The return on investment in residential real estate has changed dramatically over the past 10 years, going through various scenarios. In particular, the market experienced falls and structural changes during the COVID-19 pandemic, which has now been replaced by global economic and geopolitical threats.
Against the backdrop of the latter, some cities in the coastal regions of Spain have gained particular popularity due to high profitability.
An example is the city of Gandia in the province of Valencia. This is the most profitable city in Spain. It is located on the seacoast and the return on investment reaches 11.5% as of the end of June 2022. This is 6.2 points higher than a decade ago.
Let's turn to the report of the real estate portal Fotocasa, "Profitability in coastal municipalities for the summer of 2022".
According to the data for the middle of this year, set out in the report, the yield of residential real estate in Spain as a whole is 6.9%. In the province of Cadiz, which is located in the autonomous community of Andalusia, there are 3 cities at once that occupy a leading position in the list of the most profitable coastal municipalities in the country. These are the municipalities of La Linea de la Concepción, Algeciras and El Puerto de Santa Maria.
The first two are already in the "Top 10" of most profitable cities in Spain. The first provides a profitability of 8%, and the second of 7.8%. El Puerto de Santa Maria ranks 11th in the list, but it already provides a yield of 7.3% right now.
Over the past 10 years, European monetary policy has led to a significant decline in the profitability of fixed-term bank deposits. Thus, the average interest rate on deposits fell from 2.74% to 0.05%, based on data from the Bank of Spain for September 2021. For many minor investors, this was a signal to start looking for other assets with a noticeable and stable income. This has become real estate, especially properties in popular tourist areas, such as the coastal regions of Spain.
Investors’ calculations are quite reasonable. If you look at the Top 10 cities with the most favorable conditions, excluding those already mentioned above, then 7 more districts stand out: Santa Pola (10.2%), Vera (9.4%), Sagunto (9.0%), Cartagena (8 .2%), Roquetas de Mar (8.0%), Huelva (7.9%) and Badalona (7.4%). The eponymous capital of Cadiz also deserves attention. Although the city ranks 35th in the national rankings, in real terms, investors can still expect a 5.3% return. This is 0.8% higher than a decade ago.
Speaking of market trends in general, over the last 10 years the growth of coastal investment returns has generally been exponential. This movement was provided by the growth of rental rates for most categories of housing. In recent years, during and after the pandemic, Spain's traditionally popular Mediterranean coast has gained a second wind, starting a new round of rapid growth. And it is worth noting that we are talking about the growth of profitability of all types of real estate and monetization methods: from short-term lease to long-term purchase on the Buy and Hold principle.
The housing market in the most profitable coastal cities in Spain
In the face of economic and geopolitical uncertainty, real estate is always perceived by investors as a safe haven asset. This image of real estate remains true today for a large number of both Spanish and foreign savers. This year, in particular, investors are piling up their savings in housing, trying to outpace rising inflation and interest rates on loans.
Compared to other investment assets available on the market today, residential real estate is the most stable and profitable source of income. And Spain, at least within the Eurozone, is one of the most popular and profitable markets in this regard.
Maria Matos, director of research and spokesperson for Fotocasa, also points out that the list of coastal cities with rapidly growing return on investment is steadily expanding every month.
The least profitable coastal cities in the country
At the other end of the range, we have several municipalities where the average profitability has fallen below 5%. This list includes: San Sebastian (3.5%), Rincón de la Victoria (4.1%), Getxo (4.2%), Palma de Mallorca (4.5%), Vigo (4.6%), Sitges (4.7%), Orihuela (4.7%) and Bilbao (4.7%).