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After almost seven years of falling house prices, Spain’s housing market is recovering. Spanish house prices increased 0.83% during the year to end-Q2 2016 (2.07% inflation-adjusted), its third consecutive quarter of y-o-y house price rises, based on figures from TINSA. The housing market finally returned to growth in Q4 2015.  However quarter-on-quarter, house prices fell by 0.41% (-1.73% inflation-adjusted) during the latest quarter.

The Bank of Spain reports even stronger house price rises. During the year to end-Q1 2016, Spanish house prices rose by 6.34% (7.05% inflation-adjusted). On a quarterly basis, house prices increased 1.45% (3.58% inflation-adjusted) in Q1 2016.

Spanish house prices fell by a total of 41.4% (46.8% inflation-adjusted) from Q4 2007 to Q3 2015, based on figures from TINSA. There were 30 consecutive quarters of y-o-y declines:

    In 2008, Spanish house prices fell 7.71% (-9.86% inflation-adjusted)
    In 2009, house prices fell 6.88% (-7.07% inflation-adjusted)
    In 2010, house prices fell 4.03% (-6.4% inflation-adjusted)
    In 2011, house prices fell 7.64% (-10.11% inflation-adjusted)
    In 2012, house prices fell 12.05% (-14.67% inflation-adjusted)
    In 2013, house prices fell 8.31% (-8.48% inflation-adjusted)
    In 2014, house prices fell 4.45% (-3.92% inflation-adjusted)
    In 2015, house prices rose by a meagre 0.25% (0.53% inflation-adjusted)

In 2015, the total number of home sales in Spain increased 11% to 354,513 units from the previous year, according to the Instituto Nacional de Estadistica (INE).  This rise in transactions was mainly driven by foreigners buying homes on the coast and in cities like Barcelona and on the Costa del Sol, one of the country’s most popular areas with overseas purchasers.

Britons remain the number one foreign homebuyers in Spain, making about 21% of all home purchases by foreigners in 2015, followed by the French, Germans, and Swedish buyers, each accounted for about 6% to 7%.

Foreclosures stood at 11,278 dwellings in Q1 2016, down by 14.7% from the previous quarter and down by 36.7% from the same period last year, based on figures from the INE.

Spanish house prices will increase by around 5% this year, according to a forecast by Moody’s credit rating agency.

In the first quarter of 2016, the Spanish economy advanced 0.8% from the previous quarter, the same as in the previous two quarters, despite political uncertainty after inconclusive general elections in December last year - the 11th consecutive quarter of growth. The economy is expected to grow by 2.6% this year and by another 2.5% in 2017, after growth of 3.2% in 2015 and 1.4% in 2014, and contractions of 1.7% in 2013, 2.6% in 2012 and 1% in 2011, according to the European Commission.

Transactions rising again

In 2015, the total number of home sales in Spain increased 11% from the previous year, to 354,513 units, according to the INE, mainly due to a surge in second-hand dwelling sales, which rose by 38.6% in 2015, to 277,127 units. However, new dwelling sales declined by about 35.2%, to 77,386 units.

During the first four months of 2016, home sales in Spain rose by 13.8%. Andalucia accounted for about 19% of all home sales in Spain in the first four months of 2016, followed by Cataluña (16%), Madrid (15%), and Valencian Community (14%).

Foreign demand continues to rise

Foreign investors started to return to the Spanish property market in 2014. In 2015, foreign homebuyers bought around 48,000 homes in Spain, up by more than 13% from a year earlier, based on figures released by Property Registrars. This represented about 13% of the total home sales in Spain.

Britons remain the number one foreign homebuyers, accounting for about 21% of all home purchases by foreigners in 2015, followed by the French, Germans, and Swedish buyers, each accounted for about 6% to 7% of all housing transactions carried out by foreign nationals. Chinese buyers are also increasing, representing around 4% of the total transactions.

The Golden Visa scheme, fully applicable since 30th September 2013, has resulted in increased interest not only from the Middle East but also from Asia and Russia. Under this system, any non-EU national bringing more than EUR 500,000 (USD689,700) to invest is automatically granted a Spanish residency permit.

From October 2013 to December 2014 the Golden Visa scheme attracted 531 applicants, mostly Chinese and Russians. Spain has received more than EUR 700 million in foreign investment as a result.

The Balearic Islands are especially attractive to foreigners with more than 40% of total demand coming from foreigners. This is followed by the Valencian community with 35% foreign demand; Canarias with 34%; and Murcia with 24%.

Rents rising, yields recovering

Average apartment rents in Spain rose by 3.6% in 2015, according the real estate portal Fotocasa. Rent increases were seen in almost all regions. Cataluña saw the highest annual increase in rents, up by 10.7%.

In Barcelona, the average rent stood at EUR13.3 per sq. m. per month. All Barcelona´s 10 municipalities experienced rent increases in 2015.

In Madrid, rents also increased 6.5% in 2015 from a year earlier, to an average rent of EUR11.2 per sq. m. per month. Rents rose in all the capital’s districts, the first time in nine years.

Spain´s rental market reached its peak in May 2007, when rents stood at EUR10.12 per sq. m. per month, according to Fotocasa. Over the past eight years rents dropped almost 31%. The biggest declines were in Aragón (-40.6%), Cantabria (-36.1%), Castilla-La Mancha (-35.5%), Valencia (-34.4%) and Murcia (-32.3%).

“In general, prices will stabilise in 2016 because the rental market is here to stay in Spain," said Fotocasa. "But its evolution will continue to be very uneven, with rental prices continuing to rise in the main cities on the one hand, but continuing to fall in smaller towns and in neighbourhoods on the outskirts, as well as in regions with low economic activity”.

Gross rental yields in Spain are slowly recovering, according to Global Property Guide research conducted in July 2014. Yields are still not high enough to make buying an apartment attractive from the yields perspective, but are better than previously.

The gross rental yield for apartments in Barcelona ranges from 3.80% to 4.70%, whereas in the centre of Madrid, rental yields are better, ranging from 3.91% to 4.92%. In Madrid-suburbs, rental yields range from 4.11% to 4.87%.

Global Property Guide, July 2016