to highlight the increase in demand for housing due to a progressive trend towards the reduction of the average household size. In Spain, the average household size in 2023 stood at 2.5 inhabitants per household, lower if compared to 2.9 in 2001 or 3.6 in 1980. Still, it remains above the EU average of 2.2.
Despite this, only 25,000 requests for home renovation permits were filed in 2023, while new construction permits reached 110,000 units. This is below the average levels of the 1990s, with 350,000 annually, and the 2000s, with 500,000 permits per year.
Following widespread declines in property price values of up to 30% from 2008 to 2014, many areas have now surpassed their previous peak prices, albeit with stronger indicators. The average housing affordability ratio is currently 7.5x (Housing Price/Gross Household Income), with a mortgage affordability ratio of 39% and an average mortgage leverage of 62%. This is below the peak ratios of 9.5x, 55%, and 65%, respectively (reached in September 2007).
The rental market has seen significant growth, particularly in urban and tourist areas, with cumulative rent increases of up to 50% in Valencia or Estepona between 2015 and 2022. This surge in rents has led to increased demand for investment properties, further driving demand.
Overall, these factors have sustained the strength of the housing demand in Spain, which in turn is intertwined with the rigidity of the supply. This has been largely supported in recent years by stock rotation and replacement housing, primarily from the second-hand market, which has momentarily curbed price escalation.
In conclusion, Spain requires more housing in major urban areas and tourist zones to mitigate price increases. However, the recent modest trend in new housing production and the limited visibility on investments in urban land acquisition and development has prompted Onate to focus on providing financing to our clients for the purchase and renovation of the existing housing stock in Spain, which consists of 26 million homes.
For those ready to explore new opportunities in Spain, contact Juan Galobart at juan.g@onate.com
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Sources:
Bank of Spain (IIPP-2024-04-23-gavilan2-es-or.pdf (bde.es))
INE (https://www.ine.es/jaxiT3/Datos.htm?t=56937)
