Spanish Property Market 2023

When I update our Spanish Property Market reports at the start of a new year I’m always at a disadvantage of not having full year statistics to hand. Some issues, such as unemployment and tourism, filter through in the first couple of months of the year but the key numbers for the overseas sector of the property market are slower to show up. When I wrote this analysis for 2023 I only had the figures for the 1st half of 2022 to hand but I said the way in which overseas purchasers continued buying property in Spain in 2021 allowed for a degree of optimism for the full year totals for 2022. My optimism was not misplaced. 

In the event, the statistics for the whole of 2022 were better than good, they were record-breaking all-time highs. In total, there were 143,629 foreign buyers in Spain in 2022. That’s 28.5% higher than in 2021, which itself was the previous all-time high, and 32% higher that in 2019, the last full year before the pandemic arrived.

I think there were several reasons for the big increases. Firstly, there has been a surge of overseas buyers coming through since the removal of pandemic-related travel restrictions. For last year’s report I calculated about 30,000 overseas buyers went missing between March 2020 and December 202I. However, as I pointed out in a recent blog The Boom That Wasn't A Boom that while the  2021/22 statistics had the look of an overseas property market boom it was all a bit of a mirage. If you compare the total of foreign buyers during the 3 pandemic-affected years of 2020/21/22 with the total in the 3 years prior to the pandemic, 2017/18/19 they are very similar. In reality, the overseas property market at the end of 2022 was more or less where it would have been if the pandemic hadn’t happened and the pre-pandemic upward trend of 2% - 5% each year had been maintained. 

We now have the relevant statistics for the 1st half of 2023 and while I did think this year would show that the surge had washed through the market and normal new demand had returned to pre-pandemic levels, now I’m not so sure. Excluding the pandemic-affected years, it turns out that an all-time record number of international buyers purchased a property in Spain in a 1st half of the year. The total was 67,983, accounting for 21.4% of the total Spanish property market. and up 27% on the previous high for a 1st half year pre-pandemic in 2018. It will have to be a catastrophic 2nd half year, the results of which we won’t get until April 2024, for 2023 not to beat all pre-pandemic years.

It may be that the pandemic has brought real and permanent change to how people want to live their lives; working from home and working from abroad are examples. As a consequence, the overseas sector of the Spanish Property Market seems to be benefiting from these changes. To get a sense of where the market is I plan to make more comparison with 2019  rather than the distorted pandemic statistics. So, instead of the market falling by  8.1% when compared with the pandemic-influenced 1st half 2022 figure, 2023 is on target to beat 2019 by some margin when we can look at the full year total.

At the peak of the Spanish Property Market bubble which burst as a result of the 2008 global financial crash the highest market share attributed to overseas buyers was 8.9%. For several yeas prior to the crash Spain had constructed over 800,000 new units per year, more than the UK, France and Germany combined.  The market was fuelled by cheap credit and speculation and the bubble was always going to burst at some stage. The global meltdown just helped it on its way.  

Growth in the overseas sector got going again in 2012 and numbers have increased every year since. In contrast, the domestic market continued to shrink until 2014, by which time it was 60% smaller in transaction terms than at the peak. 

However, after 8 years of sustained growth, by the end of 2019 overseas buyer market share had more than doubled to 19% of the overall market. Indeed, it had been hovering around the 20% level for several years.  Furthermore, in terms of overseas buyer numbers this sector of the market was 77% bigger than at the pre-2008 peak. In contrast, the domestic market experienced a much slower recovery over the same period. When Covid-19 arrived Spain’s domestic property sector was still 40% smaller than it was a decade before.

So, whether you look at transaction numbers or market share it’s clear international buyers are an important part of the overall Spanish Property Market.  For the three years prior to the pandemic the number of overseas buyers had topped 100,000.  That barrier was broken in 2017 (100,116), the all-time record of 103,677 occurred in 2018 before falling back slightly in 2019 to 102,264.  However, the 2nd half of 2019 was the best 2nd half year on record with 50,534 foreign buyers so the overseas sector was looking good going into 2020.  And indeed, Q1 of 2020 was very active. Then the pandemic arrived.

