The strength of foreign demand for housing in Spain and its long-term outlook
Foreign purchases in Spain have made a surprisingly strong recovery after the pandemic-induced restrictions were lifted. Indicators related to purchase intent suggest that this positive trend will continue in the short term, especially among the German and Nordic populations. The long-term outlook for foreign demand is also promising considering the demographic trends in Europe: the imminent retirement of a large generation of Europeans points to a significant increase in potential demand, especially between 2026 and 2030. Although Spain has considerable strong points to attract this demand, such as the high competitiveness of its tourism industry and the country’s perceived safety, the importance of creating an attractive regulatory and fiscal environment, whilst also adopting appropriate housing policies to mitigate its impact on the local population, should not be underestimated.
Foreigners bought more than 70,000 homes in Spain in the cumulative figure for one year up to Q1 2022. This figure exceeds the pre-pandemic peak by more than 5,000 homes, with the share of foreign purchases rising to 13.2% in Q1 2022 (see the chart below). It can therefore be assumed that foreign demand for housing is recovering strongly after the decline experienced in 2020.
Foreigners bought more than 70,000 homes in Spain in the cumulative figure for one year up to Q1 2022, over 5,000 homes more than the peak reached before the pandemic.
This recovery is widespread across nationalities although growth is strongest among buyers from the Netherlands, Germany and Sweden, countries whose domestic real estate markets are showing clear signs of heating up. Even so, the British still top the ranking in terms of total purchases with around 7,800 homes bought in the past year, albeit still below the level reached in 2019. The Germans, on the other hand, are far exceeding this total and, whilst still in second place, are edging ever closer to the British.
Foreign demand has recoveredremarkably well from the shock of the pandemic and Google searches for buying a home in Spain point to this good trend continuing.
We expect this positive trend to continue over the coming quarters, as suggested by the number of Google searches for buying a home in Spain made by people in other countries (see the chart below). In the first few months of 2022, coinciding with the end of the wave of the omicron variant and with a notable relaxation in the restrictions on international travel and business in European countries, there was a strong upturn in foreign purchase intent, especially in Sweden, Norway, the Netherlands, Germany and Belgium. In contrast, searches from the UK and France are still somewhat depressed compared with their 2019 levels while, Italy, Denmark and Ireland occupy the middle ground.
In order to understand whether Spain’s boom in home purchases by foreigners is a phenomenon that is also occurring at other tourist destinations, we have gathered information on the number of purchases by nationality in Portugal, France, Turkey and Croatia. While the data are somewhat incomplete,11 they do seem very reliable given the high correlation observed between the most relevant homebuyer countries of origin and international tourist arrivals (see the chart below). This correlation reflects, in part, the repeated trips made by European tourists to second homes located in other countries.
From the data on purchases by nationality in the different destinations, we can draw several conclusions, such as:
The presence of foreigners in the real estate markets of European countries that receive tourism is remarkable and has grown significantly in the last five years. This phenomenon is therefore quite widespread.
If we take the year 2021 as our benchmark, the percentage of foreign purchases in Spain (10.8%) is much lower than in Croatia (25%) but is relatively high compared with other nearby countries such as Portugal (8.5% in 2019) and France (5.8%). In fact, the number of foreign purchases in Spain and France is similar in absolute terms although in percentage terms it is practically double in Spain. In Turkey, only 3.9% of purchases are made by foreigners.
The breakdown by nationality shows that the British have a particular predilection for buying property in Spain, a trend that is also observed in tourist flows (Spain accounts for almost a quarter of all international arrivals from the United Kingdom). However, the largest number of purchases by Britons occurs in France, perhaps in many cases for work reasons and not only for holidays.
- The purchasing pattern of Germans is much more diversified than for the rest of the countries analysed and includes Croatia and Turkey, a fact that is also consistent with tourist flows.
- The French, in addition to Spain, also buy a significant number of homes in Portugal (these data have been extrapolated from purchases made in Lisbon).
- The Belgians and Dutch stand out for the large number of homes they have purchased in France.
- Finally, the Swedes, like the British, have a particular fondness for Spain while the rest of the destinations are quite diversified, although their presence in Croatia and Turkey is not insignificant.
