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Local Spain
4 days ago
- Business
- Local Spain
Is there a property bubble in Spain and will it burst in 2025?
A real estate or property bubble occurs when there is a steep rise in housing prices, fuelled by demand and speculation. Typically, it means that housing prices have risen more than current wages and that they're selling for much more than they actually should be worth. What makes it a bubble is that at some point in the future it will burst, leading to a sudden drop in housing prices, usually when demand falls and supply increases. So, is there a property bubble currently happening in Spain? It's common knowledge that housing prices in Spain have skyrocketed over the past few years and that there is a housing crisis with many people unable to access affordable homes. Home sales continue to break records in a market with a huge supply deficit. This is causing the average house price in Spain to reach bubble levels, the Bank of Spain noted in its latest financial report this week. Property prices are overvalued by up to 8.5 percent, El Banco de España concluded. It's worth noting that the monetary authority for Spain has the power to limit the number of mortgages banks can offer as a means to slow down any potential real estate bubble. Spain's central bank has also estimated that Spain's housing shortage added up to approximately 450,000 homes. They also revealed that during the second half of 2024, 367,000 purchases were made, which indicates high demand. The trend continued into early 2025 with 183,140 sales registered between January and March 2025, according to data published by Spain's National Statistics Institute (INE). This is the greatest number of sales in the beginning of the year since 2007 when Spain was definitely experiencing a property bubble. In fact, just one year later the bubble did burst and prices began to fall. Real estate experts believe that the trend seen at the beginning of 2025 is due to the current financial environment and 'the rush effect'. This is where people think that they should buy quickly before housing prices rise even further. "Prices are rising very quickly and the market is very tight ," José García Montalvo, professor of economics at Pompeu Fabra University, told Spain's leading newspaper El País. "This leads many people to think that if they wait any longer, they won't be able to buy, so they make the decision under the pressure that if they don't buy now, they won't be able to afford it in six months', he adds. María Matos, Director of Research at Fotocasa, believes that "if this trend of more than 60,000 transactions per month continues, we could be facing the best year since 2007'. For many analysts, these signs suggest that Spain is already experiencing a property bubble. What the experts are unsure of, however, is when it will burst, in part because not all of them even agree that there is a property bubble in the first place. One of the reasons that some analysts rule it out is the fact that the price per square metre in major Spanish cities is higher than at the height of the previous property bubble 17 years ago. They believe that one of the reasons prices are higher now than before is that buyers' salaries or purchasing power are also much higher, so real estate assets aren't overvalued. Furthermore, they've concluded that household debt is not at alarming levels, as it was during the 2007 property bubble. Some indicate that rising prices can be better explained by a lack of supply, than by a spiral of speculative buying. The President of the Association of Real Estate Agents of Biscay, José Manuel González Robles, rules out any risk of a real estate bubble. 'There's no risk, none, for a simple reason: the 2008 bubble and the financial crisis, was generated because the banks cut off the financing tap. There was over-indebtedness, especially at the state level.... Now the overall situation is completely different,' he told Basque newspaper Deia. Debt levels are low, and savings levels are at an all-time high. González explained that during Spain's financial crisis, there was a surplus of new-build housing, which now "doesn't exist". "Nothing is being built; on the contrary, there is a need for housing, and on the other hand, banks, back then, didn't want to give loans," which is the opposite now. Overall, there seems to be consensus that Spain's current housing crisis is very different from that of 2008. There's strong demand for housing, but construction is at a minimum (70 percent than back then). On the other hand, loans for housing developments and mortgages are much more closely supervised, and Spain no longer has cajas de ahorro savings banks, which were at the centre of previous crisis. Therefore, although there is clearly a severe housing crisis and shortage, the rude health of Spain's banking sector currently lessens the chances of a property bubble happening in 2025.
