The 2024 Outlook on Spain's Real Estate Market: Steady Growth and Great Opportunities

It’s that time of the year in which we look at what 2024 will bring us as far as the real estate market in Spain is concerned!

After studying a lot of market forecasts and with January already confirming these forecasts, we are ready to answer the question: “Is 2024 the right year to invest in Spain?”.

Exceptional Market Performance in 2023

The previous year, 2023, outperformed expectations in Spain’s real estate market, especially with the flood of foreign buyers and investors. Despite the impact of increasing mortgage rates globally, Spain’s market resilience was impressive. Demand overpowered supply, with the all-time high record of purchases by foreigners. Provinces like Alicante saw around 40% of properties sold to foreigners. This trend confirms Spain as a significant player in the global real estate industry.

The strong increase in property demand, is faced with a decrease in the supply of homes for sale, which?has experienced a four per cent decrease during the third quarter of 2023 compared to the same period of 2022, indicating shifts in the country’s real estate landscape.

Investors remain highly interested in the residential asset class due to a significant increase in demand in the rental sector driven by decreased affordability as mortgage rates and housing prices soar.

Balancing Demand and Supply

In the Spanish market, around 600,000 homes are sold annually, of which an average of 100,000 used to be new units. However, in 2023 there were 80,000 new homes, and the forecast for 2024 is around 60,000. So, Spain is one of the European countries that constructs the fewest homes per 1,000 inhabitants. Therefore, new housing will continue to be a scarce commodity, and even though sales will slow down due to mortgage accessibility, the market will not collapse due to the balance between supply and demand.

Property transactions may decrease by 10% in 2024, but the average purchase price is expected to rise between 1% and 3% (and January new forecast already predicted that prices of newly built properties will increase by 4.1% in the first semester of the year).

Predicting the Real Estate Landscape for 2024

In 2024, we foresee two critical scenarios in Spain's real estate market:

1. Reactivation of demand from buyers who were unable to secure mortgages due to high rates. With decreasing rates predicted, these set of buyers will sharply increase demand.
2. A well-established interest in new constructions, particularly as demand for properties greatly exceeds Spain's current supply.

Analysis of Property Prices

In 2023, property prices experienced an average increase of 7% with a pronounced influence from new developments (+5.1%). The upward trajectory is predicted to persist throughout 2024, proving the robust health of Spain's real estate market. Notably, property price growth in Spain has stayed positive for an impressive 37 consecutive quarters.

By autonomous communities, Catalonia, the Community of Madrid, and the Basque Country lead with the highest prices. The Balearic Islands stand out as the region with the highest growth, reaching 6.8%, followed by Madrid with an annual variation of 6.3%.

Barcelona tops the list of capitals with an average price of 5,156 euros/m2, followed by Madrid and San Sebastián. The price variation ranges from +1.1% in Zamora to +7.2% in Málaga over the past year.

Evolving Mortgage Landscape

Despite a 25% decrease in the number of signed mortgages in 2023, it's still possible to secure favorable mortgage rates in Spain compared to other countries.

Mixed mortgages, with initial fixed terms, emerge as the star product, competing for the spotlight in the first quarters of 2024.

The new macroeconomic forecasts indicate that, although interest rate hikes are no longer on the table, it won't be until 2025 that inflation returns to the target, which does not justify premature cuts. According to most forecast, we will see the first drops in rates around the Spring or June at the latest.

As rates are set to decline, the market forecasts an increase in the number of signed mortgages especially in 2025.

Rental Property Market: Trends and Predictions

The rental property market in Spain is undergoing significant changes due to the Housing Law (Ley de la Vivienda) introduced in May 2023. Despite the intent to decrease rental prices, increase rental properties' supply and help vulnerable families to access the rental market, the outcome has completely deviated from the plan.

Let’s have a look at the effects of the Housing Law after only 7 months of its introduction.

Rental prices soared by an average of 10%. Segovia leads the surge with an impressive 24.6%, followed by Valencia (21%), Palma (20.2%), Alicante (16%), Málaga (14.5%), Córdoba (13.8%), Madrid (13.6%), and Barcelona (12.4%).

