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  • Anna Koval

Analysis of the Spain Residential Real Estate Market in 2023

The online property statistics portal Idealista reported that Spanish house prices rose 5.03% in 2022 (but fell 0.64% in actual terms), indicating that the country's residential real estate market will continue to be robust.

This finding is consistent with official data published by the Bank of Spain, which indicated that house prices in Spain rose by 4.72% annually to €1,740 per square meter (sq. m) in the period leading up to the third quarter of 2022. Year-over-year increases for Q3 2021 were 2.59%, Q2 2022, 6.68%, 4.43%, and 4.43%, respectively. However, after accounting for inflation, the actual drop in house prices was 4.85%.

Even more positive news comes from the national Instituto Nacional de Estadistica (INE) house price index, which showed a year-over-year increase of 7.6% (-2.2% inflation-adjusted) in Q3 2022.

By type of property:

Existing homes: after increasing by 4.3% in Q3 2021, prices increased by 7.8% year over year in Q3 2022 (-2% adjusted for inflation).

New homes: after increasing by 4.1% the year before, prices increased by 6.8% in Q3 2022 compared to a year earlier (-3% adjusted for inflation).

With a 9.3% year-over-year increase in prices, Cantabria led all autonomous regions in Q32022. Andalucia (8.3%), Balears (8.3%), Canarias (8.1%), Cataluña (8.1%), La Rioja (8.1%), Ceuta (7.9%), País Vasco (7.8%), Madrid (7.6%), and Murcia (7.1%) were the following most popular regions.

Valencian Community (6.9%), Navarra (6.8%), Castilla y León (6.6%), Castilla – La Mancha (6.6%), Extremadura (6.5%), Asturias (6.4%), Aragón (6.2%), and Galicia (6.1%) had more mild increases in home prices.

The housing market in Spain only started to rise again in 2015. From Q3 2007 to Q1 2015, the market fell by 36.3% (-42.9% adjusted for inflation), with existing property prices declining by as much as 43.1% (-49% corrected for inflation), according to INE data. There were y-o-y declines for twenty-four straight quarters.

The average yearly growth in house prices from 2015 to 2019 was 2.5% (1.6% adjusted for inflation). The negative effects of the Covid-19 epidemic caused a minor decline in house prices of 1.85% (-1.13% inflation-adjusted) in 2020. However, the Spanish housing market recovered rapidly in the years that followed, with prices rebounding by 4.43% in 2021 and 5.03% in 2022. However, despite increasing inflation, real property prices are really decreasing.

Property demand remains high. Home sales in Spain rose 14.7% to 649,494 units in 2022, following a 34.8% growth in 2021, a 16.9% fall in 2020, and a 2.4% decline in 2019.

However, residential construction indicators were mixed. According to Ministry of Development data, housing starts declined 20.5% to 58,650 units in the first three quarters of 2022, while completions rose 12.3% to 70,304 units.

According to the European Commission, tourism and private consumption helped the Spanish economy grow 5.5% in 2022 after a 5.1% growth in 2021 and a 10.8% decline in 2020. According to Bank of Spain projections, real GDP growth would decelerate to 1.3% this year.

Spanish real estate prices are 36% below peak!

Spain's national average house price reached 197% (117% inflation-adjusted) from 1996 to 2007, one of Europe's largest rises. From 1996 to 2007, hundreds of thousands of foreigners, mostly from the UK, France, and Germany, acquired coastal houses, driving up prices 250% (155% inflation-adjusted).

Spanish house price index

Between 1996 and 2007, housing prices in Madrid and Barcelona grew 188% (109% inflation-adjusted) and in other inner provinces 175% (101%).

A housing crash in 2008 shook the Spanish economy and raised unemployment. Developers had unsold properties and huge debts. Despite recent price increases, national house prices are 17% (-36% inflation-adjusted) below peak levels.

Land price changes

According to the Ministry of Development, urban land transactions in Spain averaged €150.2 per sq. m in Q3 2022, down 7.7% from the previous quarter but up 2.9% from a year earlier.

The number of real estate transactions is increasing.

The demand is rapidly increasing. The Instituto Nacional de Estadistica (INE) reports that in 2022, home sales in Spain increased 14.7% to 649,494 units from the previous year. This was in contrast to a 34.8% yearly growth in 2021 and year-over-year reductions of 16.9% in 2020 and 2.4% in 2019.

Based on the kind of property:

Existing homes: sales of 532,459 units in 2022 represented a significant increase of 17.7% over the previous year.

