The rise in house purchases by foreigners in Spain
Foreign demand has been one of the factors supporting Spain's real estate sector throughout its recovery. House purchases by foreigners have tripled in just 10 years, reaching the substantial figure of 65,300 homes in 2018, 12.6% of the total. This article looks at the foreign demand for housing in Spain as well as factors that will affect the trend over the coming quarters.
Foreign house purchases played an important role at the start of Spain's real estate recovery. From the minimum levels recorded in 2009, in the midst of the global financial crisis, with just 17,940 homes purchased by foreigners (4.2% of all purchases made that year)1 , foreign demand soon picked up, enjoying double-digit growth between 2010 and 2017 to more than 13% of all purchases. Meanwhile, domestic demand remained sluggish until well into 2014.
- 1. This article is based on purchase data provided by the Spanish College of Registrars. Other available sources, such as the data provided by the Ministry of Public Works based on Public Notary figures, suggest a much larger share of purchases by foreigners, namely 5.8% in 2009 and 15.8% in 2018.
Property purchases by foreigners have grown non-stop since 2009
In spite of Brexit, the British continue to lead the field in buying a second home in Spain
The most recent data confirm this strong performance by foreign demand: in 2018, foreigners bought 65,300 homes in Spain, 7.3% more than in 2017 and a very similar figure to the one recorded in 2007, before the property bubble burst. This confirms that the number of purchases by foreigners is now at a high level and, consequently, the growth rate is likely to ease off. A slight moderation could already be observed in the second half of 2018 and, as we will see in this article, the slowdown is likely to continue during 2019 and 2020.
The British lead the ranking of nationalities buying residential property in Spain in 2018 with over 10,000 units, 15.5% of all foreign demand. The Germans and French complete the podium with almost 5,000 homes each (7.5% and 7.4% of the total, respectively), with the Belgians (6.3%) and Swedes (5.8%) close on their heels. Although purchases by UK citizens remained at around 10,000 homes per year in the period 2016-2018, we can assume that this figure would have been even higher without the uncertainty caused by Brexit, since the purchases made by the rest of the nationalities grew considerably compared with 2016 levels.
The British top the ranking of purchases by foreigners
Why do foreigners choose Spain?
The citizens from these countries tend to buy property in Spain for holiday use and there is a notable coincidence between the countries leading the ranking for Spain's inbound tourism and the nationalities buying housing. This correlation suggests that such tourists, many of them retired, after repeatedly coming to Spain on holiday, have decided to buy a second home here. The main reasons for choosing Spain are the climate and quality of life, the perceived level of safety and good flight connections with their home countries. In addition to these factors, in the past decade Spanish property has also become more attractive as an investment, due to the slump in house prices during the most severe years of the recession. In other words, Spanish property became more affordable and a good investment opportunity for citizens of economies less badly hit by the crisis.
Romania, Morocco and China lead the field of nationalities settling in Spain for work
It is vitally important to know the detailed geographical distribution of different nationalities throughout Spain in order to anticipate the impact of possible political or economic events on the Spanish residential market, such as identifying those zones that could be most affected by Brexit. It is interesting to note that each nationality has its own favourite destinations: the British prefer the Alicante and Andalusian coastline while the Germans like the Balearics, although many also choose the Canary Islands. The French and Portuguese like Catalonia and Galicia, respectively, because of their close proximity. The Italians prefer the Canary Islands while Scandinavians tend to choose the Community of Valencia and Andalusia.
But apart from buying property for tourism purposes, recently there has also been a rise in purchases made by foreigners settling in Spain for work. This demand tends to be much more closely related to economic conditions in Spain and it is therefore not surprising that such purchases have picked up in line with the strong recovery in the Spanish economy, which started in 2014. Within this group, the ranking of nationalities is led by Romanians (3,553 purchases in 2018) followed by Moroccans (3,141 purchases) and the Chinese (2,573 purchases)2. Purchases made by these nationalities tend to be spread more across Spain's different autonomous regions, although they are particularly prevalent in large cities (Barcelona and Madrid) and agricultural areas with a demand for certain types of labour (such as Murcia, in the case of the Moroccans).
Economic growth in the countries of origin, inbound tourism, immigration and the exchange rate are all key to predicting foreign demand for housing
At CaixaBank Research we have thoroughly analysed the factors that help to predict the trends in foreign demand for residential property over the coming quarters. For instance, we have taken into account the economic conditions in the countries of origin (GDP growth and exchange rate), inbound tourism rates by country and immigration towards Spain by nationality3 . Another very useful instrument for predicting the intention to buy on the part of foreigners is the number of Google searches to buy housing in Spain made from other countries.
Google Trends show that buying an apartment in Spain is still a very popular search in the main purchasing countries. In the past few months, however, this kind of search has become less popular in northern European countries. On the other hand, Google searches by the Dutch, French, Belgians and especially Moroccans are still very strong, suggesting that purchases by these nationalities could gain share.
- 3. Specifically, a time series regression analysis is carried out for each of the main nationalities purchasing residential property in Spain: the United Kingdom, Germany, France, Italy, Netherlands and Sweden, accounting for 44% of the foreign demand in 2018.
Popularity of searches cor "Buy apartment in Spain" according to Google Trends
The combination of information from Google Trends with the key economic variable forecasts suggests that housing purchases by the main purchasing countries (United Kingdom, Germany and France) will grow more moderately in 2019 (by around 2%). The main reasons are that economic growth is slowing down in these countries and inbound tourism by these nationalities has almost stalled. Regarding the United Kingdom, it is also important to note that the exchange rate plays a vital role in predicting house sales given that depreciation in the pound sterling makes purchases in euros in Spain more expensive. As the uncertainty surrounding Brexit dissipates, we expect the pound to appreciate slightly, which should improve the purchasing power of the British and, consequently, boost their purchases4 .
- 4. Should the pound sterling depreciate by 10% annually (similar to the depreciation occurring after the Brexit referendum), growth in housing purchases by the British would fall by 9.3 pp. At current levels, this is equivalent to approximately 1,000 fewer homes.
Over the next few quarters, we expect foreign demand for housing to moderate given the slowdown in European economies, although there is great potential for growth in the medium term
Which nationalities buy the most housing in Spain?
Number of homes
In conclusion, foreign demand provided fundamental support for revitalising the residential market when it was at its lowest ebb5 . Over the longer term, the key question is whether this increase in foreign demand is a temporary phenomenon or has the potential for sustained growth. The answer to this question will depend, on the one hand, on the health of the economy and its capacity to attract foreign workers. Regarding tourism-related demand, its growth potential will largely depend on the implementation of polices aimed at positioning Spain not only as a holiday destination but also as a residential destination for retired Europeans. Ultimately, the progressive ageing of Europe's population and Spain's attractive climate, culture, level of safety and quality of life have given us a competitive edge. Are we capable of becoming Europe's Florida?
- 5. Although foreign demand has had a positive effect overall, it is also true that, in certain areas such as large city centres and tourist resorts, the pressure of tourism- related purchases has affected the local residential market to some extent. This aspect is addressed by the next article which looks at the rental market.