Before starting to dig into the statistics and apply them to the property market and related issues it’s perhaps worth taking a look at why Spain is such a draw for so many overseas buyers.

The notaries started counting foreign buyers by nationality in 2007. Prior to that we didn’t know much other than that there were lots and lots of Brits compared with other nationalities. In fact, starting in the 1960s, the British made up about 80% of all foreign buyers in Spain until around the mid-1990s when other nationalities began to enter the market in greater numbers.  However, we didn’t have an official count until 2007 and in every year since then the British have been the nationality league leaders. I thought the British were unlikely to hold on to first place for much longer but a strong showing in the second half of 2022 kept the them in first place, registering 15,355 purchases, leaving the Germans in second place on 14,089. The French were in 3rd place on 10,819.  These 3 nationalities made up 28% of all foreign buyers and the British figure gave them a 10.7% market share of the overseas market. 

And so far in 2023, nothing much has changed. The British remained in first place in the 1st half-year with 6,498 purchases, 9.5% of the overseas sector. The Germans were again in second place (5,519) and if the French (4926) are included in the mix the 3 nationalities accounted for 25% of all foreign buyers in the period.

What I find remarkable about the nationality statistics now is just how much the German and French markets have expanded in the 16 years since the nationality count began in 2007. In that year there were just 1,003 German buyers in the full year while now there are over 5,000 in a half year. The number of buyers from the United States has also shot up; just 330 in the whole of 2007 but 1,339 in the 1st half of 2023.

And it’s not just the numbers that make foreign buyers so important to the Spanish Property market. They spend more too. Typically, foreign buyers pay more per square metre than the average for domestic buyers. For example, the average spend by a foreign buyer in 2022 was €2,073 per m2, 33.5% higher than the domestic average of €1,553. 

So it’s encouraging that these latest statistics show this trend continuing in 2023; the average per square metre paid by international buyers in the 1st half year was €2,095. By nationality, the biggest spenders were the Swedish on an average €3,036pm2, followed closely by buyers from Denmark (€2,930) and the U.S. (€2,799). Set against the average price per square metre paid by domestic buyers of €1,553 these figures highlight just how important overseas buyers are to the property market in Spain.

In terms of overseas buyer spending power all the overseas buyer hotspots saw increases in the average amount paid by foreigners per square metre in the 1st half of 2023. In the case of Andalucía it was up 2.7% to €2,196 pm2. The Balearics increased to €3,945 pm2 and Cataluña was up 6.7% to €2,433. Meanwhile in the Canaries, which saw a double digit increase of 11.3% in 2022, it rose another 7.1% to €2,378 pm2. 

I think these statistics clearly demonstrate how much the Spanish Property Market needs a healthy overseas sector. However, they also show that overseas buyers have even more clout in just a few locations. 

I’ve already mentioned that foreign buyers accounts for 21.4% market share so far in 2023. However, when you look more closely at a the statistics for the locations that are right at the top of overseas buyers preferred destinations the national average is well-beaten. For example, in the Balearics foreign buyer share in the 2022 was 43% and although it has fallen slightly it is still way above the average at 37.03%. Meanwhile in Málaga province, the biggest market for overseas buyers in Andalucía, foreigners accounted for 38.5% of the market and on the Costa Blanca it was 38.1%, slightly up on 2022. Scoring highest above the average foreign buyer market share in 2023 we find the Canary Islands with 39.1%. Cataluña is the only Mediterranean region where overseas buyers are lower than the national average, coming in at 16.3%.  

The hotspots are so dominant that the 2023 statistics we have so far show that 73.7% of overseas buyers bought in just six regions; the Balearic and Canary Islands plus the Mediterranean coasts of Cataluña, the Comunidad Valenciana (the Costa Blanca), Murcia and Andalucía on the mainland.

