Foreign buyers have helped bring house price declines in the Catalan Capital to an abrupt end, and driven up apartment prices in areas like the Barceloneta beachfront district.

The property market in Barcelona is changing fast as foreign investors take advantage of bottom-of-the-market prices to go bargain-hunting for second homes and rental investments.

In some popular areas house prices appear to have turned around thanks to foreign demand. For example, tourist rental investors are driving up prices in Barcelona’s beachfront Barceloneta district reports a recent article in La Vanguardia, a Spanish daily published in Barcelona. House prices in Barceloneta of 3,490€/m2 are now well-above the city average of 3,183€/m2 (though smaller than average apartments in Barcelona also contribute to higher than average prices).

According to local property experts consulted by La Vanguardia, foreign buyers are largely the reason why a forecast decline of 8pc in Barcelona house prices at the start of 2013 never materialised. Using data from the property portal Idealista.com and Barcelona’s Town Hall, La Vanguardia calculates that Barcelona property prices declined by just 1pc last year.

10pc of buyers in Barcelona are now foreigners acquiring second homes or rental investments, reports La Vanguardia. But the proportion might be even higher than that; according to recent research by Tecnocasa, a franchise chain of estate agents, more than a quarter of buyers (29pc) in Barcelona today are foreign.

The investment opportunity in Barcelona

After falling for five consecutive years, resale house prices down as much as 50pc in real terms since the crisis started are attracting foreign buyers to Barcelona in increasing numbers, helped by the astonishing globalisation of property markets in recent years. Barcelona property is now being marketed in countries like China and India, with the added benefit of Golden Visa Spanish residency permits for non-EU property investors.

It helps that Barcelona is an attractive city close to the hear of Europe that leaves a positive impression on most visitors.

“Foreign buyers are returning to real estate investments, and Barcelona has become an asset safer than the stock market,” Eduardo Andreu of Idealista.com told La Vanguardia. “The yield you can get from rents goes from 4pc to 9pc. That’s without saying anything about tourist rental apartments.” Real estate prices in Barcelona have fallen more than Valencia or Madrid, claims Andreu.

Another factor that could help lift Barcelona’s house prices is the city’s geographic limitations on building land; Barcelona is hemmed in by the sea and the hills with no room to expand, and no building land to speak of. Once the crisis is over there will be an acute shortage of new homes. With growing international demand, and no new supply, resale house prices are likely to go up when local demand picks up as mortgage lending returns.

Signs of recovery

Having fallen for five years, house prices in Barcelona were forecast to decline 8pc in 2013, after a 9pc decline in 2012, reports La Vanguardia. In the end, the 2013 average decline was just 1pc, whilst prices actually rose in Barcelona’s Old Town Gothic Quarter, Eixample, and Sarria-Sant Gervasi. Surging foreign demand was partly responsible for the turnaround.

Joan Ollé, president of the College of Real Estate Agents of Barcelona told La Vanguardia that sales to foreigners are forecast to go up as a result of the new Golden Visa law, introduced in September last year.

“Clients tend to be Russian, Chinese, and now we are also seeing Indian buyers in greater numbers,” says Javier Llanas, head of marketing at the portal Habitaclia.

Excluding residency investors, buyers divide into two groups, explains Ollé. On the one hand investors, often French or British, looking for rental yields, and on the other relocation buyers moving to Barcelona to live.

But 70pc of buyers with budgets above 2 million Euros are Russian, according to François Carriere, head of Coldwell Banker in Spain, who expects their numbers to grow.

Bargain Barcelona

Resale prices have fallen 45pc to 50pc in real terms since the crisis began says Ollé, meaning that Barcelona now looks like a bargain to foreign investors. “Furthermore, new developments are a rare bird, and there won’t be any more on the market in two years,” he points out.

Price falls in Barcelona have not been uniform, hitting working-class districts on the outskirts harder than the affluent centre, where tourists flock.

The working class district of Nou Barris is now the cheapest in Barcelona, with prices of 2,000 €/m2, weighed down by high unemployment and foreclosures.

In the tourist magnet of the Old Town, on the other hand, there is “heavy demand for homes in the district. They don’t have enough streets!” says Llanas of Habitaclia. The new breed of buyers don’t live or work in the Gothic Quarter, so the high level of unoccupied flats is misleading, he argues. Today’s buyers are changing the character of the district as former residents are priced out by foreign investors.

No immediate recovery

Despite promising signs, it’s still too early to talk about a recovery in Barcelona house prices, says Andreu of Idealista. “There are no jobs, nor mortgage financing, incomes have fallen, and the stock of homes on the market is still too big,” he said, referring to local demand. Bearing that in mind, he recommends that vendors take all offers seriously.

Local resentment

Foreign investors may help bring Barcelona’s price crash to an end, but local residents view them with mixed feelings. Comments at the Vanguardia website reveal that some locals are sick of tourist rentals driving out locals and changing their neighbourhoods.

Foreign demand might also prevent house prices from falling to levels where first time buyers like young adults trying to fly the nest and start a family can afford them. That could cause resentment towards foreign buyers.

Nevertheless, seasoned property investors with a long-term view will recognised all the signs of a great deal in Barcelona today.

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