Spain is currently one of the most attractive European countries for investing in rental property. The rental yield is close to 7%, a record in Europe. While real estate prices are falling in Europe, they increased by +4.5% in Spain last year. Terreta explains why buying real estate in Spain could be a very good financial decision.
Is it worthwhile to invest in Spain?
Rental yield close to 7%
With an average yield of over 6.7% and very attractive prices on a European scale, there has never been a better time to invest in Spain.
On the one hand, rental yields are significantly higher than in most European countries. For example, Valencia is the second most profitable city in Europe, second only to Warsaw.
On the other hand, real estate prices are in a positive price increase cycle, 5% per year on average in recent years.
Annual price increase of +4.5%
Spanish real estate prices increased by 4.5% in Spain in 2023, while in almost all other European countries, prices fell.
In Germany, for example, prices fell by -10%.
It is better to invest in a country with good prospects rather than buying where the risk of a prolonged decline is too present.
How can we explain the rise in real estate prices in Spain in 2023 and 2024, despite the rise in interest rates that we have been experiencing since 2022?
Is it still worth investing in Spain in 2024?
We explain everything in this article.
Terreta accompanies you in all stages of your real estate purchase, from the search for the property to the selection of tenants.
Spain's major advantages for rental investment
Excellent rental profitability, low prices, very strong rental demand: all the lights are green for investing in Spain.
Very attractive prices
The Spanish real estate market is one of the most affordable in Europe, with prices of €1500 to €2000/m2 on average. These prices are still 10% to 50% lower than the peak of 2008, which means you can always invest at the right time.
Absence of a real estate bubble
Bubbles have been created in many European countries since 2010, but this has not been the case in Spain.
Indeed, Spain is one of the countries where the price increase has been the most moderate in the last decade.
Why this particularity? Because the 2008 crisis caused prices to fall by 40% to 50% until 2015.
This 2008-2015 crisis acts today as a tremendous opportunity creator, since it allows Spain to consider a price increase of 3% to 5% per year despite the rate hikes observed since 2022.
Upward cycle in Spanish real estate prices
In 2023, prices increased by +4.5% in Spain, while they decreased by -10.2% in Germany, for example.
In 2024, Caixabank predicts an increase of nearly +3%.
How can we explain this rise in real estate prices experienced in Spain in 2023, and predicted for 2024, despite the rise in interest rates that we have been experiencing since 2022?
How can Spain buck the trend in Europe, where real estate prices are falling everywhere else?
The 6 factors that explain the price increase
To explain the increase in prices, it is necessary to understand these 6 major reasons:
- imbalance between supply and demand
- deficit in new housing construction
- net creation of +200,000 households per year
- strongest economic growth in Europe in 2023
- Spanish real estate prices fell by -40% to -50% between 2008 and 2015 and are now in an upward cycle, a cycle of catching up real estate prices
- interest rates are not as important in Spain as elsewhere (!)
Why doesn't the rise in interest rates cause real estate prices to fall?
Because more than half of sales are made without using credit
Firstly, because nearly 60% of real estate transactions in Spain are made without using credit.
Culturally, Spaniards buy without bank financing if they can afford it.
This is especially true since the 2008 crisis, which left its mark because banks seized hundreds of thousands of properties, which belonged to owners unable to pay their credit installments, due to the rise in variable rates combined with the rise in unemployment.
This 2008 crisis has reinforced the mistrust or even distrust of Spaniards towards bank loans.
But above all, it must be understood that in Spain the limiting factor in accessing property is... the personal contribution.
Savings are the determining factor
Savings are the factor that blocks many Spaniards in their dream of accessing property.
Since the 2008 crisis, Spanish banks have been asking buyers to provide equity of around 10% to 30% of the price of the property, to which are added all the costs associated with the purchase, but also often the cost of renovating the property, which is rarely financed by the bank.
The Spanish real estate market is therefore much less impacted by the rise in interest rates, since, as you will have understood, it is savings and therefore the personal contribution that plays the central role in real estate purchases in Spain.
