Understanding Spain’s real estate landscape: insights from Homevest and Hoteland

One cannot purchase a property in Spain without wondering whether prices will increase by the end of the year, or if new regulations have emerged in the market.  Will these factors affect foreigners wishing to invest in the Iberian Peninsula? In light of the partnership between Homevest and Hoteland, two significant players aiming to simplify the home-buying experience for non-residents and foreigners in Spain, we spoke with Nicholas Vinberg (Homevest’s International Expansion Manager) and Iván Bellod (Lawyer and Managing Director at Hoteland) about the challenges and opportunities facing those interested in buying property in Spain. 

There are many aspects to consider when someone wants to buy a property in Spain with a mortgage, from researching properties to finding the right bank if they choose to extend their property budget. What might be overlooked in this process?

Nicholas: The first hurdle for international buyers is usually understanding if they are eligible for a mortgage in Spain, how much they can buy, and with what loan terms. We strive to mitigate these worries from the start. Our priority is to help the customer select their favorite offer and bank. After that, we focus on managing the process. We continue to assist the customer until they complete the purchase and sign the mortgage deed.

One particular thing in the purchase process that might differ from your local market, if you rely on mortgage financing, is that banks have a specific requirement. They always require an independent appraisal of the property you buy. Even without applying for a mortgage and the definite need to evaluate the property, it is recommended that you appraise the house. Doing so ensures that no unwanted surprises arise after completing the purchase. The appraisal can be commissioned online or with the bank of your choosing and costs between 500-2,000 EUR, depending on the property’s value.

How do you think property prices will evolve by the end of the year? Do you have any predictions?

Iván: Over the past decade, big financial groups like pension and investment funds have been searching for yield due to the low-interest rates in the financial markets. This practice has led investors to look at the real estate market, a riskier market with higher yields.

But now, things are changing (see Figure 1). Interest rates are going up, which makes government bonds more attractive and real estate less so.

This change in interest rates means it's harder to get loans and mortgages, slowing down the real estate market not just in Europe, but also in the US. This seems to be the beginning of a new phase.

At the same time, we see that this change of cycle is only caused by the reduction of these institutional investors (all colors except red), thus creating a regionally heterogeneous financial vulnerability directly proportional to the degree of dependence on these investors. Figure 2 clarifies which regions are most susceptible to this vulnerability.

In this case, Spain falls into the low vulnerability group, where studies show a strong, positive relationship between wages and prices (Figure 2 b).

In our current context, we can say that the risk of housing price declines due to a cycle change is much lower in Spain than in Northern Europe. From this point on, predictions in such uncertainty are complicated. Still, we can draw a couple of conclusions that can provide some guidance: 

1. Spain's real estate market is less financially vulnerable than Northern Europe's, allowing for growth like recent years. With Europe's lowest inflation (2.3%), salaries can grow without fear of secondary effects, positively impacting house prices.
2. If a cycle change in the North lowers house prices, it could fix inflation problems, bring real interest rates near 0, and benefit countries with low financial vulnerability.
3. Upcoming monetary policies will be key to preventing a financial crisis that could cause a massive sell-off and depress house prices.

Foreigners are not as affected by the prices in Spain, and the numbers are increasing year by year. This makes life difficult for locals as prices are implicitly rising for both sales and rentals. How do you think this issue can be addressed? What solutions can be implemented to support the residents as well?

Iván: The problem of rising prices is not only due to the phenomenon of gentrification, it is essentially a problem of supply and demand. 

In Spain, large cities face a problem of supply, both rental housing and properties for sale are scarce on the market, yet demand has been increasing over the years. 

It is, therefore, a problem with a very simple solution, to facilitate the construction of new housing, but always in an economically and environmentally sustainable way. 

The construction model should be changed, opting for more densely populated cities (Spain is among the countries with the lowest population density). Solving the problem with a greater public investment that invests in infrastructure that allows for more sustainable cities.

How are government regulations and policies affecting the property market in Spain? Are there any new laws that influence property prices?

Iván: A few months ago, a housing law was passed which, above all, in its main points, modified the conditions that could be established in rentals. 

At Hoteland Group we believe that this law will only favor and accentuate the supply problem that has existed for years and that we have mentioned in the previous section, driving up the prices of rents and properties. This could have the opposite effect to what the law was intended to do, which was to protect tenants. It may do nothing but benefit investors by driving up prices further.

What are the Spanish property market's emerging investment opportunities for locals and foreigners? Are there specific regions or property types that are particularly promising?

Iván: Analysing the market, we observed that in the last 2 years, investments have focused a lot on acquiring hotel properties. This is a sector that in 2022 moved more than 3,000 million, experiencing a growth of almost 10% over the previous year. 

The Balearic Islands lead the market with 913 million in 33 transactions, making them the leader in sales volume in the fastest-growing real estate market.

