Since Spain's real estate bubble burst in 2008 and brought its economy crashing down with it, foreign money has been driving recovery in the nation's property market.
According to Spain's Property Registrars, annual price growth in June 2015 showed an annual increase of 5.12%, driving by strong sales to foreign nationals in the country's prime property markets.
Transaction volumes have also increased, according to the latest "Spain Real Estate Flash" published by BBVA Research which notes that 188,432 home purchases were completed in the first six months of the year in Spain, representing an increase of 7.9% over the same period. The Spanish bank reports that increased access to credit together with low interest rates, growth in employment and the improvement of consumer confidence are key factors behind Spain's property market recovery.
BBVA state in its report that 'construction activity has shown significant growth, albeit from relatively low levels,' and the 'macroeconomic prospects for the second half of the year will continue to contribute to the sector's recovery'.
The report also highlights the fact that 17% of housing transactions carried out in the first three months of the year in Spain were made by foreigners, saying that 'the sound health of some of the key economies that generate demand for housing in Spain, such as Germany and the United Kingdom, combined with the depreciation of the euro, continue to be major assets for the Spanish real estate market'.
Increased foreign buyer interest in Spain
Spain's property registrars report that foreign nationals purchased 12.2% of residential properties in the first quarter of 2015, up from 9% in 2006. The impact of foreign investment in property is most prominent in Spain's luxury market. Home prices fell more than 35% between 2007 and 2013, according to the country's statistics bureau, presenting foreign investors with a wealth of opportunities for considerable value growth.
Indeed, areas popular with foreign investors – such as Pedralbes and the Passeig de Grácia in Barcelona and Salamanca and Chamberí in Madrid – have already recovered 20% of value lost since the property market crash in 2008.
Increased foreign buyer interest in Spain is reflected in price growth and now house prices have increased at their fastest rate since the downturn.
The latest rise in price growth means that property prices are now down 29% nationally since the peak of the market, with significant regional variations according to buyer activity. The recovery in the Spanish property market is limited to the most popular areas where houses are in demand such as Madrid, the Balearics, the Canaries, Catalonia and the Valencian Community and is reflected in buoyant local property prices.
The statistics from the Spanish property registrars show that the country's real estate sector closed the first half of the year with a positive balance and the fundamentals of the economy indicate that this trend will continue in the second half in a context of price stability, according to the BBVA's report.
Alex Vaughan, co-founder of Lucas Fox, the Barcelona-based luxury estate agent said: "At the high end - €500k and up – it's primarily being driven by international demand". The estate agent sold two-thirds of the units in the luxurious Bonavista development in Barcelona, with 91% of its 126 sales going to foreign buyers.
Over the last two years, the demographic of foreign buyers in Spain has shifted from Europe to the Middle East, Asia and the US. While the depreciation of the euro has attracted non-Europeans, the collapse of the rouble and tighter rules on currency transfers have kept out some Russians and other investors.
American buyers are on the rise, with purchasing power boosted significantly by the dollar's dominance over other currencies this year, and French buyers, reluctant to expose capital to restrictive taxation policies at home, have been house-hunting in Spain's property markets more enthusiastically in 2015.
The modest but sustainable recovery of Spain's economy has resulted in GDP growth of 2.7% over the past year and the nation's banks have begun to lend again. During the first quarter of 2015, Spanish banks signed nearly a third more mortgages for 27% more capital than during the same period last year, signalling a return of domestic buyers that will underpin price growth nationally in coming years.