Investing in the real estate in Spain

Tips for investing in the real estate in Spain

Since 2007, the real estate prices have fallen by 35% during the last 6 years in Spain.

Many foreigners bought spanish properties, mainly in the seaside areas. Many of these foreigners come from Northern Europe : United Kingdom, Germany, Belgium. Russians are also very active buyers in Spain. Recently, Chinese started investing in the spanish real estate, with a preference for flats in the big cities, if possible in recently built housing estates.

Before investing in the spanish real estate, here are a few elements to consider :

1. What is the current price level of the spanish properties?

Indeed, prices fall but one must know that they had been rising hugely during the decade before the real estate bubble burst (+155% en 10 ans). In this period, many properties used to be overpriced.

Since 2007, estate prices fall of 6% to 8% each year in Spain.

In several areas, the loss has been very important, such as in Balearic islands and Canary islands, Andalusia and in the countryside.

Regarding big spanish cities, the fall of the prices starts to diminish, which is probably related to the fact that before the estate crisis, the estate prices in the big spanish cities were lower than the prices in the other big european cities.

For example, the square meter in Madrid costs around €2000 against €8000 in Paris. And in Barcelona, the real estate prices fell by 15% since 2008.

2. Will the spanish prices continue falling?

As a consequence of many excess in terms of uncontrolled constructions during the past, we can estimate that 700.000 to 800.000 properties are empty in Spain (new and ancient buildings).

Otherwise, the spanish economy is experiencing a severe recession, as the financial crisis has engendered one of the highest level of unemployment among the european countries.

This is why the number of transactions gets lower each year.

In such conditions, it is very likely that the spanish real estate market will continue on the way of correction and autoregulation, which implies that the average price of the spanish square meter should continue falling. This is very likely to carry on at least until 2015.

3. How to find bargains in the spanish market?

First, of all, let's remind a basic economic principle : if the supply of goods is greater than the demand, then the price have a tendency to fall.

This is why many properties in Spain can be bought for nothing, because nobody knows who might eventually buy it. This is the case of the ghost towns built before the crisis : Valdeluz 60 km away from Madrid (450 inhabitants, vs a capacity of 15.000 inhabitants), Sesena (3.000 inhabitants, vs a capacity of 40.000 inhabitants) in the province of Toledo, El Quinon near Cordoba... Although these properties are very cheap, they are not bargains, as the return on investment seems very unlikely.

In many spanish areas such as the sea coast of Andalusia, the supply is greater than the demand. The Mediterranean coast from the province of Malaga to the province of Granada which includes Costa del Sol and Costa Tropical, hosts many empty villas and flats for sale.

In other spanish areas, the housing price seems to reach the bottom : this is the case of Balearic islands, and probably Madrid soon.

When it comes to calculating your budget, keep in mind that the property tax is not very expensive in Spain, cheaper than in many european countries.

4. How to proceed to invest in the spanish real estate?

Now, as a potential buyer on such a bear market, you should be able to negociate the price with the seller.

This statement is particularly true when the seller is a bank, whose main goal is to sell quickly the many properties they handle.

Most of the time, you can negociate a price 25% to 30% cheaper than the asked price.

If your goal is to invest in the spanish real estate, remember to evaluate your capital gain, and plan it in the medium / long term.

In order to actually get a capital gain, you have to select a place which will be bankable when you will put your property for sale : avoid the ghost towns, and the villages whose future is unclear.

Our final advice is to ask an investments expert in Spain, such as Spainvest to help you : www.Spainvest.net

Feel free to post your comments below.