Home purchases by foreigners in Spain have leapt onto the political and media agenda in recent weeks. The boom in transactions being led by foreigners to record levels, coupled with high house prices and the electoral calendar, have prompted a flurry of proposals to limit this type of transaction in Spain.
Beyond the changes that the Government may apply in the granting of the 'Golden Visa' for foreigners who buy homes worth more than 500,000 euros, in recent weeks there have been initiatives that seek to limit the direct acquisition of property by non-residents under the hypothesis that behind these transactions there is a speculative component and that they provoke a rise in housing prices.
Left-wing parties such as Unidas Podemos and Más País have announced that, in those places where they govern after the regional and municipal elections on 28M, they will take measures to curb this type of purchase, above all in areas where there is price tension. However, official figures show a very different reality: non-resident foreigners have a significant presence in some Mediterranean provinces, such as Alicante and Malaga, but a very residual presence in Madrid and Barcelona, the two largest residential markets in the country.
Moreover, according to real estate agencies and consultants, the priority objective in most cases is to buy a home to enjoy it. And they point out that non-residents tend to buy properties that are not within the reach of the vast majority of families, so they do not detract from the middle class, limiting their impact to the prime residential market. In fact, the average price paid by non-residents has broken records and is more than 1,000 euros/m2 higher than the average price paid by national buyers.
According to data from the Ministry of Transport, Mobility and Urban Agenda (Mitma), throughout 2022, non-resident foreigners bought 63,050 homes in Spain out of the 717,558 total transactions recorded. In other words, they accounted for 8.78% of the total.
Only 15 provinces registered more than 700 acquisitions during the whole of last year. These are the Mediterranean provinces (Girona, Barcelona, Tarragona, Castellón, Valencia, Alicante, Murcia, Almería, Málaga and Cádiz), those located on the islands (Balearic Islands, Las Palmas and Santa Cruz de Tenerife), Madrid and Granada.
The weight of non-residents in house purchases in Spain
But if we look at how much non-residents represent with respect to the total number of sales and purchases in each province, we discover that there are big differences between some provinces such as Alicante, Malaga and the Balearic Islands, where they accounted for more than a quarter of total transactions in 2022, and others such as Madrid and Barcelona, where they accounted for less than 2%.
The statistics handled by idealista/data also place the coastal provinces at the head of the foreign demand for buying a property in Spain. Last March, for example, at least 20% of property searches on idealista that came from abroad were concentrated in provinces such as Alicante, Santa Cruz de Tenerife, the Balearic Islands, Girona, Malaga, Las Palmas and Almeria, compared to 12% in Barcelona and 5.5% in Madrid. The average in Spain is 10.6%.
The paradigmatic case of Madrid: political focus and residual weight
Madrid is the province with the lowest proportion of sales and purchases by foreigners of the 15 provinces analysed and one of those with the lowest volume of transactions: just 743 homes throughout 2022, only above Cadiz (733) and Granada (729), according to Mitma data. However, the Podemos party has insisted in recent days that "you can come to Madrid to live and work, but not to speculate", placing the focus directly on non-resident foreigners who buy homes
Which foreigners buy houses in Madrid
As Bruno Rabassa, CEO of the luxury real estate company Berkshire Hathaway HomeServices Spain, explains to idealista/news, "Madrid concentrates a specific foreign buyer profile: while European buyers (mostly from the United Kingdom, Germany, France and Belgium) are more inclined towards the Balearic Islands, Valencia, Alicante and Malaga, Madrid attracts mainly citizens from Chile, Colombia, Mexico, Peru and Venezuela".
In the transactions they broker, two customer profiles stand out: "on the one hand, families looking for a property to own in the centre of Madrid that allows them either to live there permanently or to enjoy the lifestyle it offers sporadically (in the latter case, when they are not occupying the property, they want to make a profit from it to help pay the costs of maintenance or, where applicable, the mortgage). And, on the other hand, there are investors who are directly looking for the profitability of the property and who buy through companies or 'Family Offices', and who sometimes want to enter the real estate market with a local partner".
In the case of the Engel & Völkers agency, also specialised in the high-end segment, foreigners (including residents and non-residents) account for 23% of the purchase transactions. The most relevant nationalities are Mexican, American and French, although it is detecting a growing interest from Colombian buyers. In addition to all of them, there are also clients coming from other countries such as Argentina.
Why foreigners buy homes in Madrid
As for the reasons that lead foreigners to buy a house in Madrid, the opinion of the experts consulted is the same: far from speculation, they are looking to enjoy the property, the climate, the affordable price of properties compared to other large European cities and even the euro/dollar exchange rate.
"Many are motivated by situations of political, legal and economic uncertainty in their countries of origin, and find Spain to be a more stable place for their investments. In addition, those who have the US dollar as their currency find the Spanish luxury housing sector a favourable investment, as they can currently acquire them with currency discounts of up to 15%, given the advantageous condition of the exchange rate with the euro since last year. In fact, in recent months we have seen how those who had bought their first home in Madrid have decided to buy a second home on the Mediterranean coast," says the CEO of Berkshire Hathaway HomeServices Spain.
