Spanish House Prices Rise – And Foreign Buyers in Spain Face Regulations That Give With One Hand, Take With the Other
House prices in Spain are rising again. In the second quarter of this year, prices in the country, one of the worst affected by the financial crash of 2008, have risen for the first time in six years, according to the Instituto Nacional de Aestidiscica (INE).
The annual variation in the property price index (IPV) increased more than two points in the second quarter of 2014, rising to 0.8%, the first positive rise since 2008. The price indicator of new houses showed an increase of 1.9%, three points higher than the first quarter of this year and the first positive increase since the last quarter of 2008.
These positive indicators have provoked analysis out of all proportion to the tiny 0.8% rise in prices, exactly because it is a rise. What it isn’t is a sustained long-term growth in a housing market powered by a real economy. In fact, Spain’s unemployment rate has actually risen slightly. Construction industry data is unpromising, and credit availability is an ongoing bone of contention in Spain.
Further price adjustment could be around the corner, and there is the danger that a modest rise in prices might trigger vendors, both institutional and private, to act to shed properties which they have been eager to offload for some time. A major obstacle to the development of fluidity in the Spanish market has been the unwillingness of vendors to drop prices any lower: the current slight rise might trigger a fresh round of sales.
As with many national statistics, the figures hid major regional variation. What’s really happening in Spain isn’t a timid recovery: in some areas it looks like full recovery, while in others the nosedive continues. In Valenciana, sales rose by 4.3%, a respectable increase. In Murcia, they fell by 11.8% year on year. The big winner is Malaga province, location of the Costa del Sol, where prices have jumped by 24% year on year – as against 10.7% nationally.
For British buyers, the ground in Spain is shifting in other ways too.
Plans to axe the tax allowance for retirees are mooted right now, meaning that British expatriates living on pensions could face a tax rate of 20% on their income, losing up to €4, 000 a year. The move would be wildly unpopular: expats, and those who would like to become expats, can look to better news from elsewhere on Spanish taxes though.
The European Union’s top court in Luxembourg recently ruled that Spain’s tax system is against EU law, and that accordingly, the Spanish government will have to alter inheritance tax laws which disproportionately privilege Spanish over non-Spanish people. Spain’s government has yet to be clear on when this will happen, but it does have to comply with the instructions from the EU.
What does this mean for British and other overseas buyers? If your income is mostly from a fixed source like a pension you probably stand to lose out financially. Others stand to gain from the changing tax rules. And the market remains uncertain: there are bargains to be had, and growth in some areas is already well underway, while others remain depressed, meaning the potential for rental is reduced. Some Spanish locations will always be popular – witness the revival of the Costa del Sol.