Where in Spain should you buy rental properties for the highest ROI?
The latest investor intentions survey by global group CBRE shows that Spain is one of the best European countries to invest in 2023 (only beaten by the UK, Germany, and France). It has climbed three places in the ranking since last year (where it placed 7th). Since the pandemic, demand for rental property purchases has increased among large investors and newcomers alike. Spain, especially the coasts, is increasingly attractive among aspiring landlords for BTL (Buy to Let).
According to calculations by AFIRE (Association of Foreign Investors in Real Estate), which deals with international real estate investment, Spain ranks 4th among countries providing the highest capital growth. Only the United States, Brazil and China rank higher.
Statistics released by the Central Bank of Spain in November 2022 show that the expected return on Spain's residential real estate market is 11% (8.4% if you take out a mortgage).
Two factors contribute to this result:
Gross rental yield estimated at 3.6%.
Capital gains estimated at 7.6%.
In 2022, the Spanish real estate market experienced record growth, but rising interest rates halted this momentum.
Throughout 2022, yields increased in some major cities, mainly due to adjustments in sales prices. These yields will be higher in areas with a slowdown in sales price growth. According to data from Inviertis (a technology platform for real estate investment), the cap on CPI growth for 2023 will leave average national capital gains at 7% but increase tenant loyalty.
By the end of November last year, the Spanish Statistics Institute (INE) recorded over 600,000 property purchases and sales. Of these, 15.92% of all properties sold went to foreign buyers – an absolute record. Among buyers, the British, Germans and French led the way, as did the Dutch, Norwegians, Irish and Ukrainians (though, as is well known, for different reasons). Demand from the United States and Latin America also gained momentum, helped by the dollar's strength against the euro.
Sales growth was most significant in all locations of interest to foreign investors. Sales rose by double digits in every region except Murcia, with the most significant increases in:
The Canary Islands +45%
The Balearic Islands +21%
Andalusia +23%
The Valencia region +21%.
The average price in 2022 was €2,051 per metre.
Navarre experienced the highest price increase (16.9%), followed by Alicante (14.8%), Santa Cruz de Tenerife (14.1%), Balearic Islands (13.8%), Málaga (12.4%), Guadalajara (11.4%), Granada (10.6%) and Cadiz (10.4%).
The Spanish provinces with the highest prices are currently Madrid (€3382 per metre), Balearic Islands (€3290), Gipuzkoa (€3190), Barcelona (€2973) and Bizkaia (€2869).
Málaga leads the eight Andalusian provinces with 16.5% and Almería 11.7%. They are followed by Granada (8.1%), Cadiz (8.0%), Seville (5%), Córdoba (4.5%), Huelva (3.5%) and Jaén (2.8%).
Málaga ended the 2022 fiscal year with one of Spain's largest increases in resale housing prices. It amounted to 12.4% in one year, equating to €2774 per square metre at the end of December!
Only two regions saw price declines in 2022: Castilla y León and La Rioja, by 0.7% in both cases.
However, rising housing prices are just one of the many factors you must consider when planning a BTL investment.
The rental housing stock has reduced since the pandemic's end. In the last year, offerings have decreased by 25% across Spain. The declining trend of available apartments shows no sign of reversing in the coming months.
A 12/2022 CBRE report shows that apartments hold the greatest potential for growth in the Spanish real estate segment. Long-term data and demographic forecasts are vital when it comes to investments in rental housing:
53% of investment in Spain's residential segment is focused on student housing, shared-rent apartments, and apartments for seniors.
By 2040, 29% of the Spanish population will be aged 65+, more than 50% of households will be single-person households, and 22% of the population will be ex-pats.
Continued growth in rental demand. Renting is one of the sectors to watch this year, as CBRE points out.
CBRE predicts that the number of households renting a home will reach 26.4% of the total by 2026. As a result, BTL properties will remain one of the favourite investment types in Spain, both private and institutional.
Flex Living, a residential segment that includes new solutions for temporary homes, is increasingly attracting investors. In the first quarter of this year, it accounted for 13% of residential investments. Corporate housing dominated the transactions, accounting for 81% of all deals, while Co-living occupied 19%. About 90% of transactions took place in Madrid and Barcelona.
The luxury homes and services apartments sector is gradually increasing its market share. It is most prevalent in Madrid, Barcelona, the Balearic Islands, and the Costa del Sol.
What Were the Average Rental Prices for Property in Spain in 2022?
If you are interested in Spanish real estate investment in 2023, research the prices of long, medium, and short-term rentals. In mid-2022, the average monthly rental rate was €1,544, although prices were much higher in attractive cities (data from the SpainHouses portal, which calculates an average based on the rental property prices reported by owners and real estate agencies):
Galicia - €988 per month
Castilla La Mancha - €818
Aragon - €762
Murcia - €1,167
Asturias - €701
Navarre - €976
Canary Islands - €1,013
Cantabria - €1,067
Valencia - €1,435
Andalusia - €1,401
Madrid - €1,319
Basque Country - €1,600
Catalonia - €3,252
Balearic Islands - €4,840
Many experts have recognised a change in the 2023 market cycle due to the macroeconomic situation: war, inflation and rising living and financing costs. Inviertis predicts that the future of the economy and the Spanish real estate market will be shaped by one major factor this financial year: the evolution of commodity prices. We can expect rental prices to rise, especially long-term rentals. According to experts, rental prices in Spain will increase by 6% in 2023.
