In 2021, house prices rose throughout Spain as the country experienced its busiest year for real estate since 2008. Andalucia was no exception and the market saw high levels of activity. For example, sales rose by 43.1% in tandem with an increase of 8.1% in prices. And analysts predict similar trends during 2022.
Buy-to-let investment is an increasingly popular option for Spanish real estate since it’s perceived as a haven for capital, particularly in areas such as Madrid, Barcelona and Malaga. However, since rental returns don’t rise exponentially with house prices, the current situation presents a dilemma for would-be buy-to-let investors. With this in mind, we look at investing in Andalucia when property values stay on the up.
Looking for detailed local information on the western Costa del Sol? Check out our Costa del Sol area guides covering every corner.
First, the facts
Before undertaking any buy-to-let investment, it’s wise to do your homework to gain valuable market insight.
Rental returns in Andalucia
According to research by pisos.com and Euroval, returns on investment (ROI) in Andalucia provided a gross of 6.12% in 2021. The figure is slightly below the national average of 6.38%.
The medians hide wide variations, as you might expect, and in Andalucia, Huelva real estate provided the highest returns (7.66%) and Cadiz, the lowest (4.63%). Returns also depend on the type of property and research shows that new builds bring in 4% while resale properties 5.9%.
The conclusion? Buy-to-lets in Andalucia are likely to be higher from resale properties.
Rental hotspots in Andalucia
Euroval finds that 19.5% of all rentals in Spain are located in Andalucia, almost a fifth of the total. Of these, Malaga province takes the lion’s share with 8.3%. Seville lies in second place but with a much lower percentage (3.7%).
The conclusion? Local focus is essential when anticipating returns.
Highest rentals in Spain
A recent survey by Idealista revealed that Andalucia takes the top three places for the most expensive rentals in Spain. The trio are all on the Costa del Sol and led by Benahavis (the average asking rental was €2,709 a month), followed by Marbella (€2,130 a month) and Sotogrande (€2,119 a month).
The Costa del Sol also had two other locations in the top ten. Estepona stood in ninth place with an average monthly rent of €1,465 and Alhaurín de la Torre took tenth position with an average of €1,347.
The conclusion? Rental hikes mirror property prices since Benahavis was also the most expensive place in Spain to buy property while Marbella, Sotogrande and Estepona were the 4th, 5th and 14th, respectively.
Now the Maths
Analysts generally agree that investing is most challenging during the upward part of the property cycle, i.e. when prices are rising. Although it might seem contradictory, this is because you can’t necessarily charge a higher rate for a rental just because you paid more to buy it.
And the reason lies in your prospective tenants who can only afford rents on a par with their income and salaries aren’t keeping up with house prices. For example, in Andalucia, the latest available data shows that the average income in 2020 was around €1,837 a month, up 3.6% on 2019, a percentage well below the rise in house prices (8.1%).
Find out how to calculate the ROI on your Spanish property investment.
How to invest in Andalucia in the current market
So, having established that local focus is essential when researching a rental market and that a more expensive property wouldn’t necessarily increase your returns, what should you look for on the property market?
Ascertain local rents
As with all investments, the key to successful returns from buy-to-let lies in researching the local rental market. Check out online portals and look at the range of monthly rates. There’ll probably be a wide variety, perhaps with hundreds of euros difference. However, you will find an average.
For example, in February in Sotogrande, the average asking rents were €9 per square metre a month. However, in the specific location of Sotogrande Marina, this average rose to €9.80. As a result, most 2-bedroom properties on the market cost €1,300 a month although the highest rents stood at over €6,000 and even as high as €10,000.
Once you have a rough market average, make it your target rent and stick to it. This strategy will ensure your risk levels stay low even when house prices rise.
Find your property
Once you know your target rental range, you need to calculate the property’s price that will give you this ROI in your chosen area. Then, when you have your budget, you can start your search.
Don’t be tempted by any real estate that costs considerably more than your budget because your returns are likely to be low. And don’t be taken in by a seller who tells you that it’s easy to find tenants willing to pay above the local average.
Look at a refurb
If you have the stomach for renovation or know a reliable project manager who can oversee the work for you, it’s worth looking at properties that need major refurbishment. If you buy at the lower end of the market and upgrade the property to match the standards required at the higher end of the rent range, your ROI will be the highest of all.
Research sources:
Euroval report
https://euroval.com/la-rentabilidad-de-la-vivienda-en-alquiler-en-andalucia/
INE salaries in 2020 https://www.ine.es/prensa/epa_2020_d.pdf
