Spanish Property Market Begins Recovery

Latest indicators show that the Spanish property market will thrive again in 2020 once the world’s economies begin to recover from COVID 19.

Domestic demand is expected to drive the renewed activity following pressure applied to the Government by the Association of Promoters and Constructors in Spain (APCE) to introduce a reduction in the rate of VAT on new-builds. The concession that will see tax lowered from 10% to 4% in most cases forms part of the Spanish Government’s relief plan to ensure that the construction industry survives the crisis and continues to make the generous contribution it has always made to Spain’s general economy.

Reduced tax liability on newly built real estate will, of course, benefit all investors regardless of citizenship, thereby providing an extra incentive for foreign buyers, an essential source of revenue and, historically, a major driving force in the market. The main challenge for the industry seems to be attracting customers who may show reluctance due to travel restrictions and corona virus related financial uncertainties. Despite these factors, however, house prices are predicted to remain stable in 2020.

In order to maintain growth in the market agents are moving with speed to complete contracts currently on hold due to personal and professional confinement. It is also anticipated that investors suffering losses in other areas will turn to real estate regarding it as a more stable revenue source for the future and that prospective buyers will be attracted by lower prices in the short term due to the effects of the virus. House prices in Spain during 2019 still stood at 35% lower in real terms than prior to the difficulties of 2008, making them very attractive to foreign investment.

The EURIBOR has remained in negative value for the last four years and it is a safe bet that interest rates will remain low for the foreseeable future. The result of this is that taking out a mortgage to buy property is a favourable option compared with saving money in banks and financial institutions where the rate of interest paid to account holders is based on the same criteria. For this reason it is expected that an influx of cash will stabilise house prices in Spain. Taking into account a fluctuation margin of 1-2% the market value of real estate in Spain is predicted to retain the steady growth trend that has been consistent since 2016.

An exception to this trend of expansion, however, took place in August and September 2019 when the foreign holiday property market fell for the first time in four years. Overseas investment still makes up almost 20% of the Spanish property market so must be nurtured at all costs. Easing of the lock down has now allowed construction in holiday destinations to re-commence and continue undisturbed throughout the summer months; something previously prohibited in many regions of Spain and its islands.

Building permits increased by 9% in 2019 and projects financed globally by countries including China and Russia, whose citizens represent some 60% of the Golden Visa scheme, introduced in 2013, will ensure the viability of the construction industry in Spain during 2020 and for years to come.

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