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PROPERTY

EXPLAINED: What will happen with property prices in Spain in 2023?

With property prices forecast to drop across most of Europe, will they rise or fall in Spain in 2023? What are the factors that make the Spanish housing market slightly different to its European neighbours?

EXPLAINED: What will happen with property prices in Spain in 2023?
Houses in Puerto de Mogán in Gran Canaria. What will happen to property prices in Spain in 2023? Photo: Lynn Vdbr/Unsplash

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. This will have an effect on housing demand and prices in Spain in 2023, but it won’t be anywhere near as severe as other European countries.

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

Prices have been on the rise in Spain for a prolonged period, but will they fall in Spain in 2023? And how is the Spanish market different to the rest of Europe?

The market

Experts predict that 2022 will see the end of strong rises the Spanish property market has enjoyed in the last couple of years, during which both sales and prices rose at rates not seen since before the 2007 housing market boom.

According to Atlas Real Estate Analytics, in the third and fourth quarters of 2022 around 168,000 purchases and 166,000 sales have been signed for, with an annual total of 665,754 property transactions, 2 percent above the 650,913 in 2021.

In 2023, however, the strong market growth is expected to begin tapering off, with the number of sales forecast to fall to 563,450 – a future marginally above the three years immediately prior to the pandemic. In this sense, in terms of property purchases and sales, 2023 should bring a normalisation of the market, returning to form after a couple of years of extremes. Falls in prices and sales shouldn’t be as severe as across the rest of Europe, however.

READ ALSO: Foreigners are paying more than ever for property in Spain

Prices

So, what does this mean for prices?

Though the overall number of property transactions (sales and purchases) looks set to fall by around 15 percent in 2023, the fall in house prices is forecast to be only 0.9 percent, according to Atlas Real Estate. 2022 will end with an average price of €1.706/sqm, 2.9 percent above 2021, However, in 2023 the average sqm price is expected to fall slightly to €1,691 – a fall of almost 1 percent.

According to data published by Spain’s national statistics institute, INE, the year-on-year increase in the price of housing stands at 8 percent. Experts believe this rate of increase will continue to the end of 2022, largely due to inflation, but that 2023 will see a slowdown in prices as the market stabilises.

This is due, in part, to the fact that supply in the Spanish property market cannot keep pace with the demand, so the more significant drops in price predicted across Europe likely won’t be seen in Spain. In major cities like Madrid and Barcelona, supply has decreased by around 39 percent, though overall levels of demand in 2023 are expected to be lower than in both 2021 and 2022.

In recent year Spanish property prices have been spurred by the combination of high demand and low supply, along with a decrease in the construction of new build homes owing to the increased price of materials. This spike in prices is expected to slow, but any decreases in price are expected to be marginal overall.

New build vs ‘second hand’ 

That’s not to say that the prices of certain types of homes won’t fall, however.

Property experts also predict that there will be differences in terms of prices between new build constructions and ‘second-hand’ homes. New builds are not expected to be affected by the slight drop in house prices, although in second hand homes prices could fall from anywhere between 3 and 7 percent.

This is because demand for second-hand homes is expected to dip slightly as a result of rising mortgage rates and inflation meaning less people are looking to buy. As a result, prices could drop.

The Spanish property market is better insulated from the oncoming price drops anticipated across Europe. Photo: KaatjeB/Pixabay.

Is Spain different?

So why will the Spanish market not feel the full brunt of price drops anticipated across the rest of Europe?

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, 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 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.

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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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