Spanish real estate chains 11 months of continued growth!

By ML
Director of Alanda Properties

Spain has registered 11 months of consecutive real estate appreciation, with each month surpassing in strength the previous one, showing no signs of abating.

As published in previous articles, after the Covid pandemic officially ‘ended’, property rebounded, buyers threw themselves en masse to buy property in Spain. Spanish savers collectively accumulated over 944 billion euros in bank deposits over the previous 2 years (as we were all grounded by our government and had nothing to spend it on). This is the largest historic figure in bank savings to date in Spain!

The are several causes that explain this buying trend, besides the record levels in savings. Chiefly, the unbridled inflation from 2021 (caused by central banks irresponsibly printing money like there was no tomorrow in a bid to stave off a Covid-induced recession), the disruption of the global supply chain caused by the virus which still lingers with new outbreaks, and the unlawful invasion of Ukraine have all aggravated and compounded the inflation problem worldwide. As a result, we are under a two-digit inflation that is eating away bank savings. Savers are understandably (very) concerned. We have not been in such a high inflation scenario since the 70s, at the peak of the Cold War.

Central banks have announced they will be ‘moderately’ hiking interest rates over the next quarters, so now is the best time to (still) take on a ‘cheap’ mortgage loan as they will become more expensive over time. If to all this we add the severe beating that crypto currencies have taken over the last months (wiping out most of them), savers are buying property like there is no tomorrow in a bid to protect their savings.

This has created a buying frenzy (particularly in large Spanish cities and coastal areas) which has driven property prices to all new heights, echoing the last property bubble from the early 2000’s. In Madrid, for example, property prices have already reached an all-time high. Property prices have increased nationwide year-on-year an average of 8.4%. TINSA, Spain’s largest property appraiser, reports that overall property prices are still 22% below the maximum levels attained in 2007.

This would seem to suggest the real estate market still has plenty of wriggle room to increase prices before it reaches its previous record levels (except Madrid of course, which as I write has already reached them). Madrid is a case apart, as it attracts over 80% of all Spanish foreign investments due to its relentless pursuit of (ultra) liberal economic and tax policies, as well as deregulation, which has fostered a great safe space to invest money in. Andalusia and Madrid, on wisely pursuing liberal economic policies (read ultra-low taxation) to attract investments (both national and foreign), have become Spain’s two investment hotspots. Hands down they are the two regions in Spain where it’s easier to make money now.

Spanish developers are struggling to keep up with the strong demand, given the sharp hike in prices of raw construction materials as a consequence of the impact of Covid in the global supply chain, which is pushing back delivery times. The sharp increase in price of building materials in turn forces developers to increase the sale price furthermore creating a vicious price spiral, increasing property sale prices overall. This creates market imbalances and price distortions, as you can now find resale property (of exactly the same built size and location) being sold considerably cheaper than its new build counterpart!

No one dares venture how long this bullish trend will last. But what is clear to my mind is that sharp interest hikes looming on the horizon will put a damper on this buying mania, cooling off the market. But right now, undeniably, we are in a buyer’s market.

Contact me at Alanda Properties if you are buying or selling property on the Costa del Sol and Sotogrande. You will be surprised to learn the deals this new market has to offer on prime locations.

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