Today, Spain is one of the most attractive European countries in which to invest in rental property. Rental yields are close to 7%, a European record. While property prices are falling across Europe, they rose by +4.5% in Spain last year. Terreta explains why buying property in Spain could be a very good financial decision.
Is it worth investing in Spain?
Rental profitability close to 7%.
With an average return of over 6.7% and very attractive prices throughout Europe, investing in Spain has never been more attractive.
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, property prices are in a positive upward cycle, averaging 5% a year in recent years.
Annual price increase of +4.5%.
Spanish property prices rose by 4.5% in 2023, while in almost all other European countries, prices were falling.
In Germany, for example, prices have fallen by 10%.
It's better to invest in a country with good prospects than to buy where there's too much risk of a prolonged downturn.
How can we explain the rise in property prices in Spain in 2023 and 2024, despite the rise in interest rates we've been experiencing since 2022?
Should you still invest in Spain in 2024?
We explain everything in this article.
Terreta supports you at every stage of your property purchase, from property search to tenant selection.
Spain's major advantages for rental investment
With excellent rental yields, low prices and very strong rental demand, the stage is set for investing in Spain.
Attractive prices
The Spanish property market is one of the most affordable in Europe, with prices averaging between €1,500 and €2,000/m2. These prices are still between 10% and 50% below the 2008 peak, which means you can always invest at the right time.
No real estate bubble
Bubbles have formed in many European countries since 2010, but this has not been the case in Spain.
Indeed, Spain is one of the countries where price rises have been most moderate over the past decade.
Why this particularity? Because the 2008 crisis caused prices to fall by 40% to 50% until 2015.
The crisis of 2008-2015 is now acting as a formidable creator of opportunities, enabling Spain to envisage price rises of 3% to 5% a year despite the rise in interest rates observed since 2022.
Upward cycle in Spanish property prices
In 2023, prices rose by +4.5% in Spain, while they fell by -10.2% in Germany, for example.
In 2024, Caixabank predicts an increase of almost +3%.
How can we explain the rise in property prices experienced in Spain in 2023, and forecast for 2024, despite the rise in interest rates we've been experiencing since 2022?
How can Spain be bucking the trend in Europe, where property prices are falling everywhere else?
6 factors behind rising prices
To explain rising prices, we need to understand these 6 major reasons:
- imbalance between supply and demand
- deficit in new housing construction
- net creation of +200,000 households per year
- Europe's strongest economic growth in 2023
- Spanish property prices fell by between -40% and -50% between 2008 and 2015, and are now in an upward cycle, a cycle in which property prices are catching up.
- interest rates are not as high in Spain as elsewhere (!)
Why aren't rising interest rates driving down property prices?
Because more than half of all sales are made without recourse to credit
Firstly, because almost 60% of real estate transactions in Spain are carried out without recourse to credit.
Culturally, Spaniards buy without bank financing if they can afford it.
This is all the more true since the 2008 crisis, which left its mark on people's minds as banks seized hundreds of thousands of properties belonging to homeowners unable to make their monthly mortgage payments, due to the combination of rising variable rates and rising unemployment.
The 2008 crisis reinforced Spaniards' distrust, even mistrust, of bank loans.
But above all, it's important to understand that in Spain, the factor limiting access to home ownership is... the personal contribution.
Savings are the determining factor
Savings are the factor that holds many Spaniards back from their dream of home ownership.
Since the 2008 crisis, Spanish banks have required buyers to provide equity of between 10% and 30% of the property price, to which must be added all the costs associated with the purchase, and often also the cost of renovating the home, which is rarely financed by the bank.
The Spanish real estate market is therefore much less affected by the rise in interest rates, since, as you will have understood, it is the savings and therefore the downpayment that plays the central role in property purchases in Spain.
Very strong rental demand
Is it easy to find tenants in Spain? Yes, because there's a shortfall of over 1.2 million homes to satisfy rental demand.
The housing crisis is real, as too little new real estate is being built to meet demand, in a country where more than 200,000 new homes are created every year.
In fact, Spain is the 4th country in Europe where young people emancipate 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 rental accommodation on the other.
A housing crisis
Renters at 30, owners at 41
In Spain, young people don't have the means to become homeowners, as banks require a very high down payment when buying property.
In general, this represents between 10% and 30% of the property price, to which must be added all the costs associated with the purchase (notary fees, estate agent fees, ITP), as well as the cost of renovating the property, which is often impossible for banks to finance.
Yet young Spaniards generally have few savings and low salaries. This vicious circle is creating a real housing crisis for many Spaniards, who are unable to buy, and so become tenants to emancipate themselves and move out of their parents' home, at an average age of 30.
Tenants up to age 41
It's only 10 years later that they can buy, once they've built up sufficient savings.
The average age of home ownership is 41, which directly contributes to the increase in rental demand, since every Spaniard rents until the age of 41, on average.
Investing in rental property in Spain: 3 cities with great potential
Forget the clichés! Investing in rental property in Spain isn't just about old-fashioned apartments on the outskirts.
On the contrary, the country offers a wealth of opportunities for savvy investors, with attractive rental yields and ever-increasing demand.
Focus on three high-potential cities: Madrid, Barcelona and Valencia.
See our section "Where to invest to access our analyses of Spain's most profitable cities.
Valence: real estate Eldorado, between sun and profitability
- Average price m²: €1,836
- Average rental yield: 5.8% (up to 8% in some neighborhoods)
- Assets :
- Voted best expatriation city in 2022
- A safe, pleasant metropolis with an idyllic climate
- Affordable property prices (19th in Spain)
- Development work underway to improve the living environment
- 80,000 students contributing to rental demand
Investing in Madrid: the dynamic, profitable capital
- Average price m²: €3,683
- Average rental yield: 4.8%.
