A recent article in El País titled ¨Is Spain headed for another property bubble?¨ would no doubt have set alarm bells ringing for the tens of thousands of current or potential foreign investors in the Spanish market.

Home-ownership by foreigners in Spain has increased markedly in recent years. According to research conducted by Spain's third-largest bank CaixaBank, purchases have risen every year since the financial crisis in 2008, and more than tripled between 2009 and 2018.

From 2009, in which just 4.2% of home purchases were made by foreigners, that number increased to almost 13% in 2018. The real number could be even higher, with the website SpanishPropertyInsight.com finding the true level could be closer to 19%, which would equate to around €17.1 billion in annual foreign investment.

The same CaixaBank study revealed that the largest percentage of foreign homeowners in Spain are British (15.5%) followed by Germans and French (7.5% each). As such, it's clear to see that any kind of repeat of the 2008 housing crash, where sales plunged by up to 42% in some communities, would have dire consequences for both investors and the Spanish economy as a whole.

Are Rising House Prices Cause for Concern?

Referring back to the El País article in question, author Jose Luis Aranda highlights increasing house prices and the expectation for continued future growth as warning signs for another potential bubble in the near future.

In its most recent figures , the Spanish National Statistics Institute (INE) reported annual growth of 4.2% in home prices to the third quarter of 2021.  The INE also found that the number of properties sold, mortgage sizes and home values per square metre have all surpassed those levels from 2007-08 for the first time since the last bubble burst.

Like a wolf in sheep's clothing, however, could all these positive numbers just be early indicators of another bubble forming?

The answer to that, for the moment at least, appears to be no. That's according to Francisco Iñareta, spokesperson for idealista, Spain's largest real estate website:

"The pandemic, and above all, the lockdowns, provoked a sudden halt in regular operations and a sharp and simultaneous fall in every (relevant) indicator.

The opening of the market and the return of consumer confidence (thanks to the successful vaccination campaign, historically low mortgage rates and the savings generated by families during these months), built-up demand that led to a rapid escalation to the pre-pandemic situation as soon as possible.

The values we are experiencing do not correspond to an overheating (market), but rather...the market is undergoing a process of normalisation toward the new, old normality."

Undersupply on the Horizon as Construction Remains Sluggish 

Perhaps the key consideration in evaluating the current state of the Spanish housing market is not how many homes are being purchased, but rather how many are being built.

At the height of the real estate boom in 2006, more than 865,000 homes were built in Spain. After falling to a record low of just 35,000 new constructions in 2013, that number has steadily increased over the past decade. 2021, however, still saw just 101,000 new houses built, an 88% reduction on the pre-2007 bubble figures.

Indeed, in El País, Mr. Aranda quotes two experts who both argue that there is, in actual fact, an undersupply of new housing in the current market.

Gonzalo Bernardos, director of the Master's degree in Real Estate Consultancy, Management and Development at Barcelona University claims that the lack of new-home construction is driving up prices in the resale market.

This point is seconded by Paloma Taltavull, professor of Applied Economics at Alicante University.

"Construction has been minimal since 2008", she told El País, before adding that any price rises were far more likely linked to a change in post-pandemic lifestyle choices than a potential bubble.

"That is happening all over the world and must be one of the reasons why prices have shot up in some countries," Ms. Taltavull added.

Fourteen years on and the trauma of the last housing crash is still raw for many investors while the Spanish real estate market is only now returning to pre-crash values. However, after examining the relevant data, it would seem clear that the chances of a similar meltdown aren't on the cards any time soon.

What to Know About Property Investing in Spain

Foreign property investments in Spain are driven by holiday use and there is a strong correlation between the countries at the top of both Spain's tourist arrival and foreign investment figures.

Despite Brexit, Brits still lead the pack in this regard as retirees and holidaymakers look to take advantage of Spain's perceived benefits in terms of quality of life, climate and safety. The slump in housing prices following 2008 also offered promising investment opportunities for foreign buyers while Spaniards were slower to return to the market.

There's the added advantage that there are relatively few restrictions on foreigners buying property in Spain. The federal government has traditionally encouraged the practice as a key source of foreign revenue.

In order to buy property, expats need to acquire a Numero de Identidad de Extranjero (NIE) or Foreigner Identification Number. This is the number assigned by the Spanish National Police to foreign residents before they are able to conduct any kind of legal proceedings like opening a bank account or buying a house.

More information on the process and requirements for acquiring a NIE can be found on the Spanish Interior Ministry website.

For EU citizens already in Spain, the process involves submitting your NIE application at certain Spanish police stations. For those applying from outside Spain, you can also apply for your NIE at the Spanish Embassy in your home country.

For Brits following Brexit, the process is basically the same, however, it may take a few weeks longer to process the relevant paperwork. For those with deep pockets, the special Golden Visa scheme affords a residency visa directly to any foreigners who buy a Spanish property worth more than €500,000.

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