Our Take

---

Spain is booming. Have I said that before? …. I have. However, take heed, some will paint a rosy picture of endlessly rising prices and good times ahead. It’s important to look closer to understand what’s working and what’s not. There are risks ahead. Spain has historically been a boom-and-bust market. When the global economy is good, foreigners flock to Spain and purchase property. In major markets, locals struggle to compete. When that bubble bursts, prices can drop precipitously. Since the pandemic, the Spanish stock market has been on an historic run. Foreign buyers have been flocking in, spreading out rallies in major markets to neighborhoods further and further from key city centers. In response, the regional governments, in conjunction with the federal government, have taken measures to protect locals. Those measures have had varying degrees of success. 

In Barcelona, for example, residential building purchases have dropped. Rent restrictions and tax increases on owners of more than five units have dissuaded buyers. But, this has had little impact on prices in popular neighborhoods. This is to some degree because foreign buyers are focused on individual luxury apartments. Case in point, in the popular neighborhood of l’Eixample Dreta,  prices have increased over 11% year-on-year. 

This isn't limited only to Catalunya. In Valencia, the government recently had to agree to raise the price of protected housing (price restricted homes for vulnerable people) by 7%. This was to offset a 22% increase in construction costs. Whether that leads to further development in Valencia remains to be seen. 

Madrid continues to be one of the hottest markets in Europe. In many cases units are moving soon after being put on the market. Ten percent of homes are being sold within a week, another 27% are within the first month. In regions like Asturias, one of the last remaining large residential development sites on the central Asturian coast, Arnao beach, is soon set to begin development after lying dormant for years. That comes as the government of Asturias also raised prices for protected housing, increasing it by 3.7%, to offset construction cost rises. 

So, with all the boom, what are the risks of a bust. Maybe the biggest risk is the cost of borrowing money. The daily Euribor rate (the average rate at which major Eurozone banks lend to each other) passed 3%, the highest since 2024. With continued inflation concerns, mortgage rates are up and are expected to stay up for the near term. 

Another risk is the ability of foreign buyers to continue to support the market. According to Spain’s General Council of Notaries, US buyers have tripled in the last six years. They make up 16% of foreign buyers in areas like Madrid. Shocks to the American market, like an AI bubble burst or political instability, will have a ripple effect. 

Further issues surround the government of Pedro Sanchez and his many efforts to cool prices. Those efforts have had varying degrees of success. One of his highly publicized moves was the end of the Golden Visa program. That has not had a marked impact on prices. But, it demonstrates politicians willingness to hurt foreign investors, even if just to score political points. This has to be kept in mind.

We’re a year out from Spanish general elections. The current government will no doubt try to continue downward pressure on the market to appease voters. These elections, coupled with the various current market factors and potentially destabilizing American elections, cloud future predictions. It is easy to imagine a pullback in the next 12 to 24 months. The tendency is to parse every new bit of data to the point of fatigue looking for clues. With every market exact timing is generally difficult to predict. But, no doubt interesting times ahead.