- Assets :
- Economic lungs of the country (19% of GDP)
- Headquarters of multinationals attracting assets
- 325,000 students creating high rental pressure
- Tourism hotspot (8 million tourists in 2019)
Barcelona: Succumb to affordability and Catalan charm
- Average price m²: €3,908
- Average rental yield: 4.6%.
- Assets :
- 19% of national GDP and a dynamic European metropolis
- Spain's most visited city
- Home to multinationals and a paradise for digital nomads
- 180,000 students and strong demand for shared accommodation
Spain's coastline: a dream destination for real estate investors
Spain's coastline is the country's jewel, attracting millions of tourists every year in search of sun and relaxation.
Names like Costa Brava or Costa Blanca conjure up dreams and instantly evoke the benefits of seaside living.
This tourism bonanza represents a golden opportunity for savvy real estate investors.
Investing in a furnished apartment close to beaches and lively areas guarantees strong rental demand.
Whether in mainland Spain or on its paradise islands like the Canaries, Balearics or Ibiza, the potential is immense.
But there's more to Spain than its idyllic coastline.
Dynamic cities such as Malaga, Almeria, Murcia and Marbella offer a wealth of attractions and opportunities for investors.
The Galicia region, with Santiago de Compostela, Asturias, Cantabria and the Basque Country, with San Sebastian, also appeal for their unique charm and real estate potential.
Investing in Spain means betting on a bright future.
Whether you're looking for a sunny pied-à-terre or a profitable rental investment, there's no shortage of options.
Investing in Spain: 3 key steps before you buy
The Spanish real estate market has its own particularities that you need to be aware of to avoid pitfalls and maximize your chances of success.
Follow these 3 key steps.
1. Get your NIE
The NIE (Foreigner Identification Number) is essential for investing and renting in Spain. Apply to the Spanish Police or the Spanish Consulate. It will take between 1 and 3 months to obtain it.
2. Make a substantial personal contribution
In Spain, the personal contribution is generally 40% of the transaction amount.
Allow 30% for the price of the property and 15% for ancillary costs (property tax, notary fees, etc.).
3. Be accompanied by a lawyer
As the role of the Spanish notary is different from that in France, it is sometimes useful to hire a lawyer to check the conformity of the property and secure the transaction.
When you buy with Terreta, you will be accompanied and advised throughout the process:
- Definition of investment strategy
- Property visits
- Verification of property conformity
- Price negotiation
- Drafting of the offer and assistance with payment of the "reserva", or "señal", to secure the property
- Drafting the "arras" sales agreement
- Organization of the sale at the notary's office, known as "escritura".
Be careful with the Spanish "constructed surface", which may include walls and common areas. In fact, an apartment with a "built" surface area of 100 square meters may have a "useful" surface area of 70 or 80 square meters.
We'll explain all the differences, so you can avoid unpleasant surprises and buy in complete safety.
Rental investment: the 3 stages of your purchase
1. "Reserva
- Signing of the purchase offer.
- Payment of a deposit of between 1,000 and 5,000 euros to reserve the property, known as the "reserva". There are no precise rules, but the important thing is to prove the seriousness of the offer by making a transfer of the "señal", which will be returned to you if you don't buy. The Terreta Spain team will tell you the amount.
2. "Contrato de arras
- Signature of the sales agreement.
- Top-up of the deposit to 10% of the property price. This is usually done within 7 days of payment of the above-mentioned "señal" and "reserva".
3. "Escritura
- Signature of the deed of sale at the notary's office.
- Payment of the balance of the price (90%).
- Handover of the keys and registration of the property in the land register.
Tax advantages and customized support
Spain is attracting more and more European investors in search of sunshine, rental yields and tax advantages.
Taxation of rental income
No double taxation
Spain has tax treaties with a large number of countries, including but not limited to all the countries of the European Union.
This means that income from your home in Spain (rental income) is taxed only in Spain.
In the overwhelming majority of cases, these tax treaties provide for the avoidance of double taxation.
A very advantageous tax system
Depreciation rules
Two more pieces of excellent tax news await you.
The first piece of good news is that you can deduct many expenses, as well as depreciation and amortization to reduce your tax bill:
- electricity
- water
- gas
- household
- property tax
- rental management fees (real estate agency)
- depreciation of the price of the property, works and furniture
The depreciation rules are very favorable to the investor. You can write off :
- 3% of property price and acquisition costs (33 years)
- 3% of the cost of work carried out on your home (33 years)
- 10% of furniture cost (10 years)
The tax percentage
The second piece of good news is that you won't pay much 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?
You pay according to your situation:
- 19% IRNR (non-resident income tax) if you are a tax resident of a European Union country (excluding Spain).
- or 24% IRNR if you are a tax resident outside the European Union
- or IRPF: if you're a Spanish tax resident, your rental income can be reported on your IRPF (personal income tax) return.
We help you secure your investment
Spain offers an ideal investment environment:
- Attractive real estate opportunities in dynamic cities and popular tourist areas.
- Affordable prices and strong growth potential.
- Property quality and a wide choice of properties available.
Terreta is your trusted partner for investing in Spain, offering you tailor-made support:
- Personalized support at every stage of your project.
- Search for the property matching your criteria and budget.
- Renovation work
- Complete rental 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 peace of mind.
Terreta, your Spanish real estate expert.
