Good to Know

Is the bubble of high property prices in Spain bursting: is it a bubble and should we expect prices to fall?

Property prices in Spain have risen significantly in recent years, which raises many doubts: whether the market is not inflating a ‘bubble’ similar to the one that was in 2008? Then the collapse led to a serious economic crisis. Now buyers and investors are wondering whether to wait for prices to fall or whether the current growth has a stable basis.

Is there a ‘bubble’ in the Spanish property market?

Rising property prices, especially in popular regions such as Madrid, Barcelona, the Costa del Sol and the Balearic Islands, have raised fears that the market may be overheating. However, there are several reasons to believe that the current price rise is not a bubble as it was 15 years ago.

1- Tighter credit conditions

Unlike the period before the 2008 crisis, when banks in Spain were actively handing out mortgages without strict credit checks, financial institutions are now much more cautious. Spanish banks now require a larger down payment and more carefully assess the risks of borrowers. This reduces the likelihood of a large number of insolvent buyers, which was one of the causes of the crisis in 2008.

2. Real demand for housing

Price growth in key regions of Spain is largely due to real demand. Particularly high interest in property in cities such as Madrid and Barcelona is due to population growth, urbanisation and limited supply of new properties. In addition, foreign investors and citizens of other EU countries continue to actively buy housing in Spain, attracted by the relatively low prices against the background of other European countries.

3. limited supply

In some regions, especially on the coast, the supply of new properties is limited. Construction companies face bureaucratic obstacles that delay the process of obtaining building permits. This creates an imbalance between supply and demand, which naturally keeps prices high. For example, in Barcelona and Mallorca, new construction projects are often delayed or restricted by local authorities, exacerbating the housing shortage.

Will there be a decline in prices?

The question of whether prices will fall in the future depends on several factors. Although some experts are warning of the possibility of a correction in the market, a serious price collapse like the one seen in 2008 is not expected. Here’s why:

1. Inflation and construction costs

The inflation that has gripped Europe in recent years has had a significant impact on the cost of construction materials and labour. The prices of steel, concrete and other materials have increased, driving up the cost of construction. In this environment, it is becoming more difficult for developers to reduce prices for new properties, which supports property price increases in general.

2. foreign demand

Spain continues to attract foreign buyers, particularly from the UK, Germany and France. Investors see Spanish property as a safe haven for their capital. This sustained demand is supporting prices, particularly in regions with strong tourist infrastructure, such as the Costa del Sol, the Balearics and the Canary Islands. This demand is expected to continue, reducing the likelihood of a sharp fall in prices.

3. economic stability

Spain’s economy has shown steady growth in recent years, and unemployment rates have fallen compared to those of a decade ago. This creates a more favourable macroeconomic environment to support housing demand. Unlike in 2008, when the Spanish economy was on the decline, today there is more reason to believe that the property market will not collapse.

Is a price correction possible?

Although a serious collapse in prices is not expected, we can expect a correction in some segments of the market. In cities such as Madrid and Barcelona, where prices have been rising particularly fast, there may be short-term declines due to market saturation or changes in demand. In addition, it is possible that resort property prices may stabilise or even decrease in the event of economic instability in Europe or changes in taxation rules for foreign buyers.

Conclusion

At the moment, the property market in Spain is showing steady growth, supported by real demand, limited supply and a stable economic situation. Although price adjustments in some segments are possible, in general, expect a sharp collapse, similar to the crisis of 2008, should not be expected. ‘A property market bubble, if it exists at all, is much less dangerous today, thanks to tighter credit conditions and steady demand.