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PROPERTY

EXPLAINED: Will the price of properties drop in Spain?

With experts widely predicting a big drop in property prices across Europe, will they fall in Spain? And if so, by how much and when?

EXPLAINED: Will the price of properties drop in Spain?
Photo: Pixabay.

The market context

The European Central Bank (ECB) has warned that house prices are due to drop by as much as 9 percent across Europe over the next two years.

With inflation affecting economies across the continent, the ECB took the radical monetary policy move of raising interest rates and the Euribor, the rate tied to mortgages in Spain, has risen steeply since then.

READ ALSO: Why mortgage payments in Spain could increase by up to €120 a month 

The Euribor rate in September topped 2 percent, ending the month at 2.23 percent, which contributed to the highest annual increase in mortgage rates since 2000.

The 12-month Euribor rose from -0.50 percent in December 2021 to 2.50 percent today, with market forecasts esimating it could reach as high as 3.4 percent in the next 12 months. This could, in financial terms, mean an increase of over €350 per month for a new mortgage loan (€144,000 on average in Spain). 

Bank warning

In its latest quarterly report on the Spanish economy, the Bank of Spain has warned that the slowdown in housing investment experienced during the third quarter of 2022 will last for the rest of the year and in the first quarters of 2023.

This is due, the state bank suggests, to a rise in bank credit and interest rates, falling construction permits and general wholesale cost increases in construction materials.

READ MORE: What the Euribor rise means for property buyers and owners in Spain

With regard to house prices, the Bank of Spain explains that their steady rise was tempered slightly during the second quarter of 2022, though they continued to show notable year-on-year advances – an 8 percent increase according to the latest figures from Spain’s National Institute of Statistics, due largely to a combination of insufficient supply and relatively strong demand.

But with Spain’s property market remaining relatively strong, can we expect Spanish properties to fall in price as is expected across the rest of Europe?

Spanish exceptionalism

Although it is true that the ECB has forecast falls in property prices across the Eurozone, Spanish property market conditions are relatively unique to those of its European neighbours – particularly those in Northern Europe.

Experts believe the Spanish property market could better withstand the expected price drops across the continent, but this is not to say that property prices won’t fall at some point in 2023 or 2024 in Spain, but rather that they might not fall as much – 9 percent as suggested by the ECB – as its Eurozone neighbours. 

José García Montalvo, Professor of Applied Economics at Pompeu Fabra University in Barcelona, told Business Insider Spain that “what the ECB says does not apply to Spain. In other countries, prices are so high that the shock could be strong, but here [in Spain] we have hit the bottom.”

During the financial crisis of 2008 and beyond, it was southern European nations, led by Spain and Portugal, that felt the brunt of the the bursting real estate bubble.

As such, the Spanish property market never properly recovered or experienced a ‘boom’ as other northern European countries did. While it is true that prices have been rising in Spain, the property market has still not recovered itself and reached the levels of 2007 and pre-crash prices.

In fact, according to Spanish property search engine Fotocasa, housing on the Spanish market is still 34 percent below the pre-crash peak prices reached in 2007.

Simply put, the Spanish property market is better insulted from the oncoming price drops anticipated across Europe in the coming year or two precisely because it never recovered from the last property meltdown. The plummeting figures of 9 percent estimated by the ECB are therefore less likely to be seen in the Spanish market.

“It would be exceptional if we saw large declines when prices have not yet recovered from the previous crisis,” María Matos, spokesperson for Fotocasa, explained in the Spanish press.

How much could prices fall by?

So if the Spanish property market is expected to hold up better than other European economies, how much could prices fall by?

According to analysis from Bankinter, residential house prices in Spain are anticipated to fall by 3 percent in 2023 and then by another 2 percent in 2024 – an estimated 5 percent price fall over 2 years but almost half of the ECB’s European-wide prediction.

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PROPERTY

How to contest the cadastral value of your Spanish property

The cadastral value and cadastral reference of a property in Spain affect various factors including how much yearly property tax and inheritance tax you'll pay. Here's how to change the valuation Spanish authorities give your home.

How to contest the cadastral value of your Spanish property

When it comes to taxes, everyone wants to know if there are ways to pay less. While it’s not always possible, there are certain factors that affect particularly taxes associated with your Spanish property – namely the cadastral value and the cadastral reference. But, can they be changed or rectified?

What is the cadastral value?

The cadastral value is applied to all properties in Spain. It’s the value applied to your property by the Ministry of Finance or Hacienda and serves as a tax base to determine how much IBI tax or Impuesto sobre Bienes Inmuebles you pay for example. This is a yearly tax for all those who own property in Spain.

READ ALSO: What is Spain’s IBI tax and how do I pay it?

The value will depend on the size of your property, the condition it’s in, the year it was built and the cost of construction, among other factors.

It differs from the cadastral reference, which is an estimate of the market value of a property and is used as a reference for the real estate market. It is also used as a tax base for inheritance and property transfer tax.  

How is it determined?

At the beginning of each year, the cadastral value of homes is reviewed, and as a result, it can increase or decrease. This is why your IBI bill can increase or decrease too. As a general rule, the cadastral value is usually much lower than the market price, but this is not always the case.

How do I find out the cadastral value? 

To know the cadastral value of a property, you must first know the cadastral reference. Then you can find the value in the corresponding public records online. You can find this reference on your IBI bills, as well as on your property deeds.

Once you have this you can go to the electronic headquarters of the Cadastre, and click on ‘reference value’. There you will find all the information about the cadastral reference and the corresponding cadastral value.

Even if you’re not the owner of a property, but want to find out the cadastral value of a property you’re considering buying, you can find it out here.

Can I change the cadastral value of my home?

Yes, it is in fact possible to change the value. If you believe that the cadastral value of your property is too high with respect to the market price of your home, you can request that it be reduced.

You may want to do this in order to lower your IBI bill or if you want to sell your property at a lower price than the market value.

How do I lower the value?

If you believe that you have a case for changing it, you can make a claim to the General Directorate of Cadastre, overseen by the Ministry of Finance. There are two different claims you can make:

  • The procedure for correcting discrepancies
  • The procedure for rectification of material and arithmetic errors.

Procedure for correcting discrepancies

This option is typically used when there is a large difference between the market price and the cadastral value of a property, as well as when there are errors or false data about the characteristics of your home.

To do this, you must go to the Cadastre office in your municipality or apply online at the Cadastre Electronic Headquarters.

Procedure for rectification of material and arithmetic errors

The second option is used when there are errors or incorrect urban planning information, which affects your home. Again you can do this in person or online. In this case, it will have a retroactive effect. If you have paid too much IBI in the past, then it should be returned to you if the application goes in your favour.

Can I change the cadastral reference of my home?

If the reference value of your home is higher than the market value, then you may be wondering if you can change the reference in order to lower your tax base.

Unfortunately, you cannot request changing this in the same way as you can with the cadastral value. But, the good news is that there is a way to challenge it indirectly.

To do this you will need to request an appraisal from a company approved by the Bank of Spain. If the result of this turns out to be lower than the reference, you can try to rectify your self-assessment tax return, providing the appraisal as evidence that you should be on a lower tax base. As mentioned above, this will only affect certain taxes like inheritance or property transfer. 

In order to approve this, the tax office will need a report from the General Directorate of the Cadastre who may be able to rectify the reference and provide a report to settle the matter.

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