New homes sold: 117,035 units, a 2.6% increase from the previous year.

Demand increased in seventeen of Spain's nineteen autonomous provinces and municipalities. Ceuta saw the most benefit in sales in 2022, at 65.9%. Canarias, Balears, Valencian Community, and Asturias came next, with 31.6%), 25.6%, and 23.9%, respectively. Significant rises were also observed in Extremadura (13.1%), Murcia (13.1%), Castilla y León (12.2%), Cantabria (12%), País Vasco (9.8%), Galicia (8.6%), Andalucia (15.2%), Cataluña (14.5%), Aragón (13.5%), La Rioja (13.5%), Castilla – La Mancha (18%), and Extremadura (13.1%).

The Spanish Golden Visa

Prior to the Covid-19 outbreak, international homebuyers accounted for roughly 12% to 20% of all house transactions in Spain each year, a significant increase from 4.24% in 2009. In 2018, foreign homebuyers purchased approximately 65,500 residences in Spain, increasing 7.4% from the previous year and following 13.7% yearly growth in 2017. Foreigners are particularly drawn to the Balearic Islands, accounting for almost one-third of total demand, owing to their white sand beaches and sunny Mediterranean landscape. It is followed by the Canary Islands, Valencian Community, Murcia, and Andalucia.

The Golden Visa scheme, which has been in effect since September 30th, 2013, has sparked interest not only in the Middle East, but also Asia and Russia. Any non-EU national contributing more than €500,000 in investment is automatically awarded a Spanish resident visa.

In 2019, Spain approved 1,422 Golden Visas to major applicants, a nearly 20% increase from the previous year. Of these, 681 Golden Visas were issued to foreigners using the real estate option, up 13.7% from the previous year and the highest total ever recorded.

However, international homebuying has recently slowed due to the Covid-19 pandemic. Foreigners received only 162 Golden Visas in H2 2020 and 232 in H1 2021, two of the lowest totals seen since the program's inception. Foreign investor interest began to rise again in the second half of 2022, as the overall situation improved. In H2 2021, Spain granted 833 Golden Visas to main applicants, an increase from 574 in H2 2019.

Between 2014 and 2021, the country issued a total of 7,425 Golden Visas to major applicants, with Chinese and Russians accounting for 32% and 25%, respectively.

While no official data for 2022 have been released, interest in foreign residency in Spain through property investment is increasing again. According to Tranio's analysis, the Spanish Golden Visa scheme remained one of the top European investment options last year.

Foreigners enjoy unlimited rights to buy and resell all types of property in Spain, including residential, commercial, and land.

However, in February 2023, center-left political group Más País filed a measure to repeal or substantially reform the country's Golden Visa program, arguing that it raises property prices and harms the economy.

Gross rental yields are back to normal.

According to Global Property Guide's November 2022 analysis, gross rental yields on Spanish property have returned to normal levels. In Madrid, yields range between 2.99% and 6.91%, with an average of 4.96%. Yields in Barcelona range from 3.33% to 10.03%, with a city average of 5.99%. Not great, but not unusual for cities like Madrid and Barcelona. Even smallest apartments now yield reasonable returns. But since smaller flats require more maintenance, a larger yield is justified.

In other cities, rental yields range from average to good. Valencia's rental yields range from 2.77% to 8.16%. Córdoba provides yields ranging from 4.00% to 7.32%. In Alicante, rental yields range from 4.57% to 6.79%. Seville's rental yields range from 3.08% to 9.47%. Palma de Mallorca's rental yields range from 3.85% to 6.96%, whereas Murcia's ranges from 3.16% to 8.67%.

Extension of the cap on rent increases

The Spanish government recently declared that the cap on the amount that landlords can increase their tenants' rents will be extended until 2023. The rent increase cap of 2% was initially implemented in March 2022 in order to protect the 30% of Spanish renters from the negative effects of rising inflation.

“The rental market has become tense due to the shortage of supply, causing the main Spanish cities and provincial capitals to reach record prices,” said Maria Matos, director of research and spokesperson for Fotocasa. According to Fotocasa's forecasts, rentals could increase by 5% or more by 2023.

According to government estimates, around 3.5 million rental agreements are currently vulnerable to future rent increases.

Prior to the rent increase cap, many landlords were allowed by law to increase rents on an annual basis based on the Consumer Price Index (CPI), which measures inflation. For example, if the rental agreement was up for renewal and the annual inflation rate was 10%, the landlord could raise the rent by a maximum of 10%.


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