Investing in real estate in Spain. What do you need to know in 2022
Investing in real estate is always a tempting proposal. Although COVID-19 has frozen the market for a while, now more and more experts believe that after a period of stagnation it will be a good time to buy. If you are also thinking about your first investment in real estate abroad, I have a handful of practical information for you.
What you will find in the article:
- Real estate investments in Spain – the market situation in 2022
- Purpose of investing in real estate
- Banks in Spain like foreigners
- Holiday rental is a good investment in real estate
- Average property rental prices in Spain in 2022
- An investment in real estate must be profitable
- We will help you earn on rent
- To sum up
Investing in real estate is a safe solution – especially at a time when the world has become unpredictable. If someone had told you 3 years ago that the Covid pandemic would lock us up at home, and less than a year later a war in Ukraine would break out, you would probably have tapped your forehead. And yet. Both events are our reality and significantly affect the growth of the property market in Spain.
First things first – 3 tips for those of you who are planning to invest in real estate in Spain in 2022:
- Don't expect a lot of price negotiations as property prices in Spain are rising. The year 2021 saw a 10% increase in prices in Andalusia, and this year the upward trend continues. This does not mean that you should forget about negotiating. While on the primary market developers are reluctant to reduce prices, but for example offer their customers additional home furnishings, reasonable offers still exist on the secondary market. "Reasonable" is the key word here.
- Plan your visit in Spain in advance and inform your agent about your plans. If you don't have one 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 real estate bases, so they have access to all properties – including those offered by other companies. It is a great help for you: instead of making an appointment with several agencies, you choose one company, and in it a person with whom you talk and with her/him you visit everything that s/he proposes to you or what you can find on the Internet. In any case, make sure to call her/him at least two weeks in advance. Firstly, that s/he would have time for you, and secondly, that s/he would have time to organize visits in selected properties. If you call being at the airport that you have just arrived, it may turn out that your agent's calendar is bursting, and s/he, despite her/his best intentions, is not able to attend you. We all work very hard now.
- Do not wait too long with the decision to buy the property you liked – offers disappear from the market very quickly. The demand here is huge, often good properties do not last even 2-3 days on the market. So if you like something, do not wait, make an offer and we will try to win the best price for you. We also encourage you to read our guide on buying real estate in Spain beforehand.
Holiday apartment rental, long-term house rental, apartment renovation and quick sale with high profit... – Investment in real estate in Spain is a dream of many foreigners. In 2021, as many as 60,936 properties were handed over to foreign buyers, which was an increase of 30% compared to 2020, but a decrease of 3% compared to 2019. The largest group of investors were – traditionally – the British, who, despite Brexit, have ruled for years in all rankings on the nationality of investors interested in Spain.
When it comes to real estate investments, Spain is one of the most attractive places in the world. According to the calculations of the AFIRE association (Association of Foreign Investors in Real Estate), which deals with international investment in real estate, this country ranks 4th among the countries providing the highest capital growth. Only the United States, Brazil and China ranked higher.
The prestigious consulting company Knight Frank has selected several countries that will be the largest investment destinations in the Europe, Middle East and Africa (EMEA) region in 2022. Great Britain opens the list, Germany takes second place, third – France, fourth – the Netherlands, and Spain completes the list with fifth place.
Real estate investments in Spain – the market situation in 2022
Recent years have been either good or very good in terms of investments. COVID-19 changed a lot, the lockdown had an impact on the market, but it lasted relatively shortly. Already from March 2021, we observe a significant rebound in the Spanish real estate market.
In the second half of 2020, we wrote:
"According to the secretaries of land and property registries (Registradores.org), in the second quarter of this year there was a nearly 50% decrease in real estate sales involving foreign buyers (compared to the same period of 2019). Foreigners carried out 8.100 transactions, and the last time a similar result was recorded in 2013. Many people suspended planned real estate investments because it was not known how the market would react to the pandemic.
The prices of houses and apartments started to fall and many investors waited for the best time to buy. According to some experts, that time has just come. According to Miguel Laborde, partner at Laborde Marcet, investors should buy real estate now. "This is because the recovery will be U-shaped and prices will not continue to fall," he said in an interview with Idealista.com.”
Summarizing the first quarter of 2022, we can say that Miguel Laborde was right. Over the last two years, the situation has changed dramatically, and the data for the first quarter of 2022 looks like this:
The property market in Spain grew by 25% in the first quarter, and 173,688 properties changed owners. Comparing month to month, sales in March 2022 increased:
- by 16% compared to last year,
- by 37% compared to 2019
- and as much as 118% compared to the pandemic year 2020.
Sales increases were significant in all locations of interest to foreign investors. Sales rose double-digit in each of these regions except Murcia, with the largest increases being in the Canary Islands + 45% and the Balearic Islands + 21%. In the most popular destinations, sales increased by + 23% in Andalusia and by + 21% in the Valencia region.
Foreign investors bought 21,638 properties in Spain in the first quarter of 2022, which is an increase of 73% compared to the same period last year. The share of foreign buyers in the Spanish property market rose to 13.2% in the first quarter. For comparison, at the end of 2021, foreign investors were responsible for 12.6% of all real estate transactions.
Local buyers have also entered the year strongly. They purchased 142,661 properties in the first quarter of 2022, an increase of 22% compared to the previous year.
Purpose of investing in real estate
Not everyone buys a flat or house in Spain just for themselves. Many people want to make money from it, but it's important to remember that overseas real estate investment can have many faces. Basically, there are three main types of investments:
- Rent: holiday, long-term or commercial. The advantage of this solution is of course that you have a fixed weekly / monthly income. And if it is a typical tourist rental, you can have the property for yourself in the off-season (more on renting later in the text);
- House flipping - buying real estate at an attractive price, renovating it and selling it quickly. If you are lucky and very alert, the profit can be high;
- Capital investment - well, interest rates on bank deposits drop drastically and investing in real estate can be a much better way to increase savings.
