Investing in Real Estate in Spain. What do you need to know in 2024?
Investing in Spanish real estate is a safe solution – especially at a time when the world has become unpredictable. If someone told you 4 years ago that the pandemic would lock us in our homes, that a war would break out in Ukraine less than a year later, and that another war would start in the Gaza Strip in the fall of 2023, you would probably tap your forehead. And yet. These events are our reality and naturally also affect the real estate market in Spain. Everything indicates that after a boom in 2022 and a slight decline in 2023, in 2024 the real estate market in Spain will stabilize at a good, safe level.
Co znajdziesz w artykule:
- Real estate investments in Spain in 2024 – forecasted market situation
- Remember! The purpose of investing in Spanish real estate is important
- Mortgage loans – what to expect in 2024
- How will mortgage loans look like in 2024?
- In 2024, short term rentals will still be the most profitable
- What were the average property rental prices in Spain in 2023
- Remember! An investment in real estate must be profitable
- 3 important tips for people who plan to invest in real estate in Spain in 2024
Holiday apartment rental, long-term house rental, apartment renovation and quick sale with a high profit... – investing in properties in Spain is the dream of many foreigners. It will be no different in 2024.
By the end of November 2023, the Spanish statistical institute INE recorded 550,215 real estate purchase and sale transactions. This is almost 50,000 fewer than 2022, which was historically the best year since 2008. 2023 came in second place in this ranking.
According to data from the General Council of Notaries, foreign investors accounted for 21.4% of all property buyers in Spain between January and June 2023, which is the highest number since records began. Although there is no data yet for the second half of the year, the numbers show that it was a very good year. Once again, the British were at the top of the ranking (9.6%), ahead of the Germans (8.1%) and the Moroccans (7.3%).
Holiday rental of an apartment, long-term rental of a house, renovation of an apartment and quick sale with a large profit ... - investing in real estate in Spain is a dream of many foreigners.
By the end of November 2022, the Spanish statistical institute INE recorded over 600,000 real estate purchase and sale transactions. Of these, 15.92% of all properties sold went to foreign buyers, which turned out to be an absolute record. The British, Germans and French led the way among buyers, the Dutch, Norwegians, Irish and Ukrainians were also very visible (albeit for different reasons). Demand from the US and Latin America also gained momentum, boosted by the strength of the dollar against the euro.
Real estate investments in Spain in 2024 – forecasted market situation
Recent years have been good or very good in terms of investments. COVID-19 changed a lot, the lockdown had an impact on the market situation, but it lasted for a relatively short time. Since March 2021, we have been observing a significant rebound in the Spanish real estate market. 2022 brought a boom and 2023 saw a slowdown in sales, which, however, should be placed in the context that the reduction occurred as a result of a year-on-year comparison with the record year of 2022.
In 2024, there will be resistance to rising mortgage prices and the number of registered sales transactions may hover around 450,000 operations, which would mean a return to normality and the usual dynamics of our market.
The excess purchasing demand after the pandemic is weakening, giving way to a new property buyer profile. This is a person with high financial solvency, knowledge and experience in the real estate industry, in many cases it is a foreign buyer. This investor profile is more resistant to European monetary policy because it requires less bank financing and has greater purchasing power.
In my opinion, in 2024 we will return to the normal dynamics of the local market, which in recent years was disturbed by the pandemic and the outbreak of the war in Ukraine. This will be the year of investors having greater purchasing power and requiring lower (or no) financing from banks. This will also be a year in which we should not expect a decline in real estate prices; on the contrary, we should take into account a further moderate price increase. This applies especially to the primary market, which is struggling with a lack of employees and a significant increase in the prices of construction materials.
There will be another element that we are already facing this year: an insufficient number of ready-to-move, attractive properties in interesting locations and reasonable prices. After experiencing increased sales dynamics in recent years, the secondary market is drained, and the primary market cannot keep up with meeting the current demand for ready-made apartments. This is particularly problematic in the context of foreign investors who often do not want to wait 2 years to pick up their dream apartment on the Spanish coast.
Remember! The purpose of investing in Spanish real estate is important
Not everyone buys an apartment or house in Spain just for themselves, many people want to make money from it. We can mention three main types of real estate investment in Spain:
- Rental – holiday, long-term or commercial. The advantage of this solution is constant income. And if it is a typical tourist rental, the owner can also use his property outside the season (more about rental later in the text);
- House flipping – purchasing a property at an attractive price, renovating it and selling it quickly. If you know your stuff, keep your finger on the pulse and have a bit of luck, the profit can be high;
- Capital investment - at the current level of inflation, investing in real estate is the best way to secure capital.
The investment goal determines what type of property you will look for and what locations you will consider. If you are looking for a holiday rental in Spain, you should look around in tourist places such as the Costa del Sol (e.g. apartments in Marbella), Costa Blanca or Costa Brava. However, if you want to buy, renovate and quickly sell an apartment at a profit, investing in Madrid, Barcelona, Valencia or Malaga may be a better option.
Mortgage loans – what to expect in 2024
Investing in real estate abroad may involve the need to take out a mortgage loan. A foreigner can apply for a mortgage loan in Spain provided he or she meets certain conditions. The set of documents required by the bank is probably the same in your country and in Spain. The only difference is the need to translate the documentation into Spanish – although banks are slowly moving away from this requirement.
Most banks do not impose credit restrictions based on nationality, although it is worth knowing that the bank may require a higher down payment from a non-resident. Residents in Spain can borrow up to 80% estimated value of the property, while non-residents on average 60 - 70 %. As usual, everything depends on the client's financial situation, the type of mortgage and the offer of a specific bank. It is also important that Spanish banks do not finance investment costs, which can range between 10 and 15 % of transaction value.
