Russian Ruble Decline Hitting Spanish Property Sales

The falling ruble is starting to impact Spanish property sales to Russians, who have been among the most active foreign buyers in recent years.

Queries from Russia are down 60 per cent in recent months, according to Agustin Ramirez, founding partner of Costa Activa, a Spanish estate agency with a large share of the Russian market. While the decline may be attributed to various factors, including the turmoil in Crimea, the biggest influence has been the depreciation of the ruble, he says.

“The trend has been occurring since late last year,” Mr. Ramirez told Spanish Property Insight. “I think Russian demand will drop significantly if the exchange rate deteriorates any further.”

Spain is the second most popular foreign market for Russian buyers, behind Bulgaria, according to a recent study. But the declining ruble is trimming Russian demand in Spain, which started to flatten out late last year as a percentage of the foreign market. In contrast, the percentage of French and Belgian buyers continued to rise (see chart below).

Foreign demand by nationality as a percentage of the market. (Source: Spain’s Council of Notaries)

Russians are vital to the Spanish property market, especially higher-budget segments in areas like the Costa del Sol, Costa Blanca, and Barcelona. Russians were the third-largest foreign buying group in Spain in 2013, according to Government data. They bought 3,163 Spanish homes in 2013, up from 1,378 in 2010, representing 8.7 per cent of foreign buyers, trailing only the UK and France. (See Foreign Buyers in the Ascendancy).

The ruble has been in decline for the past year, changing the buying proposition for Russian nationals. Weaker by 21 per cent, the exchange rate has gone from around 40 rubles to the euro in April 2013, to almost 50 today. As most Russians are cash buyers, that has added around 2.5 million rubles to the cost of buying a Spanish home costing 250,000 euros – a typical Russian budget.

With the ruble weak and regional turmoil, capital outflow from Russia jumped to $50.6 billion in the first quarter of 2014, a 1.8 times increase from the same period in 2013.

While the Ukraine was certainly a factor, “the main reason [for the outflow] is the change in the exchange rate of the ruble in regard to the main reserve currencies, the dollar and euro,” Russian First Deputy Prime Minister Igor Shuvalov said at a recent press conference.

But that outflow is unlikely to go toward Spanish property. With rental yields low, Spanish property is seen as a discretionary purchase, not necessarily an investment. More than half of Russians buying foreign property are looking for a second home, according to a recent study of Russian buying trends by Portugal property website Meravista.

“Along with the recent spread of wealth in Russia, the nation’s ‘Life in two houses’ tradition of owning dachas (summer houses) in the countryside has reached the middle class,” the agency concluded. “The difference today is that Russians are now enjoying the opportunity to have their dacha in a foreign country.”

In tough times, no one needs another dacha. The decline in the ruble makes a Spanish waterfront apartment dramatically less affordable.

The influence of exchange rates on foreign home purchases is often undervalued in the analysis of market trends. Long before the crash, Spain was considered a bargain by UK buyers. But with the pound weakened against the euro, UK buyers have become less of a factor in the market.

Now there is uncertainty about Russian buyers, unless the ruble stabilizes. And continued conflict in the Ukraine could make the situation worse.

“Crimea has increased depreciation and some concern about the future, and that affects expectations,” Mr. Ramirez said. “If [the exchange rate] is steady, they will buy again.”