The extreme weather conditions in Spain, such as the recent heatwave in Valencia, highlight the importance of sustainable design and construction. How is Hoteland responding to these challenges? Are there opportunities to expand or innovate in green or sustainable properties, or do you anticipate a shift in buyer interest toward other markets over time?

Iván: This is the focus of one of our main future projects. The need for a change in architectural vision in Spain is something we have already expressed. We believe that when that change starts to happen, those who have seen it coming will be able to take advantage of the opportunity.

Hoteland Group knows this, which is why we are preparing an investment product that involves some of the most popular practices within the real estate investment world to generate positive synergies that will allow everyone to come out as a winner.

The interest from foreigners in buying in Spain is strong, and it continues to grow more and more each year

How has the interest in Spanish properties among foreigners evolved over the years?

Nicholas: From just above 60,000 properties being bought by foreigners in 2021, the number of transactions increased to 94,000 in 2022. This is 14.6% of all properties sold in Spain during that year. We expect the number of foreign buyers compared to locals to increase even more in 2023. However, total transaction volumes will likely be lower due to the increased interest rates imposed by the European Central Bank (ECB).

Britons and Germans remain the largest group of foreign buyers in Spain with about 10% of the purchases each (around 10,000 purchases per nationality in 2022). Holiday home buyers from countries like Sweden, Poland, and Romania are increasingly more eager to get their hands on Spanish properties as well. As an example, Polish citizens bought 3,000 properties in Spain during the year of 2022. That is a 160% increase from the year prior.

Is there evidence of a growing trend among Spaniards living abroad to purchase property in Spain? What does this mean for the property market, and are there any specific challenges or opportunities?

Nicholas: From our experience at Homevest the demand is strong. Many Spanish citizens that have moved to the UK, Germany, France or other countries across the globe to gain work experience are fond of buying a home back home. Roughly speaking half of Homevest clients buying property in Spain are at least Spanish speakers.

The key challenge working with these cases is that Spanish expats expect the Spanish mortgage market to be much more preferable given their heritage. However, banks tend to assess all non-resident applicants, be it foreigners or Spaniards, in the same way, and offer the same financing alternatives. 

Homevest is continuously pushing the envelope with our Spanish bank partners to get expat applicants better loan terms. The most tangible benefit offered by one of our closest lending partners is the chance for Spanish expats moving back to Spain to only need 20% as a deposit. This is a special offer for those returning to live in Spain. In contrast, foreign buyers buying property in Spain are required to pay a minimum of 30% as a deposit.

How did the past three years change the way you look at mortgages in general? What does the future hold for cross-border mortgages?

Nicholas: The time of close-to-zero interest rate is definitely gone for the closely foreseeable future. Especially the last two years, 2022-2023, have been turbulent for mortgages with the ECB hiking reference rates from 0% to 4.25%.

It’s not all bad news though since higher interest rates usually equal a decrease in property prices. From the point of view of international buyers this can also present exciting opportunities where cheaper financing alternatives can be found away from the local market, for instance Spain where the lender interest rate spreads remain low, at around 1%.

How can the home-buying experience for a customer be improved if they choose to use your service?

Nicholas: Usually, when going through a traditional mortgage broker, customers pay up to 5,000 EUR in direct commissions, on-top of all bank related mortgage expenses. The Homevest platform and adjacent services are fee-free, and we earn a success fee from the bank with which the client signs the mortgage.

We have the expertise to match you with banks that suit your needs, expedite the comparison and appraisal process, and schedule signings. With access to top non-resident banks on one platform, you upload documents once and receive multiple offers, enhancing your chances of finding the best mortgage for you.

With the Hoteland partnership, we can now indirectly offer customers with more advanced questions in international taxation and real estate law to request the services from like-minded, customer-centric lawyers in Spain.

How does your multicultural team distinguish itself from competitors? Beyond the obvious advantage of speaking multiple languages and serving customers from a wider range of countries.

Nicholas: Language skills are essential, there’s no way around it. Helping customers all across the planet, from Australia to Germany, requires specialized processes. It’s essential that we have the ability to deal with documents in different languages. This ensures that we can serve customers to our best capabilities in the language of their choosing. 

The less obvious benefit is diversity in thinking. This has shaped the Homevest platform and services to be more inclusive and suitable for customers with different backgrounds.

How does partnering with Hoteland simplify the home-buying experience for a foreigner who wants to buy a property in Spain?

Nicholas: We aim to centralize everything related to the customer journey into the Homevest platform. From uploading documents, applying, and receiving offers from banks and beyond. In its current state many parts of the journey, especially Hoteland’s participation as legal advisors, are handled through traditional methods and individually with each client.

There are still many areas to push for digitization, while maintaining frequent touchpoints and individual services to each client. But we are working on it. We are proud to state that Homevest is the most digitally friendly way to apply for a mortgage across country borders.

Homevest has partnered with Hoteland, a Spanish law firm with expertise in real estate and international law, to expand the platform’s offerings to include legal services, as well as assistance with Spanish mortgages.