1. General Outlook

As Europe’s fourth largest economy, Spain continues to atract global investors seeking diversification and promising returns in spanish real estate. From its appealing lifestyle to favourable tax structures and evolving market trends, Spain’s real estate sector offers unique opportunities that position it as a prime destination for investment in 2025. Here is a closer look at what makes Spain so particularly attractive for foreign investors, from some of  the different  business opportunities it presents to the forecasts for coming year, including the tax advantages it offers in certain particular cases.

Spain’s real state market is characterized by a rich diversity that caters to a wide range of investment preferences and returns. From holiday homes along the Mediterranean coast to vibrant urban properties in Madrid and Barcelona, investors can find assets that meet specific objetives. Spain has also proven resilient, rebounding from economic setbacks and demonstrating consistent growth in recent years. This resilience, combined with an uptick in tourism and demand both for rental and ownership properties, makes Spain real estate particular enticing.

2. Business Opportunities in Spanish Real Estate

The gross profitability of housing, understood as the ratio between the investment made and the annual yield, has rebounded in the third quarter of the year, standing at a national average of 7.2%. Thus, it beats purely financial assets, which produce a much lower profit, as it happens in the case of the 10-year bond, whose gainfulness barely reaches 3%, so it comfortably doubles it. But spanish real estate is not the only asset in which to invest to make money, since, in addition to it, there are other equally lucrative ones with high returns, such as offices (11.7%) and commercial premises (8.7%).

As for housing, it is worth noting that there are currently twelve Spanish provincial capitals, such as Barcelona, Madrid, Valencia, Alicante or Málaga, among others, where prices reach record levels. The evolution of prices is very diverse, something we can verify if we compare, for example, Barcelona, with a price of 21.5 euros, or Madrid with a price of 21.0 euros, per square meter in both cases. Therefore, it is not surprising that the returns generated by purchasing a home for later rental continue to be very alluring in some cases, from Valencia with 9.5% to Madrid with 5.7%, passing through Barcelona with 7.6%.

The sale and purchase of homes has skyrocketed by 41.5% last September, driven by interest rate reductions in recent months, which has caused the number of transactions to reach -in this month alone- 61,887 units, the highest figure since 17 years ago. This wave of sale and purchases also extends to branded residences in Madrid, with premium homes, equipped with all type of services, such as private transportation, personal assistant and spa, among others, by groups like Banyan Tree or Blasson & Pictet, with deliveries expected in 2025 and 2026.

After the tough desert crossing imposed by Covid-19 and the emergence of teleworking, the first half of the year indicates a significant increase in the hiring of offices, exceeding 407,000 square meters, 27% more than in the same period from last year. In this scenario, very interesting returns can be found, especially in five cities than stand out from the rest, such as Seville (13.4%), Vitoria and Zaragoza (9.5%), and Barcelona and Madrid (7.9%). There are, therefore, very green shoots in a sector that is little by little recovering crusing speed.

In commercial premises, up to eight capitals exceed 10.0% profitability, with Murcia and Zaragoza leading the way with a return of 11.1%, followed by Barcelona and Madrid  with a return of 8.3% and 8.2% respectively. One of the keys to making the right choice in the spanish real estate market, is the location of the asset, so it is advisable to do first an exhaustive analysis of the areas, as well as the volume of nearby competitors to avoid having to face  unpleasant surprises. There is also a lot of investor appetite for other assets, as malls, hotels, logistic centers, garage spaces and storage rooms.

3. Tax Advantages

Spain’s tax system provides several important incentives and benefits for real estate investors both at a national level and at a regional level. Understanding these can help maximize returns and minimize liabilities. Some spanish real estate examples of these incentives and benefits, for informational purposes only, are the following:

• Reduced rates for holding companies (REITs). Spain offers reduced corporate tax rates for holding companies (1.0% compared to 25% of the general rate) which can significantly benefit property investors establishing Spanish-based entities to manage their investments. A tax reform recently proposed by the Spanish Government, widely contested by the Spanish REITs -SOCIMIs-, aimed to put an end to this regime, but fortunately it  has been rejected, so the tax rate will continue to be 1%.
• Non-Resident Income Tax and Wealth Tax. For non-resident investors Spain’s Non-Resident Income Tax (IRNR) and Wealth Tax offer preferential  rates compared to some European counterparts. While these taxes apply to income generated from Spanish assets and total wealth within Spain, Spain provides tax treaties with various countries, often allowing reductions in these tax obligations. Investors from countries with double taxation treaties benefit from avoiding dual tax burdens on income and gains in Spain.
• Inheritance and Capital Gains Tax Relief. Spain’s 2022 reforms introduced more favourable rates for transfers within close  family members, allowing for potential tax-free inheritance and gift transfers of property in some cases. Furthermore, recent changes in Spain’s tax code encourage reinvestment of profits into the real estate market through capital gains tax relief for investors who reinvested their proceeds into other Spanish assets.

4. Market Forecasts

Spain real estate market is expected to see several positive developments in 2025, making it a competitive option for foreign investors looking for long-term stability and growth.

• Continued Urbanization and Demand for Rental Properties. With Spain’s urban population on the rise, demand for rental properties in cities is projected to grow steadily. This trend will likely to continue, creating rental demand and, in turn, stable revenue for investors.
• High Demand for Sustainable and Green Buildings. The Spanish government provides incentives for energy-efficient renovations and sustainable property developments, which investors can leverage. These incentives may include tax credits, grants and even loan assistance.
• Positive Economic Indicators and Foreign Interest. Spain’s economy is expected to continue expanding  in 2025, with improving employment rates, consumer spending and GDP growth, reinforcing demand for real estate across the country.

This combination of factors predicts a new record for home sales throughout 2025, when 825,000 apartments sold will be reached, the highest level of operations in the last 18 years. The price will grow by over 15% in newly built apartments and more than 10% in second-hand ones.

Something to keep in mind in this context is the Spain Golden Visa Program that allows non-EU residents to obtain residency in Spain through significant investments, such as the purchase of real estate worth of € 500,000 or more. Though the Spanish government has already taken some steps to change  it, the Program is still available. But once the new regulations come into force, probably next spring, this option will disappear. So, those non EU-residents interesting in taking advantage of it must do it as soon as possible.

5. In Summary

Spanish real estate offers a vibrant market with opportunities that few European countries can match. With competitive property prices, attractive tax structures and a positive economic forecast, Spain is well positioned to be a top choice in 2025. The avantages outlined here can help foreign investors to make decisions that tap into Spain’s unique market potential and long-term prospects. Should you need a legal advise, do not hesitate to contact us anytime.

Antonio Viñal
Lawyer
AVCO Legal
madrid@avco.legal