The rental property supply fell by roughly 12% and continues to fall sharply in major markets, dropping by 26% in Madrid and 23% in Málaga.

Additionally, this law has led to a significant shift from permanent rentals to seasonal rentals, further hindering families' access to housing. With a political environment showing a tendency to remain unchanged (or get worse), it is not expected that these trends will change in 2024.

In Spain, the effort required for renting is now higher than that for buying. To avoid allocating more than 30% of income to rent (the recommended maximum amount), a family needs a net annual income of 31,550 euros. In the case of buying, mortgage payments require a net income of 21,561 euros, although it comes with the barrier of having to contribute 30% of the property value upfront. In other words, renting requires 46% more income but avoids the need for upfront savings. People who rent pay more than those with mortgages, making it more challenging for them to save for the necessary funds and preventing them from making the leap to homeownership.

It is worth mentioning that these effects were very easy to foresee, we had all seen them coming, and that all real estate experts and real estate associations had warned the Spanish government against this law. So, why didn’t they listen?

Anyway, while this new law significantly impacts long-term rentals (5+ years), which I never recommend to my clients as a possible buy-to-let operation, it has made the alternative investment opportunities such as medium-term or tourist rentals even more profitable than they already were. Medium-term rentals are already yielding higher returns than long-term rentals, and this gap could widen if long-term prices continue to increase.

Similarly, Fadei (Federation of Associations of Real Estate Companies) predicts that rental prices will continue to rise in 2024 (it is foreseen up to 13.5%) due to the lack of supply and "until a solution is found to address the concerns of small savers due to the implementation of the Housing Law."

Additional Important Aspects

The Spain residential real estate market is thriving, set to reach $149.9 billion by 2027 registering a CAGR of 8.0% from 2020 to 2027.

Now, that's not just growth; it's a testament to the market's resilience and attractiveness.

Other important aspects that fuel the constant grow of the Spanish real estate market:

-?????? Technology: It has become very easy to acquire properties without even having to travel to the country. Virtual tours, augmented reality, and online platforms have transformed the buying and selling experience, making it not just efficient but globally accessible.

-?????? Sustainability: Eco-friendly and energy-efficient homes are not just a trend; they're a priority, with government incentives and a strong focus by the developers.

-?????? Spain's Golden Visa program: Residency for non-European investors contributes to the international interest. Although there are rumours that it may end soon (because of the pressure by the EU), at the moment it is still on.

-?????? Digital Nomad Visa: another great opportunity to obtain the residence paired with some very interesting tax benefits.

-?????? Stability: Spain's economic stability is the backbone of its real estate market. Global economic conditions, GDP growth, and employment rates all contribute to buyer confidence and investment decisions.

The Market Trends For 2024

Looking at the trends for the Spanish real estate market in 2024 and beyond, the projection looks very promising. Stable economic growth, decreasing mortgage rates, and a limited supply of properties paint a favorable picture for foreign buyers and investors.

Here is a summary of the Spanish Real Estate Market Trends for 2024:

-?????? Spain economic growth (higher than the EU average).

-?????? Decrease in mortgage rates – growing optimism (=> more transactions =>higher prices).

-?????? Limited offer (especially for newly built), including for rental.

-?????? Price increase (to continue in the following years).

-?????? Increase in buy-to-let investments.

-?????? Record of foreign investors & buyers, including for repeat purchases.

Conclusion

From the analysis, 2024 appears to be an excellent year for investment in Spain's real estate market. Whether for personal use or the creation of passive income, seizing the opportunity now could potentially reap substantial rewards in terms of equity gain and interesting buy-to-let profitability. The competitive edge Spain offers including its excellent quality of life (voted again no. 1 in the world by expats), robust healthcare system, potential tax benefits, resident visa opportunities, and much more makes the country a top choice for investors worldwide.

Remember, the key to successful real estate investing is knowledge. Stay informed, stay ahead, and here's to a prosperous property market in 2024!

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