In 2023, Spain was one of the top five countries popular with visitors. For investors from Europe, transactions have become more difficult. Nevertheless, there were even more requests to buy properties than the year before. How has the Spanish market changed during this difficult period? And what to expect in the near future? Vadim Nay, Head of Alicante Real Estate, tells us.
The perfect storm situation
Not only the property market, but the whole world has changed this year. Unfortunately, not for the better. It is no longer the sellers or the buyers who dictate the terms. For Russians, it is politicians. Those who decide on the next package of sanctions. And European bankers who create barriers to transactions.
For all, 2023 is off to a more than optimistic start. In Spain, the last quarter of last year and the first quarter of this year saw a record number of deals. The best prospects were ahead. Investors planned for excellent returns. Home buyers were looking for bargains and a move to a quiet country with a mild climate. And that's where it all started.
In fact, not only in Spain, but in Europe in general, there was a situation of what is called a perfect storm. Geopolitics, the result of which was a sharp rise in energy prices. Multiplied by the consequences of a pandemic in which industrial production declined and the amount of money in circulation grew at the expense of welfare payments and subsidies.
For Spain, fuel problems were also created by the situation in North Africa - the local confrontation caused a drop in oil and gas shipments to Europe from the south.
Taken together, this has resulted in an unprecedented rise in inflation. Inflation rose to a record 10%, a rate that Europe has not seen in decades. Central banks were forced to raise interest rates. And yes, what can you do, mortgages went up in Spain.
And electricity has gone up in price. Of course, Spaniards are not very happy about this. But still, let's not exaggerate. The average wage in Spain today is more than €1700 per month. And how much will you have to pay for electricity? A hundred euros, and that in winter. In general, of course, money is a pity, but no one will die of hunger or cold. And even two months a year no one will have to save a pension for firewood for the winter.
Mortgages, yes, have become more expensive. But by how much? From 1.5-3% to 2.5-4%. It will cool down the real estate market for a while. That's what's happening in practice today. Spaniards have to get used to paying more compared to almost zero rates a year ago. But all this is not critical and if it does affect the market, it will not last long.
Residence permit for investment
Traditionally, in the real estate market in Spain a large percentage of transactions accounted for by foreigners. The main categories are European pensioners who buy flats and villas for a happy quiet life by the sea. And investors.
The squad did not notice the loss of a fighter: the Russians have never played an important role in this market. Yes, they have shared first places with the Chinese in obtaining residence permits for investment. But as far as buying properties is concerned, the British have always held first place. Even in the best years for us, they did ten times as many deals as clients from the former CIS countries combined, including Russia. The French, Germans and so on came second.
Now Russia's role in this market is even more modest. And the biggest problem today is the difficulties with European banks. Basically, successful deals are made by those who have already managed to obtain a residence permit in Spain under one programme or another. For such clients, we always have really good deals on commercial real estate in Barcelona. But investing new money, transferring it from Russia, is, unfortunately, difficult today.
Investing in Spanish property
Real estate in Spain as it was attractive for investment and for living in this country, and will remain. The number of people wishing to buy one object or another has not decreased, on the contrary, it has even increased. But the opportunities for many of us to do so have significantly decreased.
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About the market itself. Yes, autumn in terms of the economy was not the best. But let's look at the situation openly. Over the past eight years the price per square metre has practically doubled. That is, I repeat, those who invested in the same commercial real estate a few years ago, doubled their capital.
That is a very good result. But right now we are seeing some pause. A correction in the market. And yes, many analysts point out that the price per square meter has dropped 1-2% in the last three months. True, in the commercial real estate market, we haven't seen that yet either.
So what does this mean? Nothing, the market movement is within the statistical margin of error. It's less than the percentage of transaction costs including fees, taxes, agent commission. So maybe this is the right time to enter the market. Because when it is already rising, it is impossible to keep up, which means that it will be too late.
Prospects for investing in Spanish real estate
Those who are as conservative as possible may want to take a closer look and wait and not rush into a final choice. But the dynamics are not the worst right now. Inflation in European economies peaked in mid to late summer. Things are slowly but surely beginning to stabilise.
Also, there will come a time when rental rates will begin to be revised in accordance with the contracts - and the increase in rents will just cover the inflation rate. Most of the agreements between the parties stipulate that.
So what does this mean? Only that the owners of commercial properties, who earn income from their properties, will again be on the plus side. So, let's say, there really is no rush to buy a second home. But buying commercial real estate, street retail properties, in our opinion, is the right time.
In general, it's worth noting that the 2020s, when they first began, completely broke all the moulds. Many of the rules that business people used to live by don't work anymore. The planning horizon is not years and decades, but months and in some cases even weeks.
No self-respecting analyst can predict what upheavals lie ahead, so a classic protective asset in the form of a street retail property in a European capital city certainly doesn't hurt anyone. Especially if your core capital is still parked in a country with ever-increasing geopolitical risks.
I wish all investors health and prosperity. I hope that 2024 will be a creative and stable year, or at least more predictable.