British demand for Spanish property has recovered from last year’s Covid-19 slump, but is still lower than it was before the pandemic, mainly due to a steep decline in non-resident second-home buyers.
1,642 Spanish homes sales in the third quarter of this year involved a British buyer, up 8% compared to last year (chart above showing quarterly sales and annualised change), but down 26% compared to 2019, and 37% compared to 2018, all according to the latest figures from the Spanish Land Registrars’ Association. The British were the second biggest group of foreign buyers, behind the Germans. This is the first time the British have not been number one since records began.
The next chart, showing the annualised change in demand by country, illustrates how feeble British demand was in Q3 compared to almost all other nationalities. Only Norway and Belgium were lower.
As a result of the UK’s declining demand for Spanish property, the UK’s market share of foreign demand fell to 9.9% in Q3, almost the lowest level on record. The next chart illustrates the obvious decline in British market share since its peak just before the Brexit referendum in 2016.
British demand used to be obviously correlated to the strength of Sterling, but the relationship is not so clear any more. The exchange rate has been fairly stable since 2017, whilst British demand has continued declining, even taking into account the impact of the pandemic.
British demand for Spanish property in the first half of 2021
The Spanish Notaries’ Association also publishes data on sales by nationality, in their case on a half-yearly basis, providing a breakdown between resident (Brits living in Spain) and non-resident buyers, illustrated in the chart below. The latter group are primarily buying holiday-homes.
This data shows that resident British demand is holding its ground, down just 2% compared to 2019, and 6% compared to 2018. But non-resident demand has plunged this year, down 47% compared to 2019, and 56% compared to 2018, and even down 5% compared to last year, when the pandemic was at its most disruptive.
The next chart comparing British and German non-resident demand helps illustrate the decline. The Germans are now in front partly because their demand has increased this year, but mainly because of the collapse in British demand. The Germans are still nowhere near the levels of demand reached by the British as recently as 2018.
The notaries also provide data on spending per nationality. The British still buy a lot compared to others, but they spend less than the average, and significantly less on average than the Swedes, Danes, Germans, and Swiss.
Why is British demand for Spanish property declining?
As we have seen, the decline in British demand comes mostly from the non-resident segment. So what is driving the steep decline in British non-resident demand? Brexit is the obvious answer. ‘Real Brexit’ kicked in at the start of the year, with new limitations of the amount of time Britons can spend in the EU, and some extra inconveniences and costs that come with leaving the EU. It was also inevitable that British demand would start to wane one day, and I expect the downward trend in British market share to continue for the foreseeable future.
That said, the British were still the second biggest group of foreign buyers in Spain in Q3, just not as dominant as they have been in the last two decades. So the decline needs to be kept in perspective.
Furthermore, the overall decline disguises important differences between segments within the British market. People with fewer financial resources and smaller budgets are more likely to drop out when the the going gets tough. At the top end of the market agents report that British demand in upmarket locations like Barcelona, Sitges, Ibiza, Javea, Sitges, and Sotogrande is proving resilient. “In Q3 we saw a 39% increase in UK traffic,” says Muna Benthami, Marketing Director at Lucas Fox International Properties. “We have seen the British share of offers made on properties more than double this year, no doubt helped by vaccinations and easing of restrictions. We also see the pandemic’s effect on people’s lives rekindling British demand for the lifestyle Spain has to offer.” And according to Celeste Alonso, head of The Property Agent specialising in high-end homes in Sotogrande, “the luxury end of the market is booming, with a lot of demand from foreign buyers including the British looking for large properties and plots in premium areas across the Costa del Sol.”
MikeK says:
We pulled out of our property purchase in Javea and also withdrew our residency for the following reasons in order of concerns:
1. Taxation issues and fears that UK buyers were vulnerable if the Spanish came after them for tax on property held in the UK.
2. Spanish property tax which is punitive.
3. Spanish attitudes in local govt and ayuntamiento’s to UK citizens due to Brexit.
4. Unregulated estate agency and non compliance with legal requirements e.g. Energy Performance Certification and demands for deposits before important buyers queries were answered resulted in mistrust and lost confidence.
5. Capital locked into a Spanish property due to difficulty selling in a saturated market for similar property.
6. Refurbishment costs and lack of recourse in the face of unregulated trades and poor quality or nefarious tradesmen.
7. Lack of clear and punitive action against squatter gangs that have more rights than property owners.
Hope that gives a UK buyers perspective.
andrewl says:
In addition to your valid points there are now draw backs on having to pay health insurance (which only ever goes up), the Spanish Wealth Tax and the increased bureaucracy of it all. The alternative of having a holiday home with only 90 day access is unpalatable to many, including me – especially if you also want to visit other EU countries during the year.
So I am surprised the demand from Brits has kept up at all. I wait in vane for the Spanish Government to come up with measures (like Portugal had) to make moving to Spain more advantageous. And perhaps a PP led government might consider this in future. But sadly I fear following Brexit, moving / retiring to Spain from UK will just not be the great option it was before.
johnmhughes@btinternet.com says:
It appears that the Spanish still haven’t learned from their past mistakes.
We had a property in the Malaga region some 10 years ago and there were enough problems with buying and selling then.
You have summed up pretty well, why buying a property in Spain, ‘is not for the faint hearted’.
Such a lovely country, but the dream could just as easily turn into a nightmare unless you are we’ll versed in the vagaries of the situation out there.
Well done for seeing through the rhetoric.
Patrick Bailey says:
And don’t forget, if you rent the property as non EU owner you can’t deduct the expenses associated with the property and no depreciation expense. Not sure if this is what you meant about Spanish taxed being punitive. It’s a deal breaker if you plan on renting to cover costs.
cocopops says:
Much the same reasons as above…
Had planned to move to Spain, but economic crash stopped us. Now we would not consider it.
– Punitive tax measures, especially tax on property held in UK (even if not rented out and no income)
– Rental situation – as a non-resident need to fill in 4 tax forms a year even when no income, no tax free allowance, restrictions on rental, impossible to make any kind of profit for the few weeks it could be rented out
– Squatter threat, government seems to give them more rights than owners
– Red tape and bureaucracy in local government, no annual invoice or info sent to UK – has been a nightmare doing end of year tax since my solicitor stopped working
– No communication to UK from official companies and town halls (except Endessa, but that’s another story when they cut off our electric assuming we had no meter as it is not near the gate)
– Money tied up in a property that is not increasing in value and is hard to sell
– Inheritance tax is complicated and penalizes those without close relatives
Spain as a resident may well be a great choice for lifestyle and weather, but if you have assets in other parts of the world it may not be a great option… ironic, as those with money may stay away and invest in more attractive havens!
Chris M says:
Blimey, had this post tagged to read when I got a chance, bit late in the day to respond I know, but jeeze, a lot of negativity there, all understandable, and you’d like to think it would be a wake up call if Spain wants a healthy ‘holiday residential’ property market on its Costas. But it’s probably not likely they are going to wake up anytime soon, particularly on changing the 90 day rule, which I think is the major factor of them all, lots of the other negatives have often been drawbacks in the past – that were overcome by the positives.
This is not a healthy outlook though, am not sure it’s going to get better for a good while.