Furthermore, some studies suggest a very positive outlook for the next decade, showing increasing trends towards UK property ownership in Spain, as more of the baby boom generation retire and more flexible working patterns become more widely adapted.

According to the Balance of Payments, elaborated by the Bank of Spain, foreign investment in real estate rose from €2,908 million in 1999 to €6,674million in 2004, growing by 129 per cent in five years, accounting in 2004 for 84 per cent of total foreign investment in Spain.

The most popular destinations are the Mediterranean coast and the Balearic and Canary Islands.The reason is obviously the weather. A complete network of airports (47) provides easy access to Spain and the road network guarantees quick traveling inside Spain.

One of the main determinants when buying a property is the price. In Spain, the average price per square metre has risen from €317.27 in 1987 to €1,739.44 in 2004 and there has never been a drop in prices. This trend has been stronger over the last few years and prices have experienced a double-digit growth.

For those who bought property in Spain several years ago this trend implies that they could sell their property and achieve a high return on their investment. For those who are planning to buy now, the question is how much longer is this trend going to continue?

The fact that there has never been a drop in prices in Spain does not mean that it cannot happen, so to answer the above question the forces behind that growth have to be analysed to see if they are going to stay there for a long time.

It is well known that prices are the result of combining supply and demand. Assuming that the supply of land (one of the main components of the final price) is limited and stable, then we have to conclude that in Spain it is the demand that drives the price.

The factors that contribute to this strong demand for property in Spain are following:

1. All-time low interest rates. As Spain belongs to the Economic and Monetary Union (EMU), monetary policy is not influenced by the Central Bank of Spain but the European Central Bank (ECB), which designs the monetary policy for the whole EMU. With several European countries facing recession, the ECB is not likely to raise interest rates in the short-to-medium term.
2. The reduction of unemployment. In 1995 the unemployment rate was 20 per cent and there were only 12 million workers. Currently, the unemployment rate is around 10 per cent, still a high figure, but there are 18 million workers.That is to say, 6 million jobs have been created. This remarkable trend is expected to continue.
3. Increased immigration. Attracted by this high job creation in Spain, immigrants are coming to Spain and they also contribute to a higher demand for property.
4. Fiscal incentives that encourage the acquisition of property (first homes only, not second homes) and therefore discourage the rental of it. Organisations such as the OECD and the International Monetary Fund have already advised Spain to reduce these incentives and they will probably be revised (but not eliminated). A combination of factors such as Spain’s climate, lifestyle, great air transport links between Spain and the UK as well as strong British economy has already encouraged a large number of British citizens to buy property in Spain.
5. Demand for residential properties on the coast from foreigners, for both holiday use and investment. According to some studies, 64 per cent of the demand for second homes on the coast comes from abroad, mainly from the UK, followed by Germany and France.

Considering that all these trends are likely to continue, we do not expect drops in property prices per square metre. What we do expect is a slowdown in growth rates, passing from double-digit growth rates to single-digit rates.

Of course the figure of €1,739.44 per square metre is just an average. Prices vary from one region to another and from one city to another. For instance, the average price in Malaga city is €1,724 per square metre but it is much higher in exclusive villages of Costa del Sol such as Marbella.

To simplify, we can say that locationwise there are two alternatives for property investment in Spain: emerging areas, with still low prices and potentially higher returns such as Murcia and Almería, or mature and internationally well-known places such as Costa del Sol, Costa Brava, Costa Blanca or Costa de la Luz.

Finally we can say that acquiring property in Spain is a secure investment, as many UK buyers already know. Moreover, Spain has never suffered a property crash and it receives more than 50 million tourists a year, more than four million of which are searching for a place to rent.

Biography

Erik Rovina was, since January 2003, responsible for the promotion of foreign investment in Spanish real estate (www.investinspain.org). Mr Rovina has been appointed, in December 2005, as Deputy Manager for Strategy at the recently created Spanish investment promotion agency "Sociedad Estatal para la Promocion y Atraccion de las Inversiones Exteriores". He has participated in a number of seminars related to this sector in both Spain and the UK. You can contact Mr Rovina on: erovina@mcx.es.