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PROPERTY

Is it better to buy or rent in Spain right now?

With mortgage rate rises making potential buyers think twice and a severe lack of housing in the rental market driving up prices, The Local considers the possible pros and cons of buying and renting in Spain in 2023.

Published: 18 January 2023 16:38 CET
Is it better to buy or rent in Spain right now?
It's true that Spanish market is expected to cool off after a couple of years of price increases, but it isn't expected to see the drastic price plummets predicted in other European countries either. Photo: Pixabay.

Last year was a rather unpredictable year, to say the least, with inflation driving up the prices of seemingly everything from sausages to suncream. Many people in Spain and indeed across the continent were forced to tighten their belts in a way many haven’t had to since the aftermath of the financial crisis in 2008.

This was certainly true in the housing market, where both the purchase and rental markets have felt the brunt of the ongoing economic volatility and have seen prices rise significantly in the last couple of years.

With interest rate rises making mortgages more expensive and a shortfall in rental properties failing to keep up with demand, many might be wondering what 2023 will bring for the Spanish property market and whether it’s best to buy or rent moving forward.

Though inflation does thankfully seem to be levelling off somewhat, in 2023 the Spanish market is still expected to be affected by a combination of high underlying inflationary pressures, rising interest rates, more expensive mortgages, and a shortage of new build homes, putting the rental market under pressure.

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

Buying

In Spain in 2022, property sales grew. In fact, during 2021 and 2022, both the number of sales and prices rose at rates not seen since before the 2007 housing market boom. 

According to property consultancy company Atlas Real Estate Analytics, it is estimated that 2022 saw around 665,000 transactions, two percent more than in 2021.

Prices reflected this steady growth in demand. According to data from Inmobiliarias Apprais, the price of housing grew by 8.8 percent in 2022.

In 2023, however, prices may well flatline or even drop slightly, although the European Central Bank (ECB) has warned that house prices are due to drop by as much as nine percent across Europe over the next two years.

With inflation affecting economies across the Eurozone, in May of 2022, the European Central Bank 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 Spanish property experts seem to think the fall in demand and prices won’t be anywhere near as severe as in other European countries.

Though the overall number of property transactions (sales and purchases) could be set to fall by around 15 percent in 2023, the drop in house prices is forecast to be only 0.9 percent, according to Atlas Real Estate.

So although Spain might not be the market where potential buyers are looking to bag a cut-price bargain in 2023, it’s still good to know where prices increased the most in 2022. Zaragoza came in first place where prices grew by 10.9 percent, then San Sebastián (10.8 percent), followed Cádiz (9.3 percent), Madrid (9.2 percent) and Las Palmas de Gran Canaria (8.9 percent).

Málaga, Valencia and Bilbao all saw annual rises of over 8 percent, and in Barcelona, an incredibly saturated market, the rise was 4.7 percent.

The overall, continent-wide cooling of house prices, experts say, will be a more stabilising force in the Spanish market and less likely to lead to major price falls.

Luis del Corral, CEO of Foro Consultores Inmobiliarios, foresees a stable market in 2023 with neither price slumps nor significant rises, although he urges buyers not to go for new builds. “The supply of new housing is being very restricted and in the face of this scarce supply, price tension will remain. This indicates that there is little new housing and [that] it is expensive. Those who need to buy a home will have to go second-hand,” he said.

READ ALSO: Will Spain’s Canary Islands limit sale of properties to foreigners?

READ ALSO:  What will happen with property prices in Spain in 2023?

Renting

So, what about renting?

Unfortunately, the Spanish rental market has been far from immune from the global economic turmoil, with prices rising and demand surging, but supply trailing behind, and fears that frustrated buyers will be pushed into the rental market to further drive up prices.

In fact, there were 45 percent fewer shared properties on the market in 2022 than in 2021. 

READ ALSO: Stricter requirements and screenings: Why it’s getting harder to rent in Spain

Though renting is an alternative for those who cannot buy a house or have been put off by the rising mortgage rates, the surge in rental prices means that even renting has become unaffordable for some in Spain.

In 2022 overall rental prices largely mirrored the increase in purchase prices, growing by an average of 8.4 percent.

However, like when potentially buying, knowing where prices have increased the most in the last year is worth keeping in mind. Unsurprisingly, the biggest increases in annual rental prices were seen in provincial capitals and major cities.

In Barcelona, for example, rents jumped by over a quarter (25.7 percent), followed by Alicante (23.4 percent), Valencia (20.9 percent), Málaga (20.7 percent) and Girona (19.2 percent). 

Though the Spanish government has limited rental increases to 2 percent, it won’t affect new renters unfortunately. 

READ ALSO: Spain to keep limiting rent increases throughout 2023

María Matos, Spokesperson for real estate giant Fotocasa said in the Spanish press recently, the rise in mortgage rates may put off some potential buyers and push them into the already oversaturated rental market: something “which will put even more pressure on the scarce supply and prices will continue to rise.”

2023 outlook

According to Fotocasa, “both the purchase and renting of housing in Spain will continue to be one of the great problems of 2023, especially for young people. The new year will ultimately bring price containment, without large fluctuations and a worrying lack of supply”. 

The Spanish property market, both in terms of purchases and rentals, is suffering from a deeply embedded imbalance between supply and demand. Though the government has limited rental increases for some tenants, this cap won’t affect new contracts and is of little use to people thinking of moving to Spain in 2023.

It’s true that the Spanish market is expected to cool off after a couple of years of price increases, but it isn’t expected to see the drastic price plummets predicted in other European countries either. This means that Spain might not be the place for bargains in 2023, and the rising interest rates on mortgages might put many off taking the plunge. 

