Once Under the Radar, Americans Are Buying Homes in Spain More Than Ever Before
The strength of the dollar, an increase in direct flights and an appetite for the ‘Spanish way of life’ has driven more U.S. buyers to the country’s real-estate market
6 min
Ron Hale ushered in 2023 by relocating from landlocked Orlando, Fla., to a primary residence in Marbella, on southern Spain’s Mediterranean coast. In January, the 59-year-old founder and CEO of Natural Tone Organic Skincare, a Florida-based beauty-supply company, closed on a 3,000-square-foot, three-story townhouse, with four bedrooms, spacious balconies, sea views and a sale price of $1.1 million.
Mr. Hale, who wanted a base to better supervise his company’s diverse European interests, chose Marbella, a glamorous resort known for its balmy year-round climate, because of “the food, the golf and the international flair of it all,” he says. And his newly remodeled turnkey purchase—what he likes to call a place to lock and leave—has easy access to Málaga airport, the gateway to Spain’s Costa del Sol region, a 45-minute drive away.
“Golfing interests me,” he says, citing his townhouse’s proximity to a number of courses, such as the Real Club de Golf Las Brisas. “But the airport is key.”
PHOTO: GABRIEL NAVAS FOR THE WALL STREET JOURNAL
American buyers of primary residences and vacation homes are shaking up the Spanish real-estate market. Mark Stücklin, a Barcelona-based real-estate analyst who owns the website Spanish Property Insight, says Spanish notary records indicate that sales to Americans were up 76% in the first half of 2022 compared with the year before, making it the highest half-year by volume on record.
Mr. Stücklin says the plurality of Americans are buying in Andalusia, the region that includes Marbella, Málaga and Seville. Sean Woolley, managing director of Cloud Nine Spain, which handles sales of coastal properties between Málaga and Gibraltar, says Americans “were never really on our radar before” but they now make up 25% of his sales and 20% of his inquiries. In Madrid, Alejandra Vanoli, managing director of Spain’s VIVA Sotheby’s International Realty, says Americans have become her agency’s No. 1 foreign clientele in the Spanish capital’s high-end market, replacing Latin Americans, the longtime linchpin in luxury sales.
Regular direct flights between Atlanta and Madrid were a key factor for Gil and Laura Madrid, who work together at Ms. Madrid’s Georgia-based travel agency, Resort to Laura Madrid. This year, the couple’s surname proved “fortuitous,” jokes Mr. Madrid, 58, when they paid just over $1 million for a 1,790-square-foot Madrid apartment in the city’s atmospheric La Latina neighbourhood, a short walk from the Royal Palace. They settled on the two-bedroom, two-bathroom turnkey refurbishment after looking at a dozen other homes. They plan to use it for vacations.
Ms. Madrid, 54, calls the choice a no-brainer, citing the city’s vibrant culture and the historic centre’s walkability and affordability. The couple say they had been reluctant to buy a second home but were inspired by the strength of the dollar—down nearly 10% since breaking through parity with the euro last summer but still near historic highs in terms of purchasing power—and by the eight-hour travel time between their Atlanta and La Latina homes.
“Nonstop flights are really critical,” adds Mr. Madrid.
Spain’s real-estate market is seeing rising prices, but the country, which by some measures is still recovering from the 2008-09 financial crisis, can seem like a bargain. The Madrids’ new La Latina neighbourhood is located in the Centro district, among the city’s strongest, with prices rising 8% between the fourth quarters of 2021 and 2022, according to analysis by Tinsa Spain, the real estate valuation and data company. Greater Madrid prices are down 12.3% from early 2008 highs. In Marbella, Mr. Hale’s new home, prices rose 6.4% in 2022 from 2021, still down some 15% from their peak in the third quarter of 2008.
Palma de Mallorca, the capital of Spain’s Balearic Islands, has some of the country’s most expensive residential real estate, with average prices of $263 a square foot, up nearly 6% in 2022. Now, with seasonal direct flights to Newark, N.J., the historic city, with its revived medieval core, is seeing a spike in American buyers who want to balance Old World charm with contemporary convenience. Sotheby’s Ms. Vanoli says Palma city properties, 20 minutes from the airport, are at the top of Americans’ lists.
Kelsey and Michael Wulff, a British-German couple in their 60s, have listed their 11,800-square-foot Palma palace for $6.3 million. The couple, both retired, paid $3.1 million in 2013, and then spent about $530,000 to renovate the 13th-century structure. After a few years of dividing their time between the palace and a smaller city apartment nearby, they are selling the larger home, which in recent years they have used for guests, parties, and events, such as a private concert series.
Located a short walk from Palma’s waterfront Gothic cathedral, the palace salon has its original wooden ceilings, whose vivid colours were revealed during a restoration, and a rooftop terrace with 360-degree views. Mrs. Wulff has been a witness to Palma’s remarkable gentrification. Back in 2000, she recalls, “even taxi drivers wouldn’t come to this area. Now it’s Palma’s most expensive.”
PHOTO: STUART PEARCE FOR THE WALL STREET JOURNAL
Back on the mainland, Valencia, Spain’s third-largest city, also has become a centre of expatriate American living, even though it doesn’t have direct flights to the U.S. Real-estate agent Conor Wilde, CEO and founder of Found Valencia Property, says 90% of his American clients are interested in full relocation. This new wave of expat American is coming for a “Spanish way of life” that his clients regard as a respite from political divisions and the threat of gun violence, he says.
Newly resettled Americans typically arrive with school-age children, he says, but maintain their home ties, spending summers and holidays back in the U.S. “We have American buyers coming in every single week,” he says. “I have never seen anything like it.”
