Tuesday, June 28, 2022

Investing in Spanish real estate: is it still interesting when interest rates are rising?

A total of 5,864 compatriots bought a home in Spain last year. The question is whether Spanish real estate will continue to appeal to Belgians in the coming years. After all, rising interest rates are making it more expensive to borrow for real estate, both at home and abroad.


Recent figures from the General Council of Notaries in Spain, also known as Consejo General del Notariado, show that Belgians bought as many as 5,864 homes in Spain last year. The majority of those homes (3,543) were purchased in the second half of the year. That is an increase of 31 percent compared to the second half of 2020.

Carl Vorsselmans of New Construction in Spain, a broker specializing in Spanish real estate, notes in a comment to our site that due to low interest rates, a lot of Belgians found their way to the southern real estate market last year. "Also the easy mobility that makes distances smaller and smaller makes Belgians increasingly choose the Spanish sun. The cheaper life comes with it," he adds.

Rising interest rates

Now the question arises whether the Spanish real estate market will continue to appeal to foreign house hunters. After all, long-term interest rates have risen sharply in recent months. Investors anticipated a rise in interest rates by the European Central Bank (ECB). At its last interest rate meeting, the ECB said it would raise interest rates in July.

These rising long-term rates will make it more expensive to take out a mortgage loan. Among other things, lenders rely on that interest rate to determine the rate of a home loan. Since the start of this year, the interest rate on a residential loan with a 25-year term and a quota of at least 80 percent (the ratio between the amount of your mortgage loan and the value of your home) has risen from about 1.7 percent to just over 3 percent, Immotheker's interest rate barometer shows.

Impact on the Spanish real estate market

Vorsselmans does not rule out that rising interest rates will have an impact on Spanish real estate sales. "It remains to be seen what inflation will do and what the effect will be on more expensive construction costs. We do feel that it is still busier than usual, but less busy than a while ago. Many of the potential (COVID) buyers have bought in the meantime," it sounds.

For those looking for returns, the broker still has this advice: "If you buy in a good location on plan, and do so in a safe way, capital gains are still achievable in the short term. As for a rental return, we really have to look at this on a case-by-case basis, but again, there are great opportunities."

Another important detail: the federal government recently changed the way a second home abroad is taxed. With that change, second residences at home and abroad are taxed the same way. Vorsselmans warned in an earlier interview with our site that people with a second home abroad risk paying more taxes as a result than someone with a similar home at home.

Source: Niels Saelens - Business AM