Is foreign demand for Spanish holiday-homes sustainable?

is the spanish holiday home market sustainable?

With some ups and downs along the way, the Spanish holiday-home market has expanded for about the last thirty years. Will this growth story continue, or are there reasons to think the market will peak and reset at a lower level, ending up a smaller niche business than it has been in recent decades?

I can’t find accurate figures, and I doubt they exist, but I can say with confidence that there are millions of second homes in Spain, hundreds of thousands of them owned by foreigners, tens of thousands of them are bought and sold each year, and tens of thousands of new ones being built right now.

Spaniards buying second homes they can easily reach by car is one thing, and that has been going on for much longer than the boom in foreign demand, which really started to take off in the 1980s. Local demand shares some headwinds and tailwinds with foreign demand, such as property prices and the availability of mortgages, but foreign demand has its own unique set of brakes and drivers that I think could prove challenging in the years to come.

Tailwinds

Foreign demand for holiday-homes in Spain has boomed on the back of demographics (baby boomers), post-war economic growth, European integration, Spain’s transition to democracy, cheap mortgage credit, low cost air-travel, the middle-class fashion for owning a status symbol, and the investment opportunity of convenience and saving money on holidays with a property that can be rented out when not in residence. Those were the main tailwinds I can think of that have driven the boom in foreign demand for holiday-homes in Spain.

Foreign demand for property in Spain has recently turned negative after years of growth (graph below), dragged down by lower demand for Spanish second homes amongst northern Europeans.

spanish property market foreign demand q2 2019

This might be because some of the tailwinds have already lost strength with time, for example European demographics, and lower economic growth. Some of them could even turn into headwinds in future, so let’s look at the potential breaks on foreign demand in future.

Headwinds

Environmental concerns

Is this really what foreign buyers want?

You don’t have to travel far down the Spanish coast to see how the second-home industry has over-developed many areas with no concern for the environment. It was always a turn-off for some, but I think the problem grows as society gets more concerned about the environment.

And even though some people deny it, and the negative consequences are still not clear, global warming is becoming a bigger issue every year. The way things are going it’s easy to imagine that air travel will get more expensive as Governments increase fossil fuel taxes, which could really put a dent in foreign demand.

It might soon be frowned upon and unfashionable to own a second home abroad, if the likes of Greta Thunberg and Extinction Rebellion change attitudes towards the carbon-footprint of second-homes you can only reach by plane.

And lastly, if global warming has a big impact soon, that could affect the climate in Spain and northern Europe in a way that undermines demand for holidays in Spain.

It seems to me that global warming and environmental concern could become a big headwind for the Spanish holiday-home market in years to come.

 

Spanish holiday-home prices

Spanish property used to look very cheap to northern Europeans, but prices rose as Spain got richer, and despite a window of opportunity during and after the crash of 2008-2014, the bargain argument is not as strong as it was, especially if you want something nice. When you throw in transaction costs, bureaucracy, and the lack of professionalism in the sector, buying a second-home in Spain is not the no-brainer it once was.

Spanish Holiday-rental controls

There is a patchy trend towards controlling or limiting holiday rentals in many areas on the Spanish coast. For example, holiday rentals are now, to all intents and purposes, illegal in Barcelona, the Balearics, and the Canaries, and controlled in Andalusia and Catalonia outside Barcelona. Taxes on rental incomes are high and better enforced. If it’s hard or impossible to rent out a second-home when not in residence, it becomes much more costly to own, and the investment case much reduced. The trend towards greater holiday-rental controls could blow a stiff breeze in the face of foreign demand, as I think it has already started to do.

Brexit

spanish property market foreign demand q2 2019

Brexit. Click to enlarge

The UK has long been the biggest foreign market for second homes in Spain. Absolute demand and UK market share has been on the slide since Brexit but that could turn into a slump in the event of a Brexit that significantly limits British access to Spain or leaves the UK poorer. So Brexit might have a lasting negative impact of British demand for holiday-homes in Spain, which will shrink the overall market. Another consideration to bear in mind is that fact that the UK has already increased taxes on buyers in the UK who own second-homes abroad.

