While Spaniards invested 23.4% less abroad, foreign investors flocked back to Spain and invested 4,748 million Euros during the course of 2011, a 27% increase from the previous year.
According to the Bank of Spain, this is the second rise in as many years, but the first time, foreign investment has exceeded 4,000 million euros in the last three years.
The sharp increase in tourist numbers is partly responsible why overseas investors are looking to Spain’s Costa del Sol, Balearics and Canary Islands once again. This time albeit with a view to achieve good rental returns rather than a quick cashing in on capital gains. With Spanish house prices still undergoing downward adjustments, it will take several years for the property market to recover.
Meanwhile, the recent announcement by the Spanish government that any investor buying property before the end of this year will be rewarded with a 50% reduction on capital gains tax in years to come, when the property is going to be sold, can’t have hurt either.
A recent survey suggests only 2.8% of Spanish people believe they will be in a position to buy a property in the next couple of year. Their reasons for not buying are manifold, but in the main determined by high unemployment rates in the country and worries over the Eurozone economies.
This leaves the market wide open for foreign investors to step in. There are still some 250, 000 unsold holiday homes at the Costa del Sol, Costa Blanca and other coastal regions of Spain, which the government is keen to sell to foreign investors. This figure is said to represent around one third of all available homes in the country, a 50,000 million Euros investment that would bring much needed revenue to Spain.
The good news is that rental prices across most parts of Spain have risen by 0.7% in April this year compared to the same period last year. A trend is emerging for potential homeowners to rent a home in the area they are targeting, before committing their savings and a mortgage to purchasing a home. Although rents in the Alicante province have dropped by 1.1%, in Granada province, just a 1.5 hour drive from the Costa del Sol, rents went up by 1.6%.
Certain regions, such as Granada for example, offer not just excellent value for money real estate, but also a better holiday rental yield thanks to a prolonged tourist season. The Sierra Nevada Mountains are famous for their great ski resorts and stunning scenery, yet a short drive takes holidaymakers to the Costa Tropical or even the Costa del Sol, where they can enjoy part of their vacation as a beach based holiday. This makes real estate in Granada province a good long term investment. Rentals have gone up because it’s a good area to live in with plenty of all year round tourism ensuring services and amenities remain open throughout the year, unlike some coastal resorts at the Costa Blanca, where many bars and restaurants are only open during the main summer tourist season.
On 6th July the Spanish Prime Minister announced plans for a whole range of structural reforms and new legislation which aim to become “milestones” in the modernisation of Spain. Targeting the regional governments of Spain’s autonomous provinces, the Prime Minster said that immediate reforms would concentrate on Administration, unity of market, energy and regulatory bodies. Everyone has to show greater initiative in reducing Spain’s deficit, he said.
Reforming the financial sector won’t be easy; so far concrete measures have yet to be made public, but the Prime Minister’s speech was aiming to install confidence in the Spanish consumer and in the rest of the Eurozone member countries, who have viewed Spain with considerable worry over the last 12 months.
Maybe things are beginning to look up. According to the June data collected by the Centre for Sociological Research, consumer confidence and the percentage of people wishing to buy a home is finally going up and now 4.5% of those surveyed by the Consumer Confidence Indicator are hoping to become a homeowner in the next year.