To buy or not to buy in Spain …

Property prices in Spain are starting to fall for the first time in many years, in some provinces and towns a 5-10% decrease has been recorded.
Mortgage rates have almost doubled since the start of 2022. So what will happen to property prices – will they continue to fall or rise again in 2023 and beyond? Is it a good time to invest in Spain within the next 12 months?

Four factors determine the price of a property :

1) Supply and demand – a greater supply (increase in the number of listings and properties for sale) and less demand (fewer buyers and sale transactions) will  result in a decrease in property prices.

2)  An increase in demand for property and not enough supply and property prices will increase.

3) Cost of financing –  The European Central Bank is expected to take its deposit rate up by 50 basis points next week to 2.00%, despite the eurozone economy almost certainly being in recession, as it battles inflation running at five times its target.

4) Macroeconomics and household savings. Inflation is at an all-time high resulting in energy and food prices soaring, job uncertainty and other factors that will result in a dwindling of household savings and thus affect the ability and confidence of buyers.

Property price decreases vary depending on which area of town and city a property is located. For this article, our local area of Alicante Golf (San Juan), 15 minutes from Alicante City on the Costa Blanca is used as a snapshot of the current real estate market, both for the second-hand and new build market.

Second-hand market

According to figures published in Idealista (one of the largest real estate portals in Spain)  the price per m2 in Bellavista Capiscol an area close to Alicante Golf,  a second-hand property will cost:

Nov 2021 – 1648  € per m2
Nov 2022 – 2317 € per m2

This equates to an increase in prices of 40% within a year!  Having viewed and sold properties in this area, the current prices of apartments and duplexes do confirm these reported figures.

With closing costs in Spain between 12-15%, the second-hand market is due for a correction in 2023 and beyond.  Bear in mind these apartments are more than 40-50 years old, energy inefficient and aged community facilities continually require maintenance.  Second-hand properties in our opinion are overvalued by 30-40%.

New builds

Pau5 is a new development of apartments and condos, a few minutes’ drive from Bellavista Capitol, which commenced in 2017-2018 and has emerged as one of the most expensive areas in Alicante on a M2 basis.  More than 1000 apartments have been built in 4 years, including upmarket restaurants and bars with construction still in progress, albeit at a slower rate.

According to Idealista the prices per M2 in the area:-

2018 – 2,557 € per m2
2022 – 3,329 € per m2

An increase of 30.1 % in 2 years.    This area has seen a massive demand from sports players, professionals, young families and international buyers (a mix of digital nomads and retirees)  due to the well-built energy-efficient modern apartments from established builders, luxury community facilities, safe area and within a few minutes walk to San Juan beaches and parks and excellent transport links to Alicante City.

A significant increase of wealthy individuals from Ukraine, Hungary, Czechoslovakia, Sweden and Poland renting and buying in this area was noted following the outbreak of the recent war.   This number has since decreased but the interest from international buyers for new builds is still strong.

We expect in 2023 that new builds in this area to maintain their current prices with possible decreases of up to 5-10% on a urgent sale.  With land scarce in this area and current projects on hold due to an increase in material costs and uncertainty, this will further maintain and add value to the current prices.

On the flip side, community fees within these new blocks need to be factored in and will increase in line with inflation.  Community energy bills will increase and although maintenance costs should be relatively low for the initial 5 years,  buyers should factor in at least 3000 euros a year for community fees on new modern complexes that include pools, jacuzzi, gardens and tennis/padel courts.

2023 and 2024 will no doubt be a bumpy road for buyers and investors in Spain.  However, many internationals buying in Spain are not investors in the traditional sense of expecting a return on their capital but are making a “lifestyle purchase” however, at the same time, see it as an investment as they find their salaries and savings go further here.

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