Local Spain
4 days ago
- Business
- Local Spain
300,000 tenants in Spain hold their breath for the ‘great rent hike'
Hundreds of thousands of renters in Spain could face what the Spanish press has dubbed the 'great rent hike' in the next year, forecasts suggest. The Spanish rental market has had a particularly turbulent time in recent years. This is especially true in the post-pandemic period, when an explosion in short-term tourist rentals combined with supply shortages have sent prices soaring and forced locals to spend up to half their income on rent or, in many cases, leave their neighbourhoods altogether. Now things could be about to get a lot worse for hundreds of thousands of tenants across Spain. According to figures from El País, over the course of 2025 more than 300,000 households in Spain will see rental contracts signed in 2020 expire, a year in which the pandemic prompted a large number of rushed renewals and new leases as people sought out security. In 2019, Spain's Law on Urban Leases (LAU) was amended, extending the duration of contracts from three to five years, or seven if the tenant is a company. Therefore, contracts signed after the change will begin to expire in 2025. Spanish law also establishes that contracts be updated in the case of properties owned by individuals, who make up the majority of landlords. This means that a huge cohort of tenants could face rent hikes of between 20 and 30 percent, according to conservative forecasts. However, this figure varies significantly depending on the source. While real estate portals, which usually base their figures on asking prices, not actual contracts, report increases of close to 40 percent, other experts, such as José García Montalvo, a professor at Pompeu Fabra University, who told El País that the real increases would likely not exceed 30 percent, based on tax records from the tax agency. In any case, even the most conservative estimates seem to confirm that the rent hikes will be substantial for low and middle-income households across the country. For many, leaving their tenancy will not be an option because the volatility of the rental market means prices are going up everywhere and a 20-30 percent increase may be their best option. According to price data from Idealista, the average price of rental housing in Spain in April 2020 was €10.7 m2 per month. By the same period of 2025, it had risen to €14.3, an increase of 38.3 percent. This means that tenants paid an average monthly rent of €856 for an 80 m2 property in 2020, but in 2025 the same property would cost €1,144 per month. In cities such as Madrid, Barcelona and Valencia, as well as in the Balearic and Canary Islands, prices have more than doubled in some areas.
Local Spain
11-04-2025
- Business
- Local Spain
Why Spain's property prices are rising much faster than in the rest of Europe
New data has shown that property prices in Spain are rising faster than almost anywhere else in Europe. Spain was the second country in terms of price rises across the Eurozone in 2024 - 11.4 percent - behind only the 11.6 percent rise recorded in neighbouring Portugal. For context, in Italy the annual rise was 4.5 percent, in Germany 1.9 percent and in France prices decreased by -1.9 percent. The Eurozone average was 4.2 percent, while in the EU more widely prices grew by 4.9 percent. Even on a quarterly basis, Spain stands out. The increase in Spain during the fourth quarter of 2024 was 1.8 percent compared to the previous three months, when it had been 2.8. However, this still represents a tripling of the quarterly rate for the Eurozone and more than double the EU as a whole, where the increases were just 0.6 percent and 0.8 percent, respectively, according to Eurostat data. Experts point to a number of factors, including Spain's strong economic performance pushing up prices and the underlying structural combination of high demand and low supply in the property market. Domestic economic performance can influence property markets, according to property experts. 'Since the pandemic, the behaviour of housing has been very different from country to country,' José García Montalvo, professor at the Pompeu Fabra University, told El País. 'The dynamics of the economic cycle have a strong influence on the dynamics of housing prices,' he adds. Judit Montoriol, chief economist at Caixabank Research, shares this view: 'In the last year, Spain is one of the places where house prices have risen the most, but it is also a year in which it has stood out very positively as the best performing European economy.' This partly explains why prices in Spain have continued rising in recent years, and are now almost 20 percent more expensive than at the start of 2022 when Russia invaded Ukraine. The inflationary crisis that came from that was experienced across Europe, and yet Spain still stands out for its price rises. Analysis from Bank Inter shows that there are several other contributing factors. Growth in demand for housing, spurred by population growth mainly driven by foreigners, plays a large part. A Bank of Spain report points out that the demand for housing has been driven, to a large extent, by population growth and the arrival of non-residents. It highlights that foreigners now represent more than 20 percent of housing purchases in Spain, reaching a volume of 130,000 units per year. Often they are wealthier foreigners who inflate the market. The average price per m/2 of housing purchased by non-resident foreigners in 2023 was 70 percent higher than that of resident nationals. The other side of the equation is the lack of supply. According to INE data, the construction of new housing remains low in Spain at around 90,000 homes per year. Yet calculations from the Banco de España estimate that Spain will have a shortfall of 600,000 homes by 2025. Experts also point to rapidly rising rents also inflating the property market and putting up prices. In many cities, average rental prices are up by as much as 10 percent year-on-year. Staggeringly, the price rise on room rentals is 90 percent when compared to figures from 2015, according to new data published by property portal Idealista. In many of Spain's provincial capitals, average rents are north of €1,000 per month. Monetary policies at the European level could've also contributed to price increases in Spain because the European Central Bank's interest rate cuts in recent months are another factor driving housing demand. According to the forecasts of Bankinter's Analysis team, the ECB's cuts and the forecast of further reductions will cause the Euribor, the rate tied to most mortgages in Spain, to continue to moderate, easing credit, making buying more attractive and bringing more buyers into the market.