- 11. Italy and Greece would also be two Mediterranean countries with a large proportion of second homes owned by foreigners but we have found no official data for these countries. Data for Portugal by nationality are extrapolated from total foreign purchases and the breakdown by nationality in Lisbon.
The current boom in foreign purchases in Spain is due partly to cyclical factors, such as the pent-up demand during the pandemic being released, the use of the savings accumulated to invest in property and an environment of highly favourable financial conditions. In addition, house prices are rising sharply in many European countries and it is possible that buying a home in Spain is becoming more attractive from an affordability point of view.12
But beyond these factors affecting the current situation, there are at least three of a more structural nature which suggest that, in the medium and long term, growth in this demand could potentially be considerable. First, demographic projections in Europe point to a significant increase in the population of retirement age, with Spain being a very attractive market for Europeans looking to retire in a place with warm temperatures, competitive prices, a high degree of safety and good quality healthcare. Secondly, Spain is a very competitive tourist destination and preferred by many European citizens, so we are very well placed to continue attracting people looking to buy a holiday home. Finally, new work patterns accelerated by the pandemic, such as working from home, will allow European workers to stay in Spain for longer periods of time, to enjoy the Mediterranean climate while working remotely.
- 12. In this Sector Report, we have analysed the situation of real estate markets in the main developed economies and concluded that many of them are showing signs of overheating.
The long-term prospects for foreign demand are promising if we take into account the demographic trends in Europe and the fact that the Spanish tourism industry tops the international competitiveness ranking.
According to OECD population projections, the percentage of the population over 65 years of age, who are more likely to purchase housing abroad to spend long periods there after retirement, will increase significantly in the European countries that tend to buy property in Spain. Specifically, the number of people aged 65 and over in these countries13 will increase by 1.1 million per year until 2025 and will reach about 1.5 million per year between 2026 and 2030, coinciding with the retirement of the last baby boomers. After 2031, when members of Generation X (those born between 1965 and 1980) begin to retire, demographic trends suggest that the ageing of the population will continue but at an ever slower rate (see the chart below).14
- 13. We have looked at the following 11 European countries, which are the main nationalities of homebuyers in Spain: the United Kingdom, France, Germany, Italy, Netherlands, Belgium, Sweden, Norway, Ireland, Finland and Denmark.
- 14. Specifically, 1.3 million per year between 2031 and 2035, 0.8 million per year between 2036 and 2040 and only 0.3 million per year between 2041 and 2045.
Spain’s highly competitive tourism industry is a strong point for the holiday home sector.
Regarding our second structural factor, competitiveness in tourism, it should be noted that Spain is indeed a favourite destination for many European tourists who find our country to be very competitive in tourism terms, offering a combination of climate and quality of life that is difficult to beat, as well as good air transport connections with their countries of origin. Not surprisingly, the Spanish tourism industry tops the international ranking of tourism competitiveness produced by the World Economic Forum.
If we compare Spain’s position with other Mediterranean tourist destinations such as Portugal, France, Italy and Turkey, we can see that the Spanish tourism sector stands out especially for its cultural resources (similar to those of France) and its perceived safety. Its score is also high in terms of ICT readiness (communications and connectivity) and price competitiveness (in this case, similar to Portugal). As Spain is a very competitive destination, it is in a privileged position to foster loyalty among international tourists coming here on holiday, increasing the likelihood of them buying a second home in our country.
Spain’s ability to continue attracting foreign demand for housing will also depend on the development of a favourable environment for this type of investment. This encompasses many areas, from matching the supply of real estate to the preferences of foreign demand (e.g., residential complexes with medical facilities or housing with networking spaces for digital nomads) to creating an attractive regulatory and fiscal environment. In this respect, it is important to establish stable and predictable regulations for the rental market (many foreign buyers rent out their properties during some months of the year when they do not need them), harmonised international taxation (for example, in the case of inheritance) as well as facilitating healthcare for foreigners in Spain, among other aspects.
Last but not least, it is crucial to bear in mind that the large presence of foreign buyers, who tend to have a much greater purchasing power than resident households, may generate tension in real estate markets in some districts of the country’s major cities as well as in tourist spots. In such areas, high demand by foreigners could aggravate existing housing affordability problems for some locals, making it even more necessary to adopt appropriate housing policies, for instance by creating a larger supply of publicly subsidised affordable housing.