Investing in real estate in Spain

As a real estate investor, you are always looking for the best return on your investment. It is widely known that putting money in a savings account has not been profitable for years. However, returns can vary considerably in the world of real estate investments as well. The purchase of Spanish real estate is a very attractive option from a financial perspective, which is attracting more and more large and small investors.

We would like to walk you through a number of topics that determine whether investing in Spanish real estate is worthwhile, including the pros and cons.

Low mortgage interest rates in Spain

The average mortgage interest rates at Spanish banks have been incredibly low for quite some time. An average interest rate between 1.5% and 2% means that the risk of your investment is simply very small. The low monthly payments make choosing a mortgage financially attractive, even if you could purchase the property in its entirety with your own funds.

In addition, expectations are that mortgage interest rates will remain low. We regularly post our view here, even if it changes.

The situation on the Spanish housing market

Following the housing market crisis that began in 2007, house prices have been above pre-crisis levels for several years now. In fact, the Spanish housing market has shown substantial growth over the past five years. Due to the increasing demand for homes, the expected return also rose if one purchased with the intention of selling later. However, the coronavirus crisis has brought about some changes in this regard. Due to the first lockdown in March–June, home prices fell by an average of 6.1%. Remarkably, this decline recovered quickly. Housing prices are expected to stabilize at the zero level for the coming years (2020–2022). This is largely due to supply and demand. On the one hand, demand has decreased slightly, partly due to temporary travel restrictions and because Spain does not experience a housing shortage, unlike the current situation in the Netherlands. On the other hand, as described earlier, interest rates remain low and demand from abroad is high. We see this, for example, in the fact that house prices are approximately 30 to 45% lower than in the Netherlands. This makes it an affordable and interesting real estate option for buyers from the Benelux.

Developments regarding rental prices

Another interesting trend is that rental prices fell sharply in 2020. This has two causes:

• Rental prices rose quite sharply during the period 2015-2020, certainly by Spanish standards. Consequently, there were already overpriced rents that needed to be brought back into balance. Especially since – as the housing market indicates – there is no housing shortage in Spain. Plenty of supply!
• In addition, a large amount of supply has become available on the rental market due to the collapse of tourism and short-term stays in Spain. We see this phenomenon in Amsterdam, for example, as well. As a result, the supply increased rapidly.

The good thing about this is that there is room for rental prices to grow again. As soon as travel to Spain increases again and, for example, Spaniards have the means to spend a larger percentage of their income on housing, rental prices will rise again. And that is good for the return in the (medium) long term.

Pay off your mortgage cheaply

A disadvantage in Spain is that penalty-free repayment at a bank is not the norm. Through Spaanse Hypotheek, however, it is possible for you to make extra repayments on your Spanish mortgage at a low cost. You can use the following rules of thumb:

• First 10 years: 2% penalty on fixed interest rate
• After the first 10 years: 1.5% penalty on fixed interest rate
• First 3 years: 0.25% penalty on variable interest rate
• 0% penalty after the first 3 years on variable interest rates

Example: If you have a variable-rate mortgage, you pay €25 in fees in the first year for an extra repayment of €10,000. If, as an investor, you would like to use rental income to make extra repayments and thus reduce the burden of costs, this is an affordable option.

Generate an interesting return

Ultimately, as a second home buyer or investor, you are looking for an attractive return. Your property is expected to increase in value in the long term, but there are also financial benefits to be gained in the interim, for example through income from (holiday) rentals.



Return from rentals

Spain's sunny and warm climate makes it a popular holiday destination, even during the months when the weather in Northern Europe is already less pleasant. Depending on the location and the right amenities, your property can generate extra income as a holiday home almost all year round. This market is expected to pick up again as early as 2021.

If desired, you can easily outsource the management to specialized companies that can handle reservations, key handover, and cleaning for you. An example is Woningbeheer Valencia. This way, you have nothing to worry about from the Netherlands, and the income is transferred to you on a regular basis.

You could also choose to rent out the property on the regular housing market instead of using it for vacation rentals. The nightly earnings will be lower than when renting it out as a holiday home, but the income is therefore more stable. This depends heavily on the location, but expect an average return of 5%.**

Return on sale

House prices are expected to stabilize in the coming years. However, over the long term, the value of your home will certainly rise. In the relatively short term, therefore, you can count on a home value that remains stable (and thus offers security). In the long term, you can generate substantial equity.

It is also possible to generate additional profit by financing a construction project that is yet to be realized at an early stage. Construction companies often make it financially attractive to join the project at an earlier stage, as your investment can then be used for construction. This is particularly interesting for investors who will not be occupying the home themselves.

By the time the project is completed (on average one to one and a half years), the property will have already increased in value. After that, you will of course benefit from the usual annual increases.

The right time to invest in Spanish real estate

There is never a good or bad time to invest, including real estate in Spain. Therefore, we do not offer advice in this regard. However, this analysis shows that, by definition, you are making an interesting investment in the medium to long term. And on top of that, you also have access to a lovely home in sunny Spain!

Benefit from historically low mortgage interest rates, favorable repayment terms, and a reasonably positive-looking housing market. If you choose to invest, you can get a nice

expect a return at a relatively low risk.

Mortgage terms are currently so favorable that investors who could finance the property largely or entirely themselves usually opt for a mortgage anyway. This allows you to retain the option of investing part of your money in other ventures alongside the investment property in Spain.

Want to know more?



Are you considering investing in a property or construction project in Spain? We would be happy to assist you. Contact us without obligation, or request a mortgage report or pre-scan via our website.