Spanish property market facing challenges in 2016

Although demand for Spanish property has increased recently due to improved mortgage rates and low real estate prices, the Spanish real estate market is under threat in 2016 from Brexit, currency turmoil and new Andalusian holiday let laws.

A recent survey reports strong expat demand for Spanish property originating mostly from the UK, Germany and Scandinavia, along with market activity from other northerly countries. However, as Brexit approaches, there’s increased nervousness about the outcome, with fears of the UK leaving the EU causing reluctance to complete purchases.

Tied up with Brexit fears are concerns over currency rates, also influenced by the possible outcome of the referendum on June 23. At the present time, the fall in sterling to around €1.2 has meant an increase in real-time costs for would-be buyers, and the rate is expected to decline further during the remainder of 2016. .

Another reason for hesitation as regards purchasing property in Spain is that, should Brexit succeed, real estate prices would be slashed to an all-time low. A glut on the expat homes market caused by the loss of EU citizenship and several years of uncertainty as to the status of British residents in Spain would force prices still lower, decreasing short-term capital gains on a purchase.

The possibility of a left-wing government being elected is also encouraging decisions amongst the expat community as regards returning home. On another front, new tourism rental laws about to come into effect in Andalusia may discourage those wishing to purchase holiday cottages for letting purposes. The new rules involve tax liabilities on money earned by letting to holidaymakers during the summer season, and will involve compulsory registration of all expat properties.

Another reality likely to affect Spain’s retail property market is Spanish banks’ write-down policies. Banks in Spain still own properties repossessed during the 2008 financial crash, and have to make annual valuation updates of every individual asset including properties. Major banks are now writing down their portfolios by billions of euros, and it’s feared that private banks may soon follow, affecting their ability to offer mortgages as well as depressing the market still further.

Set against the uncertainties are the new developments taking place in popular tourist areas, especially those in prime locations along the Mediterranean coastline. New construction often indicates confidence in the future, even if that future is some years away. Whatever the remainder of 2016 brings, Spain’s popularity as an expat and holidaymaker destination is certain to continue.

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