After the housing bubble burst in 2008, housing prices did not fall uniformly across Spain. Some regions, notably the Balearic Islands and parts of the Costa del Sol, experienced smaller declines than other coastal municipalities. In the current climate, the impact of the European Central Bank’s rate hike varied by coastline. Tinsa, a valuation company, released its annual report on Spanish coasts, noting that the market remains resilient and appears to be moving contrary to a broad crisis narrative. Prices of holiday homes on the coast continued to rise within the overall housing market, even as price stability had been observed since the end of 2022. In the first quarter, coastal municipalities in Spain recorded an average price increase of 4.1 percent compared with the same period a year earlier.
Despite this positive trend, the regional surge in prices has sparked some concerns. Tinsa describes overheating as a rapid acceleration in both sales and prices within a relatively short timeframe. This phenomenon affects roughly 12 percent of coastal municipalities, concentrated mainly in the Balearic archipelago, the Costa del Garraf near Barcelona, parts of Tarragona between Cunit and Altafulla, Valencia areas between Canet d’En Berenguer and Alboraia, and portions of Alicante from Denia to Benissa.
Overheating is not expected to yield immediate negative consequences. The appraiser states that price reductions are not anticipated in about 98 percent of coastal areas in 2023. In the remaining 2 percent, negative corrections could arise in municipalities with high starting prices and a bearish margin, for example in Vizcaya or Valencia.
Balearic Islands, no exception
The Balearic Islands present one of the most pressured housing markets in the country and show signs of overheating, yet prices are projected to keep rising due to stronger demand than supply. Tinsa explains that high levels of foreign trade, above-average local salaries, and a tourism-driven economy attract investment in vacation housing. Geographic constraints on the islands amplify this effect.
Euroval, another valuation expert, estimates foreign demand in the Balearic Islands as follows: two out of every five homes sold are purchased by foreigners. If this demand remains robust and mobility restrictions from events like Covid do not reappear, the market is likely to sustain its upward trajectory.
Promotional activity
Construction of new homes varies across coastal regions. The market shows polarization, with development activity rising 20 percent in the islands and along the Mediterranean coast, while 2022 figures fell by 28 percent on the Atlantic Coast and by 5 percent on the North Coast compared with 2021.
Research highlights that in about one in ten coastal areas there is no new construction. Various factors contribute to this stagnation, including restrictions on land use due to halted General Plans, slow urban procedures, financing challenges for small and medium-sized developers, and a backlog of unsold stock from the 2008 crisis.
In the current macroeconomic environment, developers face higher debt costs. Most construction is financed with bank loans linked to Euribor, making cost projections more challenging and often elevating prices by more than 5 percent. Smaller and mid-sized companies are typically more exposed, while larger firms usually enjoy greater financial flexibility.