Is There A Dark Side To Spain’s Property Boom? Here’s What You Need To Know

Spain is in the middle of a property boom. This is great news for property investors and for the Spanish economy. Particularly as property prices have declined across many other parts of Europe.

But is there a negative aspect of this property boom? The short answer is, yes.

For many homeowners, it is positive news that property prices in Spain increased by 4.3% in the first quarter of last year. Property sales figures also soared with 586,913 properties sold last year: an increase of 24% on the country’s 10-year average.

What makes these figures particularly significant is that property prices fell by 0.3% across the whole of the eurozone, which means that Spain is bucking the trend.

So why is the Spanish property market defying inflation, and rising despite of cost of living pressures in the county? And what is the dark side of this mini property boom? Here’s everything you need to know:

Why Is The Spanish Property Market Booming?

There are many reasons why the Spanish property market is experiencing such a surge of interest right now. One of the most obvious is the influx of expats purchasing property in the country. Spain’s booming tourism industry as well as its strengthening economy are also key factors.

What makes the current state of the Spanish housing market so impressive is the historical context of it: In 2008 Spain experienced a financial crisis and the property market crashed. Property prices plummeted, dropping by 37%. 3.4 million houses were left sitting empty as a result, and it has taken the Spanish property market a long time to recover.

In fact, things only turned around during the coronavirus pandemic. A time that was incredibly financially damaging for Spain, as well as for wider Europe, actually gave the Spanish property market a boost that no one was expecting. Both foreign and local demand increased across the country. People’s priorities changed: Spaniards who had been happy living in small city apartments reevaluated and wanted to invest in larger, countryside properties.

At the same time, immigration in Spain grew with people from other European countries reassessing their priorities and wanting to move to the sunshine. Net immigration hit 727,005 in 2022, the highest level for a decade.

At the highest level, and when compared to other parts of Europe, the Spanish economy is doing well. We are seeing unemployment figures going down, the property market thriving, and the tourism industry booming.

 The Current State Of The Spanish Mortgage Market

In parts of Europe, and especially for our readers in the UK, national mortgage rates in the post-covid world have been rising at an unsustainable rate. But this is not the case in Spain. In fact, mortgage rates in Spain right now are lower than they were after the country’s famous financial crisis which means securing a mortgage in Spain still looks like an appealing option.

In the 3rd quarter of 2023, the number of homes repossessed from borrowers hit an all-time low according to data from Spain’s National Institute of Statistics. And because fixed term mortgages in Spain are fixed for long periods (often between 10 and 30 years) the economy’s fluctuations haven’t impacted Spanish mortgage holders in the same way that they have mortgage holders in the UK.

In simple terms, this means that the Spanish mortgage market remains buoyant.

What Is The Dark Side Of Spain’s Property Boom?

While the Spanish property market is booming, this isn’t a universal story. There are huge regional disparities, with some regions benefitting considerable and others left behind.

Even in the regions where property sales are booming that isn’t the whole story: with more and more expats purchasing property in these areas, the property supply is strangled and many locals are left unable to find affordable housing in their own home towns.

Housing supply in Spain is sadly limited. In 2023 a shortage of 325,000 houses was recorded, and Spain simply isn’t building properties at a fast enough rate to meet demand. Historically, Spain has seen around 100,000 new homes built annually. However, last year only 80,000 new homes were built, and this figure is only forecast to drop again this year. At a time when Spain needs to be building more houses, they are actually building less. Spain is constructing less homes per annum than any other country in Europe.

There is a real lack of housing in Spain right now. And with more and more expats looking for property, the result is that there simply isn’t enough property for Spanish residents. This is particularly problematic in areas that are hotspots for tourists and ex pats, such as a the Balearic or Canary Islands, where locals are being priced out of the market. This is something of a political hot potato in the country right now. And the Golden Visa scheme has been axed as a step to show the government are addressing this problem.

But that isn’t the whole story. In reality, the number of expats using the scheme is a tiny fraction of the overall numbers buying up property on the Spanish coastline and the big cities.

However. While some areas of Spain are packed and there isn’t enough property to go around, there are still parts of the country where properties sit empty. This creates a complicated region picture where some houses were simply built in the wrong place: so there are properties available in Spain, but nobody wants to live in them!

The parts of the Spain that are empty are in the country’s interior where the main industry tends to be agriculture.  Castile and León, Castile-La Mancha, Extremadura and Aragón are all regions affected by this. A University of Barcelona study found that just 10pc of Spain’s population inhabits 70pc of the country, and 40pc of towns are at risk of depopulation.

This is why the current Spanish property boom is so problematic. Because Spain is a country of 2 halves: one half is thriving with local and international property demand. But the other half has been left, abandoned.

Have you always dreamt of moving to Spain? Whether you’re looking for golden mile properties in Marbella or bargain property in Andalucia, our local property experts are perfectly placed to turn your dreams into a reality. Why not get in touch to find out more about how we can help you.