JOURNAL What’s going on in Spain’s luxury real estate market?

Expert Daniel Favarin shares his insights about what you need to know in Spain’s luxury real estate market for the year ahead and where to invest.


What’s going on in Spain’s luxury real estate market?

Expert Daniel Favarin shares his insights about what you need to know in Spain’s luxury real estate market for the year ahead and where to invest.

What’s going on in Spain’s luxury real-estate market? Over the past 6 months, Catalan cries for independence, Airbnb crack-downs and rising prices have tempered the aggressive surge in demand for luxury real estate in Barcelona. But with global investment funds snapping up the lion’s share of Spain’s bad property-related debt (48.2 billion of it by November 2017) fuelling interest in the commercial sector, there’s still a long way for this market to go.

So what’s next? We talk to Spanish Property expert Daniel Favarin, a former lawyer from Brazil who trained as a diplomat before moving to Barcelona. These days he focuses his sharp mind on advising clients how to skate ahead of market trends, where to explore new terrain and the vital inside intel you need when looking to buy luxury real estate in Spain.

What are the key factors contributing to Spain’s property upsurge?

The recovery in Spain’s property market started 6 years ago in 2012, when the banks began financing again, offering mortgages in Spain to select people. Spain was always been a strong destination for investment, especially from high-income level countries like England, France and Germany, where people are always on the hunt for coastal property for sale to escape the colder winters. This has been boosted by really low mortgage rates over the past couple of years. Interest rates are now at 2.4% and loan-to-value mortgages in Spain available up to 70-80% of the property, so a whole new demographic of people now have access to buy apartments in Barcelona again.

How is this supported by the economy?

Yields are not really increasing, or salaries for that matter, but generally the economy is going very well. GDP is at 3.6% and unemployment is decreasing. This is part due to the dynamism of the economic activity, with Spain expanding into new service related sectors in Madrid and Barcelona, and Barcelona becoming an attractive hub for tech startups and entrepreneurs. Tourism and hospitality has always underpinned the economy in many places, but this is increasing in sophistication and demand in places like the Balearics, Valencia and the Costa Brava and this is translating into the luxury real estate market.

In reality, what impact does the transferral of bad-debt from Spanish banks to US investors mean for the market?

The capacity of the financial system to reorganise itself is crucial for the recovery of the Spanish economy. If it wasn’t for the American banks and companies picking up this debt, the Spanish banks wouldn’t been able to revitalise and start offering loans for buying property again as fast as they did, so this has really helped Spain’s recovery. On a social level, it’s been a delicate process. Each bank works differently when it comes to securing the assets. Some banks didn’t do it very well, confiscating buildings and evicting people, so there has been a lot of people complaining about it. It’s a process that needs to be done in a humanitarian way, balancing what’s good for the banks with what is right for people.

How has Catalan’s recent separatist movement and demos influenced the luxury real estate market?

Sales for luxury real estate in Cataluña have slowed since September and October due to the politics. Foreign investors are cautious about the region. Many people who wanted to buy are now waiting to see how the situation evolves. If you consider Barcelona’s luxury real estate market, such as penthouses for sale, 30-40% of total transactions are done by foreigners. We’ve seen a reflection with prices dropping in the prime market which has also been felt in the Barcelona rental market. For example, prices to rent property in the Gothic Quarter of Barcelona are stabilising. I was offered a beautiful two bedroom apartment in Gracia at a decent discount because it had been empty for a few months. This is a phase though. You need to consider Barcelona’s property as two markets: the short-term and the long-term. Airbnb isn’t primarily responsible for the prices rising, demand is. Due to the city’s geography, hemmed in by the beach and mountains, there is very little space for new-build luxury real estate in Barcelona. New students and new companies keep arriving, and so the demand and prices increase.

So what’s your advice?

We are shifting our attention and looking to other regions, such as Valencia, where we are already underway with a new project. Valencia is similar to Barcelona, but about half the size, with better beaches and very good restaurants and bars. The city itself is beautiful and has received a lot of investment in the past years. Prices for luxury real estate in Valencia are 30-40% lower than Barcelona and there’s a lot of space to grow. You can rent villas in Valencia close to the beach for a fraction of what they would be in Barcelona, and there are a selection of really interesting coastal property for sale.

Where else would you advise investors to explore?

The Balearics, especially Palma de Mallorca and Ibiza, are world-renowned islands. Prices for coastal property for sale is high, but the market is very stable, demand continues to rise and the rental potential within luxury real estate is strong. Over the summer season, the competition to rent the best villas in Ibiza and Mallorca is so hot, it’s almost a joke.

Where would be your top 3 areas to invest in Spain right now?

It would be Mallorca, which still has a huge potential to grow, Valencia and then Madrid, which represents a low risk, safe investment. Prices are set to rise 10.8% there over the coming year. If you are talking luxury real estate in specific neighbourhoods, in Barcelona Gracia would be my pick: it’s the new centre and very trendy. If you are looking for a strong long-term investment, say 5-10 years, then I would explore Barcelona apartments in Poble Nou.

Do you have any insider tips on how to navigate and succeed in a booming market like Barcelona?

Spain’s luxury real estate market shifts a lot because of the tourism, so it’s really important to be aware of what the tourists are looking for, what the travel trends are and the innovations in luxury real estate on the Balearic islands or the coasts. I also watch the movement of people and companies. For example, in Barcelona you have @22 that is attracting a lot of companies. Poble Nou is attracting tech companies, the start-ups hire a lot of locals, this attracts people and neighbourhoods grow fast. It’s also very important to be aware of the politics, especially with Cataluña where things change very fast – this kind of up-to-the-minute local intelligence is what we offer.

As a Brazilian who knows a thing or two about the good life, what do you love about life in Barcelona? What is it like for expats to live there?

Spain is quite similar to Brazil, the weather is great, people are very open and there’s a strong beach culture. People spend a lot of time outdoors, laughing, creating new things. There’s lots of music, exhibitions and street parades, people are open and international so it’s easy to connect. Even the Catalans aren’t as closed as you might believe. I’ve made lots of Catalan friends and they are actually really receptive to new people.

Top 3 places to spend time in the Barcelona?

Top of the list is Palau de la Musique, a great place for classical concerts with really good artists and very low prices, like 10 euros a ticket. I love this place. I’m an outdoors person, so I love to go to the Montjuic mountains, to run or have a picnic and see the city from above, its a great place to spend the afternoon. In the evenings, check out Ajo Blanco in Diagonal, it’s a very local bar with great music for tapas and drinks.

Before I let you go, let’s talk numbers. What can we expect for prices in the coming years?

Real estate prices in 2018 are expected to rise for the fifth consecutive year, at a predicted 6.1%. The Madrid region should lead price rises with an expected increase of 10.8%, whereas the average property prices ended 2017 at 9% more than in 2016.