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 across Europe, they increased by 4.5% in Spain last year. Terreta explains why buying property in Spain could be a very smart financial decision.
Is it worth investing in Spain?
Rental yield close to 7%
With an average yield of over 6.7% and highly 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, only surpassed by Warsaw.
On the other hand, real estate prices have been on a positive growth cycle, increasing by 5% per year on average in recent years.
Annual price increase of +4.5%
Spanish real estate prices increased by 4.5% in 2023, while in almost all other European countries, prices were falling.
In Germany, for instance, prices dropped by -10%.
It is better to invest in a country with strong prospects rather than buy in a place where the risk of prolonged decline is too high.
How can we explain the rise in property prices in Spain in 2023 and 2024, despite the interest rate hikes we’ve seen since 2022?
Should you still invest in Spain in 2024?
We explain everything in this article.
Terreta guides you through every step of your property purchase, from finding the right property to selecting tenants.
Why Invest in Spain? The country’s key strengths for rental investment
Excellent rental yield, low prices, and strong rental demand make Spain an ideal place to invest.
Very attractive prices
The Spanish real estate market is one of the most affordable in Europe, with prices averaging between €1,500 and €2,000 per square meter. These prices are still 10% to 50% lower than the 2008 peak, making it always a good time to invest.
No real estate bubble
Bubbles have formed in many European countries since 2010, but that has not been the case in Spain.
In fact, Spain is one of the countries where price increases have been the most moderate in the last decade.
Why is that? Because the 2008 crisis caused prices to drop by 40% to 50% until 2015.
This 2008-2015 crisis now acts as a tremendous opportunity creator, allowing Spain to foresee price increases of 3% to 5% annually, despite the interest rate hikes seen since 2022.
Rising price cycle in the Spanish real estate market
In 2023, prices rose by 4.5% in Spain, while they dropped by -10.2% in Germany, for example.
For 2024, Caixabank predicts a rise of around 3%.
How can we explain this rise in real estate prices in Spain in 2023, and forecasted for 2024, despite the interest rate hikes we’ve seen since 2022?
How can Spain go against the trend in Europe, where real estate prices are falling almost everywhere?
The six factors that explain the price rise
- Imbalance between supply and demand
- Deficit in new housing construction
- Net creation of over 200,000 households per year
- Strongest economic growth in Europe in 2023
- Spanish property prices fell by 40% to 50% between 2008 and 2015, and are now in a rising cycle, a price recovery cycle
- Interest rates are not as high in Spain as elsewhere!
Why aren’t rising interest rates driving down real estate prices?
Because more than half of sales are made without taking out a loan
First, nearly 60% of real estate transactions in Spain are made without financing.
Culturally, Spaniards buy without bank financing if they can afford it.
This is especially true since the 2008 crisis, which left a lasting impression, as banks seized hundreds of thousands of properties from owners unable to pay their mortgage installments due to rising variable rates and unemployment.
The 2008 crisis heightened Spaniards’ wariness and mistrust of bank loans.
But most importantly, in Spain, the limiting factor for homeownership is personal savings.
Savings are the determining factor
Savings are the main obstacle for many Spaniards in their dream of homeownership.
Since the 2008 crisis, Spanish banks require buyers to contribute 10% to 30% of the property price as personal funds, in addition to all the fees associated with the purchase and often the cost of renovations, which banks rarely finance.
The Spanish real estate market is therefore much less affected by interest rate hikes, as savings and personal contribution play a central role in real estate purchases in Spain.
Strong rental demand
Is it easy to find tenants in Spain? Yes, because there is a shortage of over 1.2 million homes to meet rental demand.
The housing crisis is real, as too few new homes are being built to meet demand in a country where over 200,000 new households are created each year.
Spain is also the fourth country in Europe where young people emancipate the latest, due to the difficulty of buying a home (lack of savings) combined with the difficulty of finding a rental property.
A housing crisis
Renters at 30, homeowners at 41
In Spain, young people cannot afford to become homeowners because banks require a significant personal contribution when buying property.
Typically, this ranges from 10% to 30% of the property price, plus all the purchase-related fees (notary fees, real estate agent fees, ITP), and renovation costs, which banks rarely finance.
However, young Spaniards generally have little savings and low salaries. This vicious cycle creates a real housing crisis for many Spaniards who cannot buy and, therefore, become renters to move out of their parents’ home at around 30 years old.
Renters until 41
It’s only 10 years later, once sufficient savings have been built up, that they can buy.
The average age for homeownership in Spain is 41, which directly increases rental demand since Spaniards rent until they are 41 on average.
Investing in rental property in Spain: 3 cities with great potential
Forget the clichés! Investing in rental property in Spain is not just about run-down apartments on the outskirts.
On the contrary, the country offers a multitude of opportunities for savvy investors, with attractive rental yields and ever-increasing demand.
Valencia: A real estate haven, with sun and profitability
- Average price per m²: €1,836
- Average rental yield: 5.8% (up to 8% in some neighborhoods)
Advantages:
- Voted best city for expats in 2022
- Safe, pleasant city with an idyllic climate
- Affordable real estate prices (19th in Spain)
- Ongoing development projects to improve quality of life
- 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:
- The economic powerhouse of the country (19% of GDP)
- Headquarters of multinational companies attracting professionals
- 325,000 students creating strong rental pressure
- A top tourist destination (8 million tourists in 2019)
Barcelona: Combine profitability with Catalan charm
- Average price per m²: €3,908
- Average rental yield: 4.6%
Advantages:
- 19% of the national GDP and a dynamic European metropolis
- Spain’s most visited city
- Headquarters of multinational companies and a paradise for « digital nomads »
- 180,000 students and high demand for shared housing
The Spanish coastline: a dream destination for real estate investors
The Spanish coastline, a true gem of the country, attracts millions of tourists every year in search of sun and relaxation.