BTL investment must be profitable. Good investment opportunities rely on more than an attractive apartment price. When choosing a property for investment, be sure to estimate its profitability.
How Do You Calculate Rental Profitability?
If you know the fixed costs of the house, maintenance costs, price of the investment and rent you will demand from tenants, you can calculate the profitability of your investment:
(Annual rental income - fixed and maintenance costs) ÷ investment x 100 = Rental profitability
Example:
€20,000 - annual rental income (total monthly rents).
€4,000 - annual fixed costs: (electricity, water, cleaning, etc.).
€150,000 - investment (purchase price, taxes, notary, etc.).
(20,000 - 4,000) ÷ 150,000 x 100 = 10.66% annual net return.
Using this formula, we can roughly estimate a property's return potential. Average rent prices are easy to find online, and an experienced agent can tell you the fixed and purchase costs, including taxes. Much of this information is already available in my free guide (downloadable after filling out the form on the site). If you're mainly interested in short- and medium-term rentals (which I wrote about HERE), look at Airbnb statistics:
Murcia - stunning scenery and a high quality of life (with almost 300 days of sunshine a year and a friendly atmosphere, security, and modern infrastructure).
The Murcia real estate market offers a wide range of properties at affordable prices (read more about Murcia HERE). Based on this year's Airbtics data, a host can expect an average annual income of €20,151 and occupancy rate of 67% for a 2-bedroom rental property.
In 2022, the rental yield was 8.1%, the average price per square metre was €1,214, and the occupancy rate was 53%.
Among the paradisiacal Canary Islands, Lanzarote, Fuerteventura, and Tenerife are the best areas for short-term rentals.
Occupancy rate:
Lanzarote: 80%
Fuerteventura: 78%
Teneryfa: 71%
Annual income:
Lanzarote: €24,086
Fuerteventura: €21,834
Teneryfa: €21,200
Daily rate:
Lanzarote: €84
Fuerteventura: €71
Teneryfa: €75
In 2022, the rental yield in Tenerife was 7.5%, and the average price per m2 was €1.2439.
Almeria - its location on the Andalusian coast, warm climate, magnificent landscapes, and moderate prices make the BTL market an exciting investment option.
According to Airbtics data, a host can expect an annual income of €10,876 at an occupancy rate of 56% for a 2-bedroom rental property.
In 2022, the rental yield was 6.9%, the average price per sqm was €1,271, and the occupancy rate was 50%.
Seville is Spain's 3rd most populous city and the capital of the largest autonomous community (Andalusia). Its climate, economic dynamics and urban life give Seville a unique character when buying rental property in Spain.
The city has an attractive real estate market and a dynamic economy that entices a large number of tourists every year. As a result, many hosts can generate good rental income through Airbnb listings. According to analytics tool Airbtics, the average host can earn up to €36,994 at an average occupancy rate of 77% for a 2-bedroom property.
In 2022, the rental yield was 6.1%, the average price per square metre was €1,940, and the occupancy rate was 70%.
Valencia - its overall financial stability, population growth, low crime rates and reasonable cost of living help generate a stable income.
According to Airbtics data, a host can expect an annual income of €36,873 with a steady occupancy rate of 90% for a 2-bedroom property.
In 2022, the rental yield was 6.1%, the average price per sqm was €1,940, and the occupancy rate was 78%.
Barcelona and Madrid are among the best European cities to invest in for 2023.
Madrid (ranked 5th) and Barcelona (ranked 6th) were among the top ten European cities to invest in. Compared to last year's ranking, Madrid moved up from 6th place to 5th, and Barcelona moved from 9th to 6th.
According to the Deloitte report, Madrid ranks 7th in Europe for gross rental yields and offers excellent investment security. The FlexLiving sector - corporate and employee housing - is especially worth considering.
In 2022, the rental yield in Barcelona was 4.8%, the average price per sqm was €3,486, and the occupancy rate was 79%.
Rental profitability in Madrid was 4.1%, average price per sqm - €3,444 and occupancy rate 79%.
Based on Airbtics data, the average host can earn up to €61,260 with an occupancy rate of 93% for a 2-bedroom property in Barcelona. In Madrid, you can expect an annual income of €46,942 at a constant occupancy rate of 91% for a 2-bedroom property.
In addition to rising rental yields, consider property capital appreciation (the increasing value of a property over time) when planning your investment. Over the past five years, Spanish property values have increased by an average of 5% per year. This increase can exceed double digits in large cities such as Madrid.
By assessing rising rental yields, property prices and capital appreciation in your chosen region(s), doing in-depth research and making the calculations I've mentioned, Spanish real estate can provide nearly double-digit returns year after year!
Contact me if you have more questions about rental strategies. I’d be happy to help!
Edyta
You can also find me:
https://www.facebook.com/DrEdytaTadeusiak
https://www.instagram.com/dr.edyta.tadeusiak/
