Why investing in property in Barcelona is profitable

Mortgage rates in the capital of Catalonia have bottomed out, prices of property in Barcelona will grow by at least 7 per cent per annum and demand continues to exceed supply.

According to a survey by PwC, in 2016 Barcelona joined the top 15 European property markets with the best prospects for investment. Experts at Tranio.com have examined the real estate markets in the city and in greater Spain to outline what distinguishes the property market in Catalonia’s capital city.

Apart from a seaside setting, zesty and distinctive cuisine, cultural diversity and a well-developed entertainment industry, there are many objective reasons for Barcelona’s recovery from the 2008 crisis and rise as a promising market for property investment. These factors include the following:

• low interest rates
• the availability of cheap properties with a potential for price growth in the market
• the demand exceeding the supply
• growing tourist flow

Low interest rates

One of the reasons for the attractiveness of the Spanish market in general, and that of Barcelona in particular, is the low interest rates.

The EU mortgage rates are based on Euribor, an interbank offered rate. In March 2016, it reached a negative value, and in June fell to −0.018%, while exceeding 5% during the 2008 crisis.

The Spanish banks provide non-residents with 70% LTV loans at 4% per annum, while for the residents the conditions are even more profitable: they can take out a loan with up to 80% LTV at as little as 1% per annum.

According to the National Institute of Statistics (Instituto Nacional de Estadística), in March 2016 the volume of the loans provided increased by 14.5% year-on-year. The cheap mortgage loans fuel the demand and favour the sales growth. If the trend continues, the transaction volume in Spain will grow and, consequently, the conditions for further increases in residential property prices will appear.

The foremost reason for Barcelona’s market growth is the low mortgage rates. Largely thanks to this factor, the Spanish market in general is recovering, but the Catalonian capital demonstrates more rapid growth rates compared to the national level, being the strongest market and the most developed region of the country. During the crisis, the mortgage lending market froze, but as soon as the Spanish banks resumed providing loans, Spaniards began actively investing in property. In addition, foreign investors — nationals of the UK, the Northern European countries and Russia — started coming back to the market. Clients from China are also investing in Barcelona to obtain a Golden Visa. The profitable euro-dollar exchange rate particularly attracts US citizens to Europe and Spain.

– George Kachmazov, managing partner at Tranio.com

Low prices and growth potential

As of Q1 2016, property prices in Spain are more than 40% lower in comparison with the 2007 peak value. The average square metre price in the country has fallen from €2,862 to €1,628 in a decade. The prices in Barcelona are 25% lower in comparison with the 2007 peak level. This suggests that, having a big growth potential, this market has been much more resistant to the crisis than the Spanish market in general. The prices in the Catalonian capital are already growing and exceeding the 2013 level – the year they bottomed out – by 15%.

Barcelona is one of the most expensive markets in Spain, but in comparison to the other investment-attractive European cities, the property is cheap there: on average, more than twice as cheap as in Munich and Paris, and 3.5 times cheaper than in London.

Property in Barcelona will grow in price more rapidly than in Spain overall. According to Trading Economics’ estimates, the average nationwide prices will remain at roughly the same level through 2017, while according to Servihabitat, they will increase by 3.8%. At the same time, according to the forecasts by Engel & Völkers, during 2016 the residential property prices in Barcelona may grow by 7%, while the analysts from the University of Barcelona predict an average of 18% in the city and 20–25% in certain districts (Les Corts, Sarrià-Sant Gervasi, Ciutat Vella, Eixample).

Property demand exceeding supply

Most transactions in Barcelona involve existing property. In comparison to 2012, when the market hit the bottom and there were 26,000 transactions closed in the province of Barcelona, in 2015 the residential property sales grew by 40% to 37,000 transactions.
Between 2014 and 2015 the sales increased by 19%. At the same time, the sales of newly built residential property are shrinking (-20% in 2014-2015). The main reason is the shortage of supply in the newly built property market.

According to CBRE, Barcelona needs 7,900 newly built properties per annum, while 2,000-3,000 are already constructed. Therefore, the demand for newly built properties exceeds the supply. Furthermore, according to Sociedad de Tasación, a real estate appraisal company, the newly built property supply in Barcelona may exhaust as early as autumn 2017.

Nevertheless, while the number of commissioned properties in the capital of Catalonia is shrinking, the number of started projects is increasing. In 2015, the number of the new properties under construction grew by 87% year-on-year to 1,400. However, there is still a long way to the 2007 record level (4,700 properties).

The volume of construction in Barcelona is more than likely to increase in the years to come. According to Servihabitat.com, in 2016 the number of construction projects started in Spain will grow by 10% to 44,600, and the number of projects completed will grow by 12.5% to 50,800.

Growth in the number of tourists

In 2014, Barcelona came in fourth in Europe after London, Paris and Rome by the number of foreign tourists. This is the only non-capital city making the top five largest tourist markets. According to the National Institute of Statistics, 6.5-7 million tourists visit Barcelona annually, and the number has been growing since 2012. At the same time, according to the Barcelona City Council, 80% of all tourists are foreign nationals, meaning that as little as 20% of inbound tourism originated from other regions in Spain.

Barcelona attracts tourists with a well-developed entertainment infrastructure. It has over 170 museums, almost 17,000 sports venues and multitudinous Blue Flag beaches.
The steady growth in the number of tourists in Barcelona between 2012 and 2015 suggests that the positive trend will continue in the coming years.

Barcelona’s property market development prospects

According to Trading Economics’ estimates, in the near future Spain’s GDP will keep growing, and the unemployment rate will continue shrinking; all the while interest rates will stay at record lows, at least until 2017. The economic situation improvement will favour the property price growth not only in Spain in general, but also in the individual markets, particularly of Barcelona and Madrid.

In 2016–2017, the main trends in the Barcelona property market will be the following:

• residential property price growth: a rise in property prices by 7–18 % per annum can be expected
• demand growth: the mortgage rates are going to remain low; therefore, sales will continue growing
• newly built property shortage: the supply of the newly built property market at present cannot match growing demand, resulting in investor interest shifting to Added Value projects in the future

Overall, Barcelona’s market is beneficial for speculative investments aimed at making money on future price growth.

Yulia Kozhevnikova

Yulia Kozhevnikova is a real estate expert and journalist at Tranio, an online, international overseas property broker. Together with a dedicated team of editors and journalists, Yulia writes daily news, reports and high quality analysis on property investment and overseas real estate.