Names like Costa Brava or Costa Blanca evoke the allure of seaside living.
This tourist influx represents a golden opportunity for savvy real estate investors.
Investing in a furnished apartment near the beaches and lively areas guarantees strong rental demand.
Whether on mainland Spain or in its paradisiacal islands like the Canary Islands, Balearic Islands, or Ibiza, the potential is immense.
But Spain is not just about its idyllic coasts.
Dynamic cities like Malaga, Almeria, Murcia, or Marbella are full of attractions and offer numerous opportunities for investors.
Regions like Galicia with Santiago de Compostela, Asturias, Cantabria, and the Basque Country with San Sebastian also entice with their unique charm and real estate potential.
Investing in Spain is a bet on a bright future.
Whether you’re looking for a sunny pied-à-terre or a profitable rental investment, the options are plentiful.
Investing in Spain: 3 key steps before your purchase
The Spanish real estate market has specific characteristics that are important to understand to avoid pitfalls and maximize your chances of success.
Follow these 3 key steps:
1. Obtain your NIE
The NIE (Foreigner Identification Number) is essential for investing and renting in Spain. Submit your application to the Spanish Police or the Spanish Consulate. Expect a waiting period of 1 to 3 months to obtain it.
2. Prepare a substantial personal contribution
In Spain, the personal contribution is typically 40% of the transaction amount.
Plan for 30% for the property price and 15% for additional costs (property tax, notary fees, etc.).
3. Get assistance from a lawyer
Since the role of the notary in Spain differs from that in France, it is sometimes helpful to hire a lawyer to verify the property’s compliance and secure the transaction.
By purchasing with Terreta, you will be guided and advised throughout the process:
- Defining the investment strategy
- Property visits
- Verifying the property’s compliance
- Price negotiation
- Drafting the offer and assistance with the payment of the “reserva” or “señal” to secure the property
- Drafting the purchase agreement (« arras »)
- Organizing the sale with the notary (« escritura »)
Be mindful of the Spanish « constructed area, » which may include walls and shared spaces. A 100-square-meter « constructed » apartment may have a usable area of 70 or 80 square meters. We will explain all these differences to avoid surprises and ensure a safe purchase.
Rental investment: The 3 steps during your purchase
1. « Reserva »
Signing the purchase offer.
Payment of a deposit of €1,000 to €5,000 to reserve the property during the « reserva. » There are no strict rules, but the key is to show the seriousness of the offer by accompanying it with a transfer of the “señal,” which will be refunded if you do not proceed with the purchase. The Terreta Spain team will guide you on the amount.
2. « Contrato de arras »
Signing the purchase agreement.
Payment of the remainder of the deposit to reach 10% of the property price. Typically, this happens within 7 days of paying the “señal” and “reserva” mentioned above.
3. « Escritura »
Signing the final deed with the notary.
Payment of the remaining balance (90%).
Key handover and property registration in the land registry.
Why Invest in Spain? Favorable taxation and tailored support
Spain is increasingly attracting European investors in search of sun, rental yield, and favorable taxation.
Taxation of rental income
No double taxation
Spain has tax treaties with many countries, including all European Union countries and more.
As a result, income from your property in Spain (rental income) is only taxed in Spain.
These tax treaties prevent double taxation in most cases.
Very favorable taxation
Depreciation rules
Two more excellent tax benefits await you.
First, you can deduct many expenses and depreciation to reduce your taxable income:
- Electricity
- Water
- Gas
- Cleaning
- Property tax
- Property management fees (real estate agency)
- Depreciation of the property, renovations, and furniture
Depreciation rules are very favorable for investors. You can depreciate:
- 3% of the property price and acquisition costs (33 years)
- 3% of renovation costs (33 years)
- 10% of furniture costs (10 years)
Tax rates
Second, you won’t pay much tax on this profit (rental income – expenses – depreciation).
How much exactly?
It depends on your tax residency.
Are you a tax resident in Spain, Europe, or outside Europe?
Depending on your situation, you will pay:
- 19% for IRNR (Non-Resident Income Tax) if you are a tax resident of a European Union country (excluding Spain)
- Or 24% for IRNR if you are a tax resident outside the European Union
- Or IRPF: if you are a Spanish tax resident, you will declare your rental income in your personal income tax return (IRPF)
Your investment secured by our support
Spain offers an ideal setting for investment:
- Attractive real estate opportunities in dynamic cities and popular tourist areas
- Affordable prices and significant growth potential
- Quality properties and a wide range of available options
Terreta positions itself as your trusted partner for investing in Spain, offering personalized support:
- Tailored guidance at every stage of your project
- Finding the property that matches your criteria and budget
- Renovation work on the property
- Complete property management to simplify your life
Don’t wait any longer to take advantage of the many benefits of a rental investment in Spain.
Contact Terreta today to invest with peace of mind.
Terreta, your expert in Spanish real estate.