Of course, the type of real estate you will be looking for and the locations you will be considering depends on the investment objective. If you are focusing on holiday rentals in Spain, you should look around in tourist destinations such as Costa del Sol, Costa Blanca or Costa Brava. On the other hand, if you want to sell an apartment at a profit quickly, an investment in Madrid, Barcelona, Valencia or Seville, where the market is usually more dynamic, might be a better option for you.
Banks in Spain like foreigners
Investing in real estate abroad often involves taking out a mortgage. What is the current situation in this matter?
Only by the end of May, Spanish banks received 300,000 applications for delayed mortgage payments due to the pandemic crisis. Despite this, the banking sector continues to provide investment financing. This is good news, although, of course, some banks tightened the criteria for granting loans.
On the Internet, the question often appears whether a foreigner may have a problem with obtaining a mortgage in Spain. Let me reassure you: in recent years, the local banks have been more and more open to foreigners, so getting a loan is usually not a problem. Provided, of course, certain conditions are met.
Most banks do not have credit restrictions based on nationality, although it is worth knowing that a bank may require a higher down payment from a non-resident. Residents in Spain can borrow up to 80 percent of the estimated value of the property, while non-residents an average of 60 - 70 percent. Although, as usual in such cases, everything depends on the financial situation of the client, the type of mortgage and the offer of a specific bank.
Holiday rental is a good investment in real estate
Let's go back for a moment to renting a property because many investors buy houses or apartments for this purpose. Generally, there are three types of rental: holiday - short-term (days, weeks), temporary (several months) and traditional - long-term (usually from one year upwards).
It is not difficult to guess that the most profitable is holiday rental. If you own a property, for example, on a prestigious coast, in a few weeks you can get income that will cover several months of maintenance costs and might even add few bugs to your account. One condition - it must be a location popular among tourists. The best region in this respect is Andalusia. According to Fotocasa.es, the largest number of holiday properties is located there - 26 percent of all Spanish holiday properties.
This form of rental - as I have mentioned many times on the blog - requires a special tourist license approved by the autonomous community. Only investors who rent the property to the same person for more than two months are not required to have a license.
Average property rental prices in Spain in 2022
If you are interested in investing in real estate in Spain, it is also worth examining the prices of long-term rental. According to the latest data, the country's average monthly rental rate was EUR 1,544.
Of course, this is just an average and in some attractive cities the prices are much higher. Still, it's worth taking a look at the average rates, as they show which locations are theoretically the cheapest and which are the most expensive:
- Galicia - 988 euro per month
- Castilla La Mancha - 818 euros
- Aragon - 762 euros
- Murcia - 1,167 euros
- Asturias - 701 euro
- Navarre - 976 euro
- Canary Islands - 1.013 euro
- Cantabria - 1.067 euros
- Valencia - 1.435 euros
- Andalusia - 1.401 euro
- Madrid - 1,319 euros
- Basque Country - 1.600 euro
- Catalonia - 3,252 euros
- Balearic Islands - 4.840 euro
I quite this data after SpainHouses, which calculates average prices based on property prices offered for rent by landlords and real estate agencies. If you look at the Idealista website, you will find an analysis of rental prices per square meter on a monthly and annual basis. This data has been collected for many years, so you can follow the evolution of the rental prices in the property market in Spain.
An investment in real estate must be profitable
Even the most attractive price of an apartment does not mean a good deal. When choosing a property for investment, it is crucial to estimate its profitability.
Profitability is influenced by the costs associated with the three stages of investment. The first is, of course, the price of the apartment and all costs related to the transaction (including a notary public, appraiser, mortgage costs, ITP or VAT taxes, real estate register costs). The second is possible renovation and equipment. Third – all fees related to the maintenance of the premises you rent, such as rent to the community, cleaning, utilities, real estate tax, insurance.
Income tax should also be taken into account. An example of one would be an enrichment tax if you bought a property with the intention of selling it quickly. In Spain, it is from 19% for residents and citizens of the European Union, up to 23% for the citizens of the rest of the world. If, for example, you buy an apartment for 150,000 euro, and you will sell it for 250 thousand, the tax will be charged on the amount of 100,000 euro – minus transaction costs.
You also have to remember about the IRNR income tax – investors who are not residents in Spain have to pay it once a year. Of course, a different amount will be paid by the owner who rents an apartment or house and earns on it, and another amount will be paid by someone who keeps the property only for their own use.
On the plus side, apart from selling or renting money, you can save on various tax deductions. 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 who is a citizen of the European Union, can deduct from tax, for example, invoices for utilities (electricity, water, gas, internet), cleaning or advertising expenses.
We will help you earn on rent
Dream Property main activity is selling properties but we also rent real estate on the Costa del Sol.
We often help clients who have bought their dream properties and only use them for a few months a year. Our task is to make their houses or flats earn money during their absence. After all, real estate investments must pay off.
How do we do it? It's simple: if you have a property in Spain and want to rent it, we sign a contract, post an advertisement on our website and external portals, and then we look after the tenants on your behalf. We have created a special team that takes over such organizational matters as airport transfer, car rental, organizing additional cleaning, or assistance in booking tickets for various events. We are also a private "help line" in case your client has a sudden problem that he cannot deal with.
If you want to see how we present offers of rental properties in Marbella, Puerto Banus, Estepona or Benalmadena, please click HERE.
To sum up
Investing in real estate in Spain is a good solution if you want to:
- secure your capital against galloping inflation,
- earn on rent,
- use your investment in a friendly place with a fantastic atmosphere, excellent cuisine and a fascinating history.