House prices in Madrid and Catalonia rising at fastest rates since the last boom

House prices in the Madrid region and Catalonia are increasing at rates seen in the last property bubble. In fact, price hikes in Madrid in Q3 last year were even bigger than during the bubble a decade ago.

Adapted translation of a recent article published by the Spanish daily El Mundo

According to the property price index published in early December by the Spanish Statistical Institute (INE), the change compared to Q3 2016 was over 12% in the Madrid region. The figure tops the 11.3% registered in Q1 2007, when the INE started compiling the index and when property prices soared to record highs on the back of the construction bubble.

Catalonia hasn’t quite yet reached the 11% hikes seen in the region during the first months of 2007, but at 10% prices are rising at the second highest rate on record.

The situation in these two regions contrasts sharply with that seen in the many other regions. In Extremadura, prices haven’t changed over the last year. In Asturias and Castilla-La Mancha, prices have gone up by less than 1% and in Castilla y Leon, Murcia and Navarra, increases are around 2%. The only other region where prices are rising near double digits is the Balearics, though at 9% in Q3 they are still a long way off the almost 16% record set in 2007.

Despite the significant difference between regions, the sharp increases in the dominant cities of Barcelona and Madrid have driven the national average up by 6.7%. This figure is the highest year-on-year rise in the national house price index since Q3 2007.

Holiday rentals drive up prices in Barcelona and Madrid

There are various drivers behind the house price recovery in Madrid and Catalonia.

Firstly, these regions are among the richest in Spain, and contain the country’s two largest cities. This means economic recovery affects their population much earlier. They are also places that are significantly more attractive to investors, both Spanish and foreign, than other parts of Spain. And as a direct result of these two factors, there’s an additional reason pushing up house prices in Madrid and Barcelona, which is tourist demand for accomodation and the holiday rental market it has created.

More and more investors are buying properties to let them on holiday letting platforms such as Airbnb and Wimdu. These investments offer high returns, but also require more management than long-term rentals. As a result, lots of new property management service business have sprung up to enable owners to rent their homes to tourists, driving up the price of housing for locals.