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Property Investment: Is Spain Still One of the Best Places to Invest?

When it comes to property investment, potential owners need to consider many factors that can affect the investment’s outcome. 

Marbella, Spain

 

Buying property in Spain is considered a good financial move as a home or investment, or both. Many British property owners look for a holiday home in Spain that they hope will also serve them as a beneficial long term investment. 

In the recent past, Spanish property has resulted in excellent investment outcomes due to nominal capital appreciation with prices up 89 over four years until the end of 2004. However, buyers need to remember that property sales can turn out to be a dud almost anywhere, globally. 

Realistically speaking, the Spanish economy’s capacity to take up large property price increases has more than likely been spent for the time being. In the meantime, Spanish property is probably unlikely to stay a “growth stock”.  That being said, homes that are attractive should still be able to hold capital value over time, as well as providing owners with homes for holidays abroad. 

In the short term, some of the most popular coastal areas like Costa del Sol may see some turbulent times ahead, as prices have been either declining or stagnating in these areas. 

 

Prices in Costa del Sol have been stagnating in recent years 

 

Spain’s Housing Market Expected to Cool This Year 

After five years of a steady increase in house prices, Spain’s property market is rapidly cooling again due to the economic downturn caused by the Covid-19 pandemic. However, Spain still continues to look promising as yields rise. 

According to the Instituto Nacional de Estadistica, house prices rose slightly by 1.68% during the third quarter of 2020, a slowdown compared to 2019’s previous rise of 4.68%

The pandemic has severely damaged Spain’s already weakening economy. The Bank of Spain expects the economy to have contracted by 11.1% in 2020, and to rebound this year with 6.8% growth. 

 

Okupas – A Point of Concern 

The okupa movement (squatters) issue in Spain is also a factor that causes risk for investment in property. Stemming from the notion that every person has the right to a home, the movement has grown steadily in recent years and occupying British owners’ holiday homes in Spain. 

Due to the way the law is in Spain, squatters keep living in houses even though they can’t pay for it. If a homeowner finds out their home is being held by okupas, they can go apply one of two legal measures. They can either file a complaint in the civil law court or request a police investigation. Both of these measures will be costly in time, as the courts are already processing high numbers of similar cases. 

Fortunately, the okupa effect hasn’t been felt on Costa Blanca’s property for sale. It doesn’t compare to the influence of other factors like construction activity and inflation. 

Guardamar del Segura, Costa Blanca, Spain

 

Gross Rental Yields Have Gone Back to Normal 

Gross rental yields are the earned return on the purchase price of a rental property, before taxation. Taking Barcelona for example, gross rental yields range from 4.00% to 5.15%. Similar yields can also be seen in Madrid. On a positive note, yields are seen on the very smallest apartments with reasonable returns. 

 

Conclusion 

All the yields figures are higher than last year’s crash of 2020, making Spain look like at least a possible investment destination. Before buying property in Spain, take into account that the round-trip transaction costs are moderate to high. 

Taxes in Spain are high, with property owners paying a flat tax of 24% on gross rental income. Many people with holiday homes in Spain also try to let them out when not using them. 

Until the market picks up again, don’t make any optimistic rental income assumptions when calculating how much you can afford to borrow. 

 

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