Spain leads the way in Europe for buy-to-let property investment

Buy to let properties

Buying a home to rent remains a leading investment alternative in southern Europe, according to a study by Masteos.

The French company, which specialises in turnkey rental investment, claims that in Spain, Portugal and Italy, at least two out of every three savers are interested in a buy-to-let property, far exceeding the figures for their Central European counterparts.

Based on a survey of more than 8,100 European citizens, Spain was far out in front; it was the only country where more than seven out of 10 individuals showed an interest in investing in rental housing (72%) as a way of making their savings and assets profitable.

The next highest figures were for Portugal (67%) and Italy (64%), while the rest fell below 60%.

In the UK, for example, 58% of individuals said they were interested in buying a home to rent, while in France the figure drops to 56%, and in Belgium to 54%.

The lowest results were in Germany, where only 41% were interested in investing in rental housing; and in the Netherlands, which had the lowest figure of the large economies analysed, with 34%.

A strong preference for bricks and mortar

In Southern Europe, particularly in Spain and Portugal, there is a strong preference for bricks and mortar over other financial alternatives such as savings accounts, shares in listed companies or cryptocurrencies.

The study also showed that the majority of people in Spain, including those under 35 years of age, “consider buy-to-let as a perfect option as a first investment”. That’s because it’s “safe and without financial risk”.

For the time being, at least, buy-to-let remains a profitable investment, considering that we’re in a time of inflation, traditional banking products such as deposits still do not offer a high return, and that volatility has returned to the stock market in recent weeks, driven by fears of a new global banking crisis.

That said, the 26% of people surveyed in Spain who said they were not interested in investing in a buy-to-let property cited a preference “to invest in a home in which to live” and inaccessibility because of a low income.

A healthy return on investment

The gross profitability of buying a property to rent was an average of 7.1% in Spain in the first quarter of the year, according to the latest data from idealista.

This is comparable with the return on garages but far exceeds the Spanish 10-year bond (3.2%). Overall, the highest yields come from offices (13.1%) and commercial premises (9.7%).

Madrid and Valencia are the big cities attracting the most interest, ahead of Barcelona. Still, other locations in metropolitan areas (such as Alcorcón or Getafe, in the case of Madrid) and other smaller towns, such as Gandía (Valencia), are also in demand.

By location overall, Lleida was the most profitable (8.3%), followed by Jaén and Murcia (7.8% each), Huelva (7.5%), Teruel (7.2%), Almería and Castellón (both 7%).

In Madrid, the profitability reached 4.9%, and in Barcelona it’s as high as 5.4%.

San Sebastián offered the lowest profitability (3.6%), followed by A Coruña and Palma (4.7% in both cities).

A market with potential for growth

Spain is currently facing a shortage of properties for rent, particularly in popular areas such as Madrid, Barcelona and the Costa del Sol.

Statistics show that only 10% of property transactions in the country are buy-to-let, compared to 30% in France, 21% in Germany and 17% in the United Kingdom.

One of the main reasons for this shortage is the country’s historical and cultural preference for homeownership, resulting in a smaller rental market than in other European countries. Additionally, the global financial crisis of 2008 caused a decrease in property construction, leaving a gap in the market that has yet to be filled.

Another factor contributing to the shortage is the high demand from tourists, expats and, increasingly, digital nomads seeking short-term rentals, increasing the competition faced by would-be long-term renters for available properties.

As a result, rental prices have increased, making it difficult for many Spaniards, especially those under 40, to find affordable housing.

The Spanish government is currently implementing measures to encourage more construction and increase the supply of rental properties, but the shortage remains a significant issue in the country’s housing market.

That said, this major shortage of rental properties in the country presents a big opportunity for investors. This small market has great potential for growth and profitability, which is already sparking interest in the country from investors from all over the world.

This is why there’s confidence in the future of rental housing in Spain. The buy-to-let market in Spain presents a lucrative opportunity for foreign investors looking to diversify their portfolio, generate passive income, or get profitable savings and a safety net for unexpected events.

If you’d like more information on our conveyancing and rental services, contact us today.

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