Ultimately, deciding on whether to buy or rent in Spain right now seems a largely individual decision. It depends on your personal financial circumstances, where exactly in the country you’re looking, and whether or not you can afford the rising mortgage rates.

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RENTING

Has Spain’s Housing Law completely failed to control rents?

Spain's landmark housing legislation was supposed to control rents and put greater power in the hands of tenants. A year on, experts wonder if it's really working.

Published: 30 May 2024 14:58 CEST
Has Spain’s Housing Law completely failed to control rents?

In May 2023, Spain’s Housing Law (Ley de Viviendas) came into effect. It was an ambitious and wide-ranging piece of legislation that sought to regulate rising rental costs, implement price caps in some cases, and also forced landlords to pay agency fees and levied tax penalties on big property owners who maintain empty units, among many other things.

The legislation came in response to long-term concern among Spaniards about the state of the property market, and was portrayed by the government as a piece of flagship policy. However, even then, some on the Spanish right and in the property market were sceptical and warned of unintended consequences.

Well, it seems they may have been right. Experts now warn that the law, if anything, has worsened conditions for renters: new regulations have scared off landlords and pushed them into the tourist market, which has reduced supply and put up prices, in some cases to historical record highs — exactly the opposite of what the law was intended to do.

So a year on, has the Housing Law worked? What effect, if any, has it had on the market?

READ ALSO: Five key points about Spain’s new housing law

Has Spain’s Housing Law completely failed to control rents?

Even if we consider the Housing Law on its own terms (which, put simply, we can understand as wanting to control rising rents) it seems to have fallen short of its objectives so far. And it’s not just political opponents of the government saying this; it’s property experts, landlords, and even some renters themselves.

Writing in Idealista, Spain’s leading property website, David Marrero states that “during its first year in operation,” Spain’s Housing Law has succeeded in “generating even more doubts and uncertainty among landlords and tenants, which has meant that the supply of regular rental housing is declining compared to the increase in other types of rentals, such as temporary or room rentals, which have been left out of the regulation of this Housing Law.”

As a result of the fear of heightened regulation among landlords, many have left the traditional market and turned to tourist rentals, which are far more lucrative. 

READ ALSO:

José María Alfaro, President of Spain’s Federation of Real Estate Associations (FAI) told 20 Minutos that supply decline is caused by “fear” among smaller landlords due to a “lack of legal certainty” which has led to a “progressive and significant flight” of long-term, affordable property from the rental market.

In the last year, the supply of permanent rental properties has fallen by 15 percent, compared to a 56 percent year-on-year increase in tourist rentals, which now account for 11 percent of the total market, according to the latest data from Idealista. Experts say this is due, in part at least, the Housing Law.

The stats in some Spanish cities are pretty staggering. According to a study by Idealista, 30 percent of the rental supply in Barcelona is now tourist accommodation, while in Madrid it stands at 15 percent and in Málaga it accounts for 13 percent of the stock.

Often in Spain these sorts of tourist rentals and Airbnbs are unlicensed, so the true figures are likely higher.

This pushes up demand for the dwindling rental stock. According to figures cited by Spanish daily El Mundo, in 2023 there were on average 17 applicants per property advert in the first quarter of the year. In 2024, there are now 27 interested parties per advert. 

Stock down, prices up

On top of that, as The Local has reported previously, Spain’s various rental caps, freezes and housing law rules have done little to stop rents rising.

In cities across Spain, prices have skyrocketed. Year-on-year figures showed that rents soared in 2023, particularly in major cities. In Valencia rents went up by 22.1 percent, and in Alicante (18.6 percent), Barcelona (18.1 percent), Málaga (17.9 percent) and Madrid (10. 7 percent).

José Ramón Zurdo, Director General of the Rental Negotiation Agency (ANA), told Idealista that there has been a noticeable change since the Housing Law was passed: “We have noticed that since the Housing Law was passed, the rental supply has decreased considerably, and this has led to an increase in the rents charged by landlords.”

FAI figures estimate that the volume of properties on the long-term rental market has fallen by more than 30 percent since the law came into force and, consequently, prices have risen by more than 12 percent on average.

READ ALSO: Spain’s rent freezes and housing law fail to prevent price rises

Stressed areas

Another key branch of the Housing Law was the creation of ‘stressed’ rental zones, which must meet one of two criteria: areas that exceed the Consumer Price Index (CPI) of their respective province by five points, and where families dedicate more than 30 percent of their salary to paying rent. 

However, data reveals that 2,298 areas of Spain are considered ‘stressed’ per the criteria (20.83 percent of the entire country) but for the moment only Catalonia has tried to properly implement them. In practice, one year into the Housing Law, the stressed area tool has only had a material impact on new rental contracts in less than a third of the municipalities across the region.

Regions governed by the right-wing Partido Popular have refused to implement it, describing the idea as a “mistake.” Interestingly, neither have any of the Socialist (PSOE) led-regions, which suggests that even the regional parties themselves may think the law (designed and implemented by their party at the national level) at best difficult to implement, and, at worst, a failure.

A failure?

A year is not a long time to judge long-term impacts of legislation. That Catalonia is the only region to really try and implement the policy makes it difficult to draw rounded conclusions, and the problems it’s trying to address are deeply rooted, structural issues in the Spanish property market. But the signs aren’t great so far.

Judging the law on its own terms, the aim to regulate rents seems to have failed. A more charitable interpretation would be that the law needs time to bed in and take effect, but with increased regulations on landlords, many have turned their properties into tourist accommodation, a growing sector outside the scope of the law — another key problem with the legislation.

The law seems undoubtedly well intentioned. Spaniards around the country are struggling with rising rental costs, and putting together legislation to try and help them seems sensible.

However, if the unintended consequences deplete housing stock and cause prices to go up, it seems difficult to conclude the Housing Law has been a resounding success so far. 

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