Very strong rental demand
Is it easy to find tenants in Spain? Yes, because there is a shortage of more than 1.2 million homes to meet rental demand.
The housing crisis is real, because too little new real estate is being built to meet demand, in a country where more than 200,000 new households are created each year.
Spain is even the 4th country in Europe where young people leave home the latest, due to the impossibility or difficulty of buying a home on the one hand (lack of savings), combined with the difficulty of finding a rental property.
A housing crisis
Tenants at 30, owners at 41
In Spain, young people cannot afford to become owners, because banks require a very significant personal contribution when buying property.
In general, this is 10% to 30% of the price of the property, to which must be added all the costs associated with the purchase (notary fees, real estate agent fees, ITP) but also the costs of renovating the property, which are often impossible to finance by banks.
However, young Spaniards generally have little savings and low salaries. This vicious circle creates a real housing crisis for many Spaniards who cannot buy, and therefore become tenants to become independent and leave their parents' home, at 30 years old on average.
Renters up to 41 years old
It is only 10 years later that they can buy, once sufficient savings have been accumulated.
The average age of access to property there is 41 years, which directly contributes to the increase in rental demand, since each Spaniard is therefore a tenant until the age of 41, on average.
Investing in rental property in Spain: 3 cities with high potential
Forget the clichés! Investing in rental property in Spain is not limited to outdated apartments on the outskirts.
On the contrary, the country offers a multitude of opportunities for discerning investors, with attractive rental yields and constantly increasing demand.
Focus on three cities with high potential: Madrid, Barcelona and Valencia.
Valencia: Real estate Eldorado, between sun and profitability
- Average price per m²: €1,836
- Average rental yield: 5.8% (up to 8% in some districts)
- Advantages:
- Voted best city for expatriation in 2022
- Safe, pleasant metropolis with an idyllic climate
- Affordable real estate prices (19th place in Spain)
- Development work in progress to improve the living environment
- 80,000 students contributing to rental demand
Investing in Madrid: the dynamic and profitable capital
- Average price per m²: €3,683
- Average rental yield: 4.8%
- Advantages:
- Economic heart of the country (19% of GDP)
- Headquarters of multinationals attracting assets
- 325,000 students creating high rental pressure
- Stronghold of tourism (8 million tourists in 2019)
Barcelona: Succumb to profitability and Catalan charm
- Average price per m²: €3,908
- Average rental yield: 4.6%
- Advantages:
- 19% of the national GDP and a dynamic European metropolis
- The most visited city in Spain
- Headquarters of multinational corporations and a haven for "digital nomads"
- 180,000 students and high demand for shared accommodation
The Spanish coast: a dream destination for real estate investors
The Spanish coast, a true jewel of the country, attracts millions of tourists every year in search of sun and relaxation.
Names like Costa Brava or Costa Blanca evoke dreams and instantly bring to mind the benefits of seaside living.
This influx of tourists represents a golden opportunity for savvy real estate investors.
Investing in a furnished apartment near beaches and lively areas guarantees strong rental demand.
Whether in mainland Spain or on its idyllic islands such as the Canary Islands, the Balearic Islands, or Ibiza, the potential is immense.
But Spain is not limited to its idyllic coasts.
Dynamic cities such as Malaga, Almeria, Murcia, or Marbella are full of attractions and offer numerous opportunities for investors.
The region of Galicia, with Santiago de Compostela, Asturias, Cantabria, and the Basque Country with San Sebastian, are also attractive due to their unique charm and real estate potential.
Investing in Spain means betting on a bright future.
Whether you are looking for a sunny pied-à-terre or a profitable rental investment, there is no shortage of options.
Investing in Spain: 3 key steps before your purchase
The Spanish real estate market has peculiarities that are important to know in order to avoid pitfalls and maximize your chances of success.
Follow these 3 key steps.
1. Obtain your NIE
The NIE (Foreign Identification Number) is essential for investing and renting in Spain. Submit your application to the Spanish Police or the Spanish Consulate. Allow 1 to 3 months to obtain it.