How will mortgage loans look like in 2024?
We entered 2024 with Euribor at 4%. High, but the forecasts are optimistic. Inflation in Spain has returned to 3.5%, and the European Central Bank keeps rates at 4% for the second month in a row (after 10 increases from July 2022 to September 2023). Forecasts say that Euribor will decline in 2024. ING Bank expects the ECB's maximum interest rate to fall to 2.5%, while Bankinter provides a 12-month Euribor of 2.2% until the end of the year.
In 2024, short term rentals will still be the most profitable
Let's go back to renting real estate for a moment, because many investors buy houses or apartments for this purpose. Generally, we are talking about three types of rental:
- holiday – short-term (days, weeks),
- seasonal (several months)
- traditional – long-term (usually from one year up).
It's easy to guess that the most profitable option is holiday rental. If you own a property on a prestigious coast, in a few weeks you can earn income that will cover several months of living costs and also credit your account. Condition: it must be a location popular with tourists. The best region in this respect is Andalusia. According to data from Fotocasa.es, most holiday properties are located here: 26% of all Spanish holiday properties.
Holiday rentals, as I have mentioned many times on the blog, require a special tourist license approved by the autonomous community. Only investors who rent a property to the same person for more than two months do not need a license.
What were the average property rental prices in Spain in 2023
If you are interested in investing in real estate in Spain in 2024, it is also worth checking the prices of long-term rentals.
A report published by Idealista shows that the price of renting a property in Spain has increased by 10.1% over the last 12 months. In December 2023, the rental cost was EUR 12.1 per square meter. Of course, this is an average and in attractive towns the prices were much higher.
In December 2023, Barcelona was the most expensive capital of the autonomous region in terms of rental rates with 20.5 euros/m2, followed by Madrid (17.9 euros/m2) and San Sebastián (16.8 euros/m2). In fourth place is Palma (15.4 euro/m2), and in fifth place are Málaga and Bilbao (both 13.6 euro/m2).
This is data from Idealista.com. They have been collected for many years, so you can track the evolution of rental prices on the real estate market in Spain.
Taking into account the great interest in long-term rentals, both from local clients and foreigners, and the serious shortage of properties for this type of rental, we can expect a further increase in rental prices in 2024.
Remember! An investment in real estate must be profitable
Even the most attractive apartment price does not mean a good deal. When choosing a property for investment, it is crucial to estimate its profitability.
Profitability is influenced by costs related to three stages of investment:
- The first is, of course, the price of the apartment and all costs related to the transaction (including notary, appraiser, costs of taking out a mortgage, ITP or IVA taxes, real estate register).
- The second one is possible renovation and equipment.
- The third one is all the fees related to the maintenance of the premises you are renting, i.e. rent to the community, cleaning, utilities, real estate tax, insurance.
Income tax should also be taken into account. An example of this would be a wealth tax if you bought a property with the intention of selling it quickly. In Spain this tax is 19% for residents and citizens of the European Union up to 23% for citizens of the rest of the world. So, for example, if you buy a flat for 250,000 euro, and you sell it for 350,000, tax will be charged on the amount of EUR 100,000. – minus transaction costs.
You should also remember about IRNR income tax – it must be paid once a year by investors who are not residents of Spain. Of course, a different amount will be paid by an owner who rents an apartment or house and earns money from it, and a different amount by someone who keeps the property only for his or her own use.
On the plus side, in addition to money from sales or rental, you can also get various tax breaks. It is worth seeking legal advice here, because the room for maneuver is quite wide. A person who is not a resident of Spain but is a citizen of the European Union may deduct from tax such items as invoices for utilities (electricity, water, gas, internet), cleaning or advertising expenses.
3 important tips for people who plan to invest in real estate in Spain in 2024
- Don't expect to be able to significantly negotiate the price, because real estate prices in Spain are still rising. The year 2023 saw a price increase in Andalusia of 4.7%. This is less than in 2022, when prices increased by 8.5%, but remember that the increases are cumulative and this trend has been going on for several years. This year is expected to be no different: the upward trend in attractive locations is expected to continue. This doesn't mean you should forget about negotiations. On the primary market, developers are reluctant to lower prices and, instead of reducing the price, they offer customers, for example, additional equipment for the apartment, while on the secondary market, reasonable offers are obvious. “Reasonable” is the key word here.
- Plan your arrival to Spain in advance and inform your broker about your plans. If you don't have a broker yet, contact several agencies before your arrival and choose the one you want to work with. Remember that agencies on the coast work on the same property databases, so they have access to all properties – including those offered by other companies. This is a great convenience for you: instead of making arrangements with several agencies, you choose one company and in it a person with whom you have a good conversation and with him you see everything that he proposes to you or that you find on the Internet. In any case, be sure to call him at least two weeks in advance. Firstly, so that he has time for you, and secondly, he has enough time to organize visits to properties. If you call from the airport that you have just arrived, it may turn out that your agent's calendar is bursting at the seams and, despite his best intentions, he is unable to serve you.
Important: because foreign investors have become an important player on the Spanish real estate market in recent years, various agencies and freelancers have appeared here with them. Some of them are reliable people, others promise customers the proverbial pears on willow, counting on a quick profit and an even faster return. When choosing an intermediary, ask how long he has been working on the Spanish market and what experience he has here, and then verify all the information he provides.
- Don't wait too long with the decision to buy real estate, interesting offers quickly disappear from the market. The demand is high, good properties do not last even 2-3 days on the market. So if you like something, don't wait, make an offer and we will try to get the best possible price for you. We also encourage you to read our guide on the process of buying real estate in Spain.