A good example of this is Andalucía.  Not only is it Spain’s largest autonomous region it is one of the most varied. It has both Mediterranean and Atlantic coasts, a huge, mountainous interior and 5 of Spain’s most historic cities; Cádiz, Málaga, Seville, Granada and Córdoba. In addition, this one region accounts for 20% of all property transactions in Spain. So, in property terms it really has something for everyone but foreign sector activity is far from evenly spread. In reality it is actually concentrated in just a handful of locations.

Andalucía has eight provinces and it turns out that 28.8% of all transactions in 2023 so far have been in just one province, Málaga, which really means the Costa del Sol.  And when you drill down to the municipal level it gets even more unbalanced. Although there are 208 municipalities in Málaga province, just four (Málaga, Marbella, Estepona & Benahavís) accounted for 42% of all transactions in the year so far. And of those 18,857 property transactions in Málaga province 7,276 were by foreign buyers, that’s a 38.5% market share. 

The dominance of just one province is even more extreme in Cataluña with 63% of all 2023 purchases in the autonomous region occurring in just one province, Barcelona.  And looking at the Comunidad Valenciana, 71.7% of all 2023 foreign buyers in this region bought in just one province: Alicante. (Source: MITMA)

Pre-Covid, Spain’s tourism industry was continuing its seemingly unstoppable upward trajectory. 2019 finished with another all-time record of overseas visitors at 83.7m, making it once again the 2nd most-visited country in the world. Tourism contributed about 14.5% to Spain’s GDP in 2019 although in some regions it was much higher than the national average.  Inevitably, Mediterranean regions and the islands depend even more on a healthy tourism sector. For example, the 45% of GDP generated by tourism in the Balearics makes it the most dependent, and vulnerable, region, followed by the Canary Islands, Andalucía, Murcia, the Comunidad Valenciana and Cataluña.

There is a link between visitor numbers and the property market and that’s due to rental demand from the approximately 35% of Spain’s foreign visitors who do not stay in hotels. And, of course, property buyers in Spain have usually been tourists for years before they decide to purchase. So, it’s good to see that there’s been something of a rebound in overseas tourism numbers, not quite to pre-Covid levels, but getting there.

The final total for 2022 was 71.6m overseas visitors compared with 83.5m in 2019, the last full year before the pandemic, and about 16% lower than that record-breaking year. However, there were differences between regions. For example, the Balearics recovered almost to pre-pandemic levels, only 3.5% down on 2019 while Cataluña was 23.6% behind its 2019 figure. As ever, the British were by far the most numerous of Spain’s tourists in 2022, some 15.1m, about 19% lower than in 2019. However, in terms of tourist market share the British made up 21% of all tourists, the same as in 2019.

As a result of these visitor numbers, rental yields make letting a property in Spain an interesting option. And not just for the buy-to-let investor because although not all foreign owners are part-time landlords many are. They look for rental income to cover essential maintenance and running costs and taxes. Obviously they're a lot of variables but the best gross yields can be as high as 10% and sometimes even higher for a large, top quality detached house in a prime location. Apartments and townhouses near the beach can return 6% - 8% gross, assuming a luxury interior.  Typically, a quality property in a prime location will generate a higher yield in the short-term holiday market than the same property let long-term, in the region of 3% - 5% better.  

However, there are always exceptions to the rule and growing demand for long-term rentals at the top end of the market can produce a gross yield similar to the short term yield. One of The Property Finders clients is seeing a 2019 purchase generating a gross yield of 8% for a one-year let. Just as the highest activity levels are at the top end of the property market so it is in the rental sector. Properties priced at €10,000 - €20,000 and up per week had no trouble finding takers in 2022 and high season weeks were fully occupied.

For reasons I have never quite understood, foreign buyers are like moths to a flame if new-build is available, even when the location is inferior. The fact is there is very little raw building land available in the very best locations, it was built on years ago.  Consequently, it follows that much of the new-build activity is not in prime locations. In addition, plots and constructed square metres are being squeezed in comparison with resale product. 

I accept many buyers are not looking to make a huge profit in the short-term, they’ve made a life-style purchase. However, I’ve yet to meet one who is happy with the idea of a loss even before they’ve got the keys. The fact is that I have never seen such a discrepancy between new-build and resales prices as exists in the current market.

