2021 was one of the best years in property sales on record, with over 565,000 properties sold. The first three months of 2022 have continued last year’s soaring trend and have shown strong sales figures.
In March 2022, almost 71,000 houses were sold in Spain and over 36,000 mortgage loans were signed. That’s a whopping figure for one month! We need to go all the way back to 2007, during Spain’s property bubble heyday, to witness comparable sales figures.
Surely, one would think that the ongoing geopolitical turmoil in Eastern Europe would have thrown a spanner in the works, yes? Nope! Fact is that with a two-digit inflation, coupled with ultra-low interest rates, people in Spain are buying properties like there is no tomorrow. As banks are hardly giving any interest on deposits, cryptocurrencies have taken the plunge, and inflation is chipping away at savings, investors - and people in general - are protecting their wealth on buying tangible assets, such as houses.
Not to mention that the ongoing pandemic forced people to remain grounded for over two years. This translated into savings and wealth building up. If to that you also add in the psychological component of having endured a collective traumatic experience with the virus, people are in need of release, to flush it out of their system and make up on all the lost time. People want freedom, they want to enjoy life and they are doing just that! Spending would be viewed as a necessary cathartic behaviour to restore a semblance of normality back into their lives by way of overcompensation (on the lost time). This is driving property prices up across the board to new heights, specifically in large cities and highly sought-after coastal resorts.
Moreover, the Bank of Spain has voiced its concerns that the Spanish real estate market may be overheating.
The Spanish Association of Notaries, in a report from March 2022, disclosed that the built m2 had risen by 9.2% year-on-year nationwide, on average.
The thing is that with the supply chain being challenged at source (because of continued new Covid outbreaks and the impact of the ongoing Ukraine war) developers are struggling to secure building materials on off-plan developments. This translates into developers being ‘forced’ to increase asking prices furthermore to keep up with the pace of a gathering inflation. This has led to hilarious situations, where developers were in fact frantically buying back offplan properties they had just sold to resell them again at a higher price!
The fact you have both buyers on a wild spending spree and developers who have no option other than to increase asking prices (because of the rise in price of raw construction materials), means property prices will likely continue to rise all this year and even spill over onto next year. There is a lot of money chasing a limited number of property which can only lead to further price hikes.
In addition to the above, investing on property to offer it in property portals as a holiday home has been hugely profitable over the last 6 years. You can expect to make a net yield of 4.5% on leasing it to which you must add on top the capital appreciation which on average is 9% in Spain YOY, even reaching two digits in sought-after coastal resorts.
Not to mention that Spain offers lenient tax allowances to all EU residents, which on average reduce landlord tax bills by 70%, or more.
Bottom line, property prices in Spain are going to continue to rise over the next two years, or more.
