Looking to invest in the Spanish Property Market in 2021?

Here is everything you need to know about buying a property or investing in real estate as an individual or as a company.

With the gradual lifting of travel restrictions and the rising vaccination rates, the world is slowly emerging from the coronavirus crisis and rediscovering its pre-pandemic  habits. Consequently, the real estate markets and especially the property market have become more dynamic.

In this context, it is natural that potential buyers and foreing investors in Spain are starting to wonder what the recovery will look like and what are the key elements to a successful return in the real estate sector.

The goal of this article is to cover the factors that explain some of the changes of habits experienced by the Spanish real Estate Market that are specific to the coronavirus crisis. Our main goal is to help foreign investors get a better understanding of the current market conditions.

The Spanish Real Estate market has a well-known reputation for its many advantages but in this uncertain scenery, some may wonder if it is a good time to invest in property in Spain. We are going to explore just some of the questions that may wander the mind of those planning to move or to invest in property in Spain in 2021.  

The experts predict reaching normal activity in the real estate sector by the end of the year. This comes to no surprise because it has already happened in the past. Real property is a shelter value investors seek in times of economic recession. Once the most critical moments are over, the recovery of this sector is always strong, sometimes even greater than expected.

According to estimates made by the Bank of Spain, real estate is one of the few assets that offers a remarkable positive return and will still have interesting potential in 2021.

Can we expect a price drop in 2021 and how long will the price drop last?

It is inevitable that the crisis has compelled many sellers to lower the price of their property to adapt to the fall in demand, especially for those who needed to sell as quickly as possible. Nevertheless, the actual significance of the price drop will essentially depend on the location, the characteristics of the property, and the urgency experienced by the seller. 

The experts expect a price drop between 10% and 15% even though this projection will largely depend on the depth, duration, and lingering effects of the economic crisis. Some of the predictions are the following: 

• For big cities like Barcelona, we can expect a price drop in the range of 7% to 8%. Madrid could fall a little more and prices in Spain on average could fall around 10% during 2021. Please read 5 REASONS WHY YOU SHOULD INVEST IN BARCELONA’S REAL ESTATE.
• However, for holiday homes in coastal or rural areas, the effects may be very different, due to the change of habits and new accrued demand in this type of property. 

Source: Housing price index. Fourth Quarter 2020

Reasons why the Spanish Real Estate market maintains its attractiveness despite Coronavirus.

Some people have assumed that COVID-19 will cause the same effects on housing as the crisis we experienced 12 years ago. But this statement is far from reality. In 2008, property prices in Spain fell by around 40% but this was mainly due to the housing bubble. Today both the real estate and the financial markets are healthier, the debt situation of owners is better in terms of savings, and interest rates have reached a historic low point.

At a time of uncertainty, the market is expecting the first half of 2021 to be quite unstable, although experts are confident that economic and real estate recovery in Spain will begin in the summer.

A good indicator of the evolution of the property market in Spain can be seen in the data showing housing prices per square meter.

Sources: THE PRICE OF HOUSING IN SPAIN

Which areas of Spain are experiencing growth?

The areas that are experiencing the greatest growth are mainly coastal and countryside regions. In terms of growth, inland cities are the ones suffering the most, with the exception of big cities like Barcelona or Madrid.

A recent INE press note based on population and real estate purchases stated that the areas of Spain that grew most in 2020 were Alicante, Malaga, Almería, Guadalajara, and Girona, with the Costa Blanca, Costa del Sol, and the Costa Brava. Those regions are standing out as popular coastal regions for holiday homes and for those seeking a lifestyle change because of the pandemic.

The number of home sales and purchases in Spain grew during the last quarter of 2020, with 113,799 sales recorded, 11.35% more than the previous quarter which saw 102,197 sales. This shows that the residential property market in Spain is already proving signs of recovery, although figures are still below the situation prior to the coronavirus crisis.

The most significant increases in Spanish regions were noted in Galicia (31.00%), Castile and León (19.01%), and Cantabria (16.26%), while the greatest number of sales were recorded in Andalusia, including Costa del Sol (22,770 sales), Catalonia and the Costa Brava (17,513 sales), Valencia (16,404) and the Community of Madrid (15,304).

Source: Housing Price Index (HPI). Base 2015

Buyer’s empowerment thanks to technological tools 

The pandemic has advanced the use of technology in all areas, and Real Estate is not an exception. This is certainly a great habit for buyers, and it is here to stay.

There is a rise in greater digital functionalities to help buyers make  informed decisions like intelligent tools for market analysis, alert services, use of filters, good quality photos, videos, mortgage simulators, and many more. Those options are just some of the latest tools available in the Spanish real estate market to help potential buyers increase their certainty when looking at different properties and to avoid unnecessary trips.

For example, virtual tours of homes, the formalisation of contracts or even the payment of deposits can be now done digitally. Buying property remotely is now a safe possibility thanks to new technologies. Nevertheless, it is important to count on the legal guidance and experience of lawyers that understand the Spanish legal landscape in order to reduce the risks of property purchase. 

Changes in housing preferences across Spain

An increase in demand for secondary residences in less populated areas.

As we have already mentioned, as social distancing is still a measure for containing virus exposure, people are looking for less crowded places away from big cities. Because of the possibility to work remotely and the digital nomad phenomenon, larger houses with gardens located in distant areas and apartments with large terraces are now much more highly valued and can also be excellent investments for the future.

The housing market changes slowly, but there are many potential buyers who are looking to invest in this type of housing. This trend is expected to persist in 2021.

This is a piece of good news for those who would still prefer to live in a city. There is also the option of acquiring used property at a good price and carrying out renovations.

The latest figures from the INE Housing Price Index for the third quarter of 2020 reflect an increase of 0.8% in this type of asset (+7.5% in new construction).

Property prices on the Spanish coasts in 2021

In the case of homes located on the coast in Spain, marked by the demand for second homes especially for international buyers and expats, the scenario is still very uncertain for 2021.  The season for buying homes on the Spanish coast tends to be from Easter until the end of September in most locations. Moreover, the speed of the reactivation of international demand will be a determining factor in securing the recovery of prices at the end of 2021.

It is known that Spanish coasts are an attractive destination for many European retirees. So we have strong reasons to believe that one of the first regions to recover will be second residences situated on the coast.

At the present time, housing in Spain continues to be a profitable asset to invest in. With the market becoming more dynamic, one can find unique and interesting opportunities. Nonetheless, proper guidance and legal assistance from experienced lawyers that know the intricacies of the Spanish real estate sector and always have the client’s best interests in mind throughout the whole process, are of the highest importance for a successful property purchase.

How can we help you?

At Lexidy we specialize in all services required when investing in Spanish real estate. We provide the services of drafting reserve and arras contracts, the performance of due diligence and other important property checks before purchasing, the settlement of property taxes, just to name a few. Our aim is to provide a complete service to our clients for a smooth, efficient, and safe purchase always focusing on proximity and communication with the customer.