In contrast, lack of well-priced, top quality resale properties in prime locations. This sector is, of course, still the largest in the Spanish property market, and by quite a margin. The ratio is about 10:1 in favour of resales across the whole market, with some variability between regions. Given rising demand, there is often competition between buyers for a good property in the right location. In addition, whereas in 2019 I would have said buyers were more likely to walk away from a purchase than overpay lack of stock is ramping up the pressure on buyers to  compete.

Having said that, I do think some asking prices are excessive and a report from Tecnocasa, one of the big valuing companies in Spain, suggests resale asking prices are, on average, at least 20% above the eventual price achieved. In fact, in 2022, clients of The Property Finders bought a frontline golf course house, detached with five bedroom suites and lots of extras, with a 14% reduction from the original asking price. That had been way too much but an interim reduction brought it into the frame and we still got another 8% off.  

The notion that the Spanish property market would experience a post-pandemic meltdown, similar to the market crash of 2008, was well and truly put to sleep in 2022.  In contrast, it experienced a surge of interest and not just from long-established markets of British, Scandinavian and other European nationalities but from all over the world. In the most prime locations overseas demand is pushing market share way beyond the national average of 20%, to as much as 35% in the Balearics and 40% in Málaga province. The Spanish property market would certainly be in a very different place without overseas buyers.

From our experience during 2022, the property market is most active at the higher price levels and, as I write, does not seem to be unduly affected by global inflation, higher energy prices and interest rates. If anything, I would say there is a sense that Spain is seen as something of a safe haven for property investment at the present time. Interestingly, tourist boards and property developers in southern Spain recently started marketing campaigns focusing on the region as a warm winter location with the potential for lower energy costs. 

The domestic and overseas property markets in Spain have always been disconnected. This became even more evident during post-2008 recovery. The overseas sector was already growing  again while the domestic sector was still declining. The near-collapse of the Spanish banking system and consequent mortgage drought brought the domestic market to a virtual standstill. In contrast, overseas buyers were cash-rich and no bank was going to lend to them anyway. 

I think this disconnect will differentiate between the two sectors in 2023. Spanish buyers are more mortgage dependent and therefore, exposed to higher interest rates. Foreign buyers at the upper levels of the market rarely need a mortgage. It’s true that many opted for a fixed-rate, long term loan in recent years but not because they needed it. They were just such good deals and made financial sense. However, for the time being, the higher Euribor interest rate, around 3% at the end of 2022 in contrast to being negative since 2015, make them less attractive. In addition, Spanish banks are currently less keen on lending to borrowers whose earnings are not in Euros. 

And as to prices in 2023, I can’t remember being as uncertain about their direction. Half the time I can’t believe they will go on rising and the other half I can’t see them stopping while demand is so high with the supply side in deficit. According to a report from Spain’s Institute of Statistics (INE) in December  2022, prices were within 5% of the highs last seen just prior to the 2008 meltdown. The report was referring to national averages and not the overseas sector. In many of the prime locations where most foreigners buy, prices have long since topped pre-2008 levels, above all in the new build sector.

As I’ve already mentioned I consider new-build prices more vulnerable to downturn as the supply side has improved.  In contrast, lack of prime located quality properties in the resale sector is putting upward pressure on prices and I think that pressure may increase during 2023, at least in the 1st half of the year. My hope is that the higher prices being achieved in the resale market will tempt more sellers into the market in 2023, alleviating the supply-side deficit somewhat.

Nevertheless, if you buy at the right price in a prime location, Spanish property is still relatively affordable. There's potential for substantial capital growth in the medium term and excellent rental yield potential. The sun continues to shine and the quality of life is rated one of the best in the world.  And there’s no doubt in my mind that with the WFH and WFA options becoming a reality for many more people post-Covid, that home will be in Spain. 

^©Barbara Wood

I update this Spanish Property Market report throughout the year as new data becomes available.  You can also follow us on Twitter for the latest news as it happens.

For more detailed information about the regions we operate in go to our Locations page.