2. Plan for a substantial personal contribution
In Spain, the personal contribution is generally 40% of the transaction amount.
Allocate 30% for the property price and 15% for additional costs (property tax, notary fees, etc.).
3. Obtain support from a lawyer
Given that the role of a Spanish notary differs from that in France, it is sometimes useful to hire a lawyer to verify the property's compliance and secure the transaction.
When purchasing with Terreta, you will receive support and advice throughout the entire process:
- Definition of the investment strategy
- Property viewings
- Verification of the property's compliance
- Price negotiation
- Drafting of the offer and support during the payment of the " reserva " or " señal ", aimed at securing the property
- Drafting of the preliminary sales agreement, known as " arras "
- Organization of the sale at the notary's office, known as " escritura "
Be aware of the Spanish " surface construite " (built area), which may include walls and common areas. Indeed, an apartment of 100 square meters " built " may have a usable area of 70 or 80 square meters " utiles " (usable).
We will explain all these differences to you, in order to avoid unpleasant surprises and ensure a secure purchase.
Rental investment: the 3 steps during your purchase
1. “Reserva”
- Signing of the purchase offer.
- Payment of a deposit of 1,000 to 5,000 euros to reserve the property during the " reserva ". There is no specific rule; the important thing is to prove the seriousness of the offer by accompanying it with a transfer of the " señal ", which will be returned to you if you do not purchase. The Terreta Spain teams will indicate the amount.
2. “Contrato de arras”
- Signing of the preliminary sales agreement.
- Supplement to the deposit to reach 10% of the property price. Generally, this is done within 7 days following the payment of the " señal " and the " reserva " mentioned above.
3. “Escritura”
- Signing of the notarial deed at the notary's office.
- Payment of the outstanding balance (90%).
- Handover of the keys and registration of the property in the land registry.
Advantageous taxation and tailor-made support
Spain is attracting more and more European investors in search of sunshine, rental profitability, and advantageous taxation.
Taxation of rental income
No double taxation
Spain has tax treaties with a large number of countries, including all countries of the European Union and beyond.
As a result, income from your property in Spain (rental income) is taxed only in Spain.
Indeed, these tax treaties provide, in the vast majority of cases, for non-double taxation.
A very advantageous tax system
Depreciation rules
Two more excellent pieces of news await you regarding taxation.
First good news: you can deduct many expenses as well as depreciation to reduce your tax liability:
- electricity
- water
- gas
- cleaning
- property tax
- rental management fees (real estate agency)
- depreciation of the property price, renovation costs, furniture
The depreciation rules are very favorable to the investor. Indeed, you can depreciate:
- 3% of the property price and acquisition costs (33 years)
- 3% of the cost of the work carried out in your property (33 years)
- 10% of the cost of the furniture (10 years)
The taxation percentage
Second good news: you will not pay a lot of tax on this profit (rental income - expenses - depreciation).
How much exactly?
It depends on your tax residence.
Are you a Spanish, European, or non-European tax resident?
Depending on your situation, you will pay:
- 19% under the IRNR (Non-Resident Income Tax) if you are a tax resident of a European Union country (excluding Spain).
- or 24% under the IRNR if you are a tax resident outside the European Union
- or IRPF: if you are a Spanish tax resident, your rental income in your IRPF declaration (personal income tax).
Your investment secured by our support
Spain offers an ideal framework for investment:
- Attractive real estate opportunities in dynamic cities and popular tourist areas.
- Affordable prices and significant growth potential.
- Quality properties and a wide selection of properties available.
Terreta positions itself as your trusted partner for investing in Spain, offering you tailor-made support:
- Personalized support at each stage of your project.
- Property search matching your criteria and budget.
- Home renovation
- Complete property management to simplify your life.
Don't wait any longer to take advantage of all the benefits of a rental investment in Spain.
Contact Terreta today to invest with complete peace of mind.
Terreta, your expert in Spanish real estate.