His experience coincides with that of the head of Engel & Völkers in Madrid, Sonia Catalán, who affirms that what her clients most demand is a second home or a permanent residence. In other words, they are homes for their own use, not so much for investment. "Many buy a property because their children come to study or work, or because of a job transfer. The truth is that it makes no sense to buy a property of 1.5 million euros to invest, because you get more profitability with three of half a million," he insists
Barend Hart, director of the luxury real estate agency Lucas Fox in Pozuelo, also puts other profiles on the table: foreigners starting a business or relocating from another country, senior company executives and retirees looking to enjoy their retirement.
"50% of our foreign buyers are Latin Americans who generally move to Spain for socio-economic and political reasons, looking for a more secure and economically stable environment. They are generally high net worth buyers who tend to start new businesses here in Madrid and/or relocate existing businesses to Europe. 30% of our buyers are Northern Europeans, including the UK, who are typically CEOs/CFOs of global companies or business owners who are expanding their activities in Spain. From the UK, we have some bankers who were forced to relocate to Europe due to Brexit. Ten per cent are Americans, many of them in semi-retirement and looking for a lifestyle change; and another 10 per cent are Chinese, all of them business owners.
Unattainable prices for the middle class
As to whether the purchase of homes in Madrid by foreigners boosts prices in the market, which are already high, the position of the experts consulted is clear and direct: the homes involved in these transactions are not within the reach of the middle class and, therefore, do not reduce the supply for the vast majority of families. It is, in short, a different market.
Gonzalo Robles, CEO of the real estate company Uxban, insists that foreigners "are usually looking for properties of 150 m2 or more and in very specific locations in the centre such as Salamanca, Jerónimos, Almagro and Justicia or in urbanisations such as La Moraleja". He adds that "both in this segment and in the market in general, the increase in prices is due to a very marked shortage of supply". These locations are in some of the neighbourhoods with the highest per capita incomes in the country and the most expensive prices in Spain per square metre to buy a property.
Lucas Fox also stresses that "proximity to international schools and safe urbanisations are the main drivers when choosing a location", which is why municipalities such as Pozuelo and Boadilla are also in demand, "which are known for offering an outdoor lifestyle, excellent schools and an easy commute between the suburbs and Madrid. They are mainly looking for detached villas in gated communities, but no more than 20 minutes from the centre of Madrid. Recently, there is also a great demand for newly built homes because they are more energy efficient.
Engel & Völkers, for their part, explain that their clients tend to look for classic properties that have been refurbished and are ready to move into. And that the Salamanca and Centro districts of the capital are where most international interest is concentrated, although there is also demand in Chamberí, Chamartín, Retiro and Tetuán. As for prices, their operations tend to range between 700,000 euros and 1.5 million euros, with an average of 900,000 euros per property.
In the case of Lucas Fox, the average prices range from 1.75 to 2.5 million euros, although in some cases they intermediate in property sales of up to 10 million euros. Therefore, insists the director of the agency in Pozuelo, "our clients acquire quite exclusive properties that are beyond the reach of most national buyers".
According to data from the General Council of Notaries, the average price per m2 of homes bought by non-residents throughout Spain in the second half of last year was 2,559 euros, the highest in the historical series, and more than 1,000 euros/m2 higher than the average for national buyers (1,553 euros/m2).
In the case of Madrid, the most sought-after properties are those between 600,000 and one million euros, accounting for 17% of the foreign demand registered in March, as reflected in idealista/data. On the other hand, in Alicante, the province that leads both the volume of transactions by non-residents and their weight in the total, 48% of the demand is focused on properties of up to 150,000 euros, while in Valencia it reaches 51%. It is also significant that in Barcelona the same is true as in Madrid: the main search is for homes between 600,000 and one million euros (more than 11% of the total). And in the Balearic Islands, a quarter of the demand is focused on properties from 600,000 euros to two million euros (24.6%).
"We should not penalise these investments"
Berkshire also criticises recent political proposals and assures that "the arguments being put forward to limit investment by foreigners are, almost entirely, fallacious. Instead of tackling the structural problems of the housing sector in our country, which are the cause of phenomena such as rising prices, not only in stressed areas, cosmetic measures are being put forward, whose main objective is to have an effect in an electoral context".
For Luis Corral, CEO of Foro Consultores Inmobiliarios, it may no longer be necessary to encourage investment in Spain as it was during the economic crisis, although he warns that "what is clear is that we should not penalise these investments either".
Corral reminds us that foreigners tend to buy quality properties, as prime market assets are more liquid and deteriorate less, and that in many cases the direct purchase of a home is accompanied by other investments that in many cases go beyond the real estate business and end up generating wealth and economic activity.