 

Conclusion

I don’t expect the Spanish holiday-home market to disappear anytime soon, but I do see the risk of headwinds as discussed above leaving the market smaller and less liquid in future. Nobody needs a second-home in Spain – it’s a luxury. The more the headwinds, and the weaker the tailwinds, the more people will give up the dream of owning a second-home in Spain. Of course, this is all just speculation, and things could turn out very different, but anyone considering buying or selling a holiday-home in Spain should have these considerations in mind. Buying is easy. Selling’s the hard part.

About Mark Stücklin

Mark Stücklin is a Barcelona-based Spanish property market analyst, and author of the 'Spanish Property Doctor' column in the Sunday Times (2005 - 2008).

4 thoughts on “Is foreign demand for Spanish holiday-homes sustainable?”

  1. Mike51

    Hello Katy,

    Have you considered an apartment in the city of Malaga? Good weather, easy to get to, good infrastructure, year round activities, has a beach and lively port within easy walking distance of the historic centre and many cultural activities. Buying a villa requires transport, may not be a lot to do when you are there – this may not be a concern for you, of course.

    Good luck with whatever you decide.

    Anne

  2. Capo1

    Mike / Katy,
    We rented a villa in Mijas for two years running. The second year we decided to buy. 8 years on I still think it was the best move of our lives. We travel from the other side of the world to stay in our villa for 4 months. I never run out of things to do. Sometimes I feel guilty that I am not doing enough around the property, but the local tapas bars of Mijas, Benelmadena and Fuengirola, and the allure of our pool on a hot day (everyday) look too inviting.
    Malaga is a stunningly beautiful city, great shopping, amazing market and friendly residents, but it is still just a big city with lots of cars and hi-rise buildings. You can’t compare it to the charm of Mijas pueblo and its environs.
    This year the sun turned up the thermometer in June and it was still in the mid 20’s when we made the mistake of heading back to the antipodes mid October.
    Buy your villa Katy, you will never, ever regret it.

    Herb Fava

  3. prancingpony2002

    Hi Mark,
    I have decided to make Spain my primary residence in 3-5 years. since I own a home in the Netherlands Antilles (where one could not possibly find a higher rate of extortion and gov. problems). I am giving myself a wide berth since liquidation, pet passports and transfer of household goods -decades old Scandinavian Mid-Century pieces, vehicle (1) used and have obtained shipping quotes from POB/Malaga since I reside in Northeast Massachusetts.Yes, shipping quotes can change but I am used to the buying process of Transfer Tax/Notary/Advocat for Property, private insurance, etc. I am Single with a partner and we would be using Social Security as our income since we do not dine out or go to bars.We just was a drier climate.I expect that 3-5 years is a good choice since the market will change and I am only interested in a single fam. 3 bed, 2 bath house in Andalusia or Frontierra Regions w/pool.I have only lived in detached dwellings and I am not interested in the golf/pool having your neighbour on top of you complexes since they are a turnoff.All I want is a lovely place with fruit trees.We do not plan to return to the U.S. or to rent out as a holiday home and live somewhere else part of the year since I hate to fly.Do you not think that prices may change in these uncertain times, seeing as I am not buying right now.I expect there will be many bank owned homes and sell-offs by Brits and it is unfortunate that so many apartments are still in construction or without buyers and saw that financing dried up for many developers.I have spent over a year researching Spain and have friends in Coin that keep us informed.
    Thanks for your thoughts
    Debbie

  4. SurveySpain

    You haven’t mentioned the physical changes, such as rising sea levels and more sudden cloud bursts. As we find in our building surveys, (extreme) damp is going to become more of a problem for some.
    We are finding more people coming here for lifestyle change reasons, with some buying a few years in advance, while they have the earned income to afford the costs that will involve.

    I agree with Fiona Black, in that there has to be a stop to ‘buy-to-let’ in many places. There are now so many tourists worldwide that they do have to be ‘rationed’ and a way to do that is by limiting accommodation. Otherwise the goose (the city and its culture) that laid the golden egg (the tourist income), will be killed. (The city will cease to function and be left as a museum, as the local population and non-tourist businesses are forced out by high prices and congestion)

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