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Most Spanish Homes Still Overvalued, Concludes Consumer Association


The majority of primary homes on the market are still overvalued if compared to potential rental prices, finds a study by the Spanish Consumers’ Association (OCU).

Carrying out research for a buy-to-let study the OCU has been tracking the relationship between house prices and rents for years in four Spanish cities: Madrid, Barcelona, Seville and Valencia.

“We work out net income [after subtracting rental expenses], which we then compare with the income from a sensible investment at a long-term fixed rate,” the OCU explain. “Despite accumulated property prices drops since 2008, the vast majority of areas studied still offer poor rental returns,” they conclude.

“Property prices continue to remain disproportionately high compared to rental rates, which is like saying that property prices are still overvalued in our country,” says Lleana Izverniceanu, and OCU spokesperson.

According to the OCU’s research, just seven per cent of the homes included in the study of 300 Spanish neighbourhoods offered worthwhile rental returns, whilst 85 per cent of properties are still so expensive that OCU’s advice to investors is stear clear.

Madrid is no exception: only two per cent of the neighbourhoods analysed are worth investing in. For example, in Ríos Rosas, property prices are classed as “very expensive” and in most parts of Chamartín, prices are “expensive” and “very expensive”, leading the OCU to recommend selling up in both districts. OCU only recommend investing in 3 of the 125 areas studied in Madrid: two belong to Puente de Vallecas district, and the third to the airport neighbourhood in Barajas district.


se-alquila-rentOCU say their advice is aimed at prudent investors, rather than speculators. “It’s for people who have hard-earned money and don’t want to lose it in adventures, or at least want to limit their risks,” they explain.

To identify the safest rental investments, the OCU compare net rental incomes with a benchmark long-term, risk-free interest rate. “To do this,” they explain, “we need to work out the minimum investment threshold required because property rental has expenses and is riskier than other long-term investments”. Unsurprisingly, their latest study on rental risks reports that 30 per cent of landlords have had problems with non-payment or damage to the property.

What, according to the OCU, is the minimum return investors should expect from property? In their opinion, five per cent net per annum is the minimum rental investors should expect if they are to invest in Spanish buy-to-let (long-term lettings) in Spain’s four biggest cities.


Nor are the OCU optimistic about capital gains making up for poor rental returns. “We don’t expect property to regain its value significantly in the medium term, as it did 10 to 15 years ago”.

“Some experts argue that thanks to the accumulated price drops, property prices won’t fall any further,” says Izverniceanu. But bearing in mind the persistent imbalance between house prices and household incomes (known as the affordability ratio, the historic average is 4x gross household annual income), the fact that house prices are still above what they should be judging by long-term inflation, and the glut of properties on the market, the OCU argue that house prices have not finished falling.

“All these factors lead us to believe that in spite of the falls in prices the housing market is still considerably overvalued,” says the OCU spokesperson.”The reality is, in the medium term, the house price trend will continue falling,” conclude the OCU.

It should be noted that OCU are talking about prices and yields for the primary housing sector in Spain’s four main cities. They are not talking about the second home market in coastal areas, where tourist rental yields vary enormously, and where it’s difficult to determine an affordability ratio.

SPI Member Comments

3 thoughts on “Most Spanish Homes Still Overvalued, Concludes Consumer Association

  • Hi Mark,

    I’m sure OCU are right. I look at idealista.com on a regular basis and am surprised by asking prices.

    I have a particular interest in Mallorca. I know the island is outside the area of their study and that it’s a market driven by non-Spanish demand. However, there are over 15,000 properties listed and many are in excess of 500,000 euros. Given the economic malaise in Europe, I don’t see where the buyers are going to come from. Also, when you factor in total purchase costs of 15%, how many people can afford houses there? Am I missing something?

    A further point is that Germans are the main market on Mallorca, but Germany has a rapidly aging population which is going to suppress demand. You can’t fight demographics.

    And as for the locals, most of them are priced out of the market.

    I am considering a relocation from Asia, and think it is probably wiser to rent.

    Best wishes,


  • Totally agree with this article. I myself rent an apartment which I know if it were being sold, I’d never be able to afford it. And even if I did have the cash, it would be a pretty bad way to tie it up for so little return.

    @James- one thing to consider about the Germans. You are right they are aging- but that is precisely why they are so dominant and I think this will increase. They are all retiring and going to live in the sun and bringing their huge piles of cash, diligently saved over many years of hard work. What’s ironic slightly is that property prices relative to income are pretty low in Germany, although they are finally creeping up. So if you want to invest, there’s a good place to start.

    • @ speakupboy thanks for your reply. It’s true that many Germans have savings, but I doubt that many of them will choose to become tax residents of Spain. So, they are unlikely to buy larger properties in Mallorca. Also, the combination of high income tax rates, wealth tax, and the requirement to submit a list of all assets outside Spain in excess of 50,000E -Modelo 720 – is hardly attractive. Further, with the rise of Podemos, I think you can expect to see even higher taxation. I see turbulent times ahead. However, lifestyle-wise, it would be a lovely place to live.

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