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Is there a new crisis hitting the Spanish real estate market?


There is no housing bubble. At least, not the kind of bubble we are used to. Indeed, if we look at Spanish property prices and their evolution over the past 12 years, we can see that property prices are simply recovering, after a prolonged crisis.


What type of crisis is happening?

No risk of housing bubble

There is no housing bubble. At least, not the kind of bubble we are used to. Indeed, if we look at Spanish property prices and their evolution over the past 12 years, we can see that property prices are simply recovering, after a prolonged crisis.

While property prices plunged between 2007 and 2014, they recuperated significantly since then in many Spanish cities.

However, real estate prices in Denia or  Javea are still 20% to 40% lower than they were in 2007. And those are only 2 examples. We will publish more analysis later here, so stay tuned.

So, what kind of property crisis are we starting to talk about?

el pais

Why rising rents across Spain are causing a new crisis

50% increase in rental prices

“Average cost of rent in Spain jumps 50% in five years” was the title of an article published on ElPais in August.

Indeed, this time Spain is facing a new kind of crisis, a rental market crisis. What has happened is not very complicated to understand. Everything happened in 4 consecutive steps:

  • Step 1:  from 2007-2008, economic crisis, followed by a housing crisis.
    Spanish banks repossess hundreds of thousands of properties, which belonged to property owners who cannot face the monthly repayments of their mortgages.

  • Step 2: to protect themselves better, Spanish banks ask buyers to bring 20% of the property price as a down-payment.

  • Step 3: many potential buyers do not have the necessary savings required to buy, and therefore can only rent.

  • Step 4: as a consequence, the average cost of rent jumped 50% in five years

    In some cities, the situation is simply out of control. Indeed, rental prices in Palma, Barcelona, Malaga, Madrid, Las Palmas, Valencia, Tenerife, rose the most. Between the end of 2013 and today, they rose by more than 40%. A very drastic increase in such a short period of time.

Close to 50% of net income spent on the lease

Low-income homes have been hardest hit by the rise. Indeed, close to 50% of their net income is spent on their lease, according to a study.

How could it be any different, when rental prices have increased by 50% in less than 5 years, while wages have increased by only… 1.6%! This led TheLocal.es to publish an article called “Rent prices in Spain rising 30 times faster than wages”.

House prices versus rental prices: the crisis revealed in one graph

We can understand this new kind of crisis by looking at the graph below, provided by Idealista. In a normal real estate market, the two lines below (violet and green) should stay close. Indeed, they track the evolution of properties for sale (violet), and rentals (green). Yet, what we can see clearly is that since 2016, these lines have grew apart.

Today, we’ve come to a situation where:

  • Rental prices are 20% higher than they were in 2007

  • Transaction prices are still 15% lower than they were in 2007.

So…. how is this information useful for you? 

reloj del mercado

Cash is king in the Spanish real estate market

Cash is king. More than ever, the availability of cash makes a big difference. Indeed, as we saw, many cash-poor people are forced to rent, due to the rules imposed by the Spanish bank.

So, if you can afford the down-payment of the 20% to 30% demanded by the Spanish banks, you take advantage from a situation which is due to rectify over time.

Over the course of 3 to 10 years, the situation can only change in two ways. Either rental prices will go down (unlikely), or transaction prices will go up.

In the meantime, doing a rental investment in Spain can be a great opportunity, as property prices are lower, while rental prices are higher than in 2007, for historical reasons explained earlier.

Willing to buy in Spain? Contact our property advisors now!

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