Sales of residential real estate to foreigners allowed the Spanish market to maintain high growth dynamics in the second half of 2022 and resist the global trend of slowing, stabilizing and falling of the global real estate sector and the global economy. According to the National Institute of Statistics of Spain (INE), the country's economy barely reached 0.1% growth in the third quarter of last year.
At the same time, the economy, and specifically the real estate market, is affected by the increase in interest rates on lending, including mortgage. The European Central Bank (ECB) remains committed to a policy of raising rates to combat inflation. The last increase at the end of 2022 was 50 basis points. The future should also be 50 points. What will happen next and whether the scale of growth will decrease remains uncertain.
At the beginning of last year, the ECB decided to increase the rate from historical lows to 2.5% in order to make borrowed money expensive and cut off as many consumers as possible from the economy, including and especially those who live beyond their means. According to the ECB's idea, which they borrowed from their North American counterparts, this will lead to a general decline in demand in the economy, a drop in production and a cooling of the entire system along with a drop in inflation.
At the same time, the policy of European financial institutions and the general macroeconomic situation led to the weakening of the euro as a currency and this dramatically increased the attractiveness of local markets for foreign investors and buyers. The process of migration of foreigners began at the end of 2021.
Data collected and published by the Spanish Association of Real Estate Inspectors show that foreign demand for local housing accounted for a share of 16% in the third quarter of 2022. To be more precise, 15.92% and this is a historical maximum for Spain. At the same time, the euro against the dollar, after several months of decline, by September last year reached the lowest in the last two decades.
The ECB nevertheless reacted to the current situation, including slightly changing its monetary policy, which allowed the EU currency to recover 11% of its own value from that moment. However, it is still significantly less than the $1.22 mark, which was reached in 2021.
Foreign demand for Spanish housing, and real estate in general, has been increasing for 6 quarters in a row, both in relative and absolute terms. According to forecasts, the situation should not change dramatically in 2023. At the same time, international demand is the main factor that explains the amazing resistance of the Spanish real estate market to global trends. Foreigners play an important role against the background of the fact that domestic national demand is steadily falling. On the other hand, it is international demand that ultimately leads to a drop in local demand.
As the real estate company Sonneil notes, the growing influence of foreign investment and consumers in the housing construction sector is clearly visible when comparing the indicators of 2022 and 2021. For example, we can take Alicante, which showed an annual increase in housing sales to foreigners by 74% in the third quarter of 2022. In Valencia, the growth was 60%, and in Malaga — 51%.
Sylvain Breuer, chief economist at S&P Global Ratings for the EMEA region, points out in the report "European Housing Prices: A Sticky, Gradual Decline" that residential property prices are falling in most countries of the region and will continue to decline in 2023-24. At the same time, experts do not see prospects for a strong recovery in 2025, so there is no need to talk about a «rebound» yet. The rating agency expects that housing in Spain will fall in price by an average of 2.5% in 2023, by 1% in 2024 and will rise in price by 1.5% in 2025.