Valencia combines Barcelona-style architecture and beach life with Madrid-style urbanity and Seville’s signature orange trees. Rob Glickman and his wife, Tina Ashamalla, a couple in their early 50s, relocated here in 2019 from the San Francisco Bay Area. Now living in a rooftop rental in the historic centre, Mr. Glickman, a former Silicon Valley marketing executive who works remotely for a London-based marketing startup, and his wife, a nonprofit board member, closed in late December on a 1,400-square-foot apartment near their rental.
They plan to use the property now for visiting friends and family, and possibly later on as a primary residence in their retirement. They paid $470,000 for the apartment and two garage spaces (precious commodities in the historic city) and are now shopping for a three- or four-bedroom apartment with outdoor space for themselves and their two children, ages 20 and 17, after the family moves out of the rental. “The original idea was to travel the world,” says Mr. Glickman. “Then Covid hit and we stayed here.”
Mr. Wilde says newly arriving Americans often come with Spain’s so-called Golden Visa program in mind. This rewards real-estate purchases of at least 500,000 euros (about $536,000) with familywide residency permits.
Scott Pirrie, a recent Valencia arrival from greater Seattle, is earning dollars from real-estate investments back in the U.S. Currently, Mr. Pirrie, 41, and his wife, 29, along with their young daughter, are living in a rental, but are looking for a three-bedroom apartment of up to 2,150 square feet at a price that would qualify them for the Golden Visa program.
More Americans also make up the clientele at Culto Interior Design, a Barcelona studio co-founded by Daniel Rotmensch, 41, a Spain-based Israeli who offers a one-stop-shop refurbishment service that includes art on the walls.
Mr. Rotmensch says Americans typically spend $160,000 to $320,000 on redoing their new homes, which may include German kitchens and Italian designer furniture, and nearly always lead to an upgrade in air conditioning. He says his recent American clients come from Miami, Los Angeles and San Francisco, among other places, and are interested in areas like Eixample, a 19th-century district marked by Art Nouveau architecture and a lively shopping and restaurant scene.
Average home prices in Barcelona top out at $358 a square foot, slightly higher than Madrid, but growth is more sluggish. Prices in the Eixample district rose a mere 1% in 2022, says Tinsa.
Eixample luxury homes, known for their stylish vintage detailing, are a fraction of what similar units might cost in London or Paris. A four-bedroom, 3,900-square-foot apartment in a prime Eixample neighborhood is currently listed for about $3 million. The apartment has stucco ceilings and a balcony off the terrazzo-floor kitchen.
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Rising Australian bond yields are putting pressure on listed property and the cost of capital. Here’s why A-REITs can signal changes in property valuations before the direct market moves.
4 min
Most property investors spend considerably more time watching interest rates than bond markets.
That makes sense. The Reserve Bank cash rate has an obvious relationship with mortgage repayments, borrowing capacity and investor sentiment, while government bonds can seem far removed from what someone will pay for an apartment in Sydney or an office building in Melbourne.
But the bond market can provide one of the earliest indications that the price investors are willing to pay for property is changing.
That became evident last Thursday, when Australian shares suffered their worst trading session in months. The S&P/ASX 200 fell almost two per cent, with property among the rate-sensitive sectors caught in the sell-off as government bond yields moved sharply higher.
Australia’s 10-year government bond yield pushed to around 5.4 per cent, close to its highest level in 15 years, against a backdrop of rising global yields and renewed concern about inflation and the direction of interest rates.
For property investors, that matters because the government bond yield is effectively one of the reference prices for money.
An investor buying an Australian government bond is receiving a return while taking comparatively little credit risk. Property comes with tenants, vacancies, maintenance, leasing costs, illiquidity and the possibility that the underlying asset falls in value, so investors generally expect to be compensated for accepting those additional risks.
A property yielding five per cent therefore looks considerably more attractive when a 10-year government bond yields three per cent than when that same bond is yielding more than five per cent.
That does not mean property values automatically fall every time bond yields increase. Rental growth, scarcity, lease structures and the quality of an asset can all outweigh movements in rates, but it changes the return investors require and therefore what they may be prepared to pay.
SG Hiscock & Company made that point in an ASX Investor Update, arguing that real, or inflation-adjusted, bond yields can be particularly relevant to property because real estate is fundamentally a long-duration investment whose value is derived from future income.
The first place investors can often see that repricing is the sharemarket.
A house or commercial building does not have a price that changes every few seconds. An Australian real estate investment trust does.
A-REITs can own billions of dollars of shopping centres, offices, warehouses and other property, but their securities trade continuously on the ASX. When expectations around interest rates and bond yields change, investors can immediately alter what they are willing to pay for those property earnings.
That can create a situation where the value attributed to a portfolio on the sharemarket falls even though the underlying buildings have not changed hands and their independent valuations remain unchanged.
The two markets simply move at different speeds.
Mark Ferguson, Head of Charter Hall Maxim Property Securities, has previously described direct property valuations as lagging the listed market. Writing for Charter Hall during an earlier period of rising interest rates and bond yields, Ferguson noted that listed property was already pricing increases in capitalisation rates and falls in underlying property values before those adjustments had fully emerged in direct-market valuations.
The effect can be substantial.
Consider a commercial property producing $1 million a year in net operating income. At a five per cent capitalisation rate, that income implies a value of $20 million.
If investors subsequently require a 5.5 per cent return while the property’s income remains unchanged, the implied value falls to around $18.18 million. At six per cent, it falls again to roughly $16.67 million.
Nothing necessarily happened to the building. It could have the same tenant paying the same rent under the same lease. What changed was the return required by the person buying it.
That is also why income growth becomes so important.
A well-located property with constrained supply and strong rental growth can increase its earnings quickly enough to absorb some of the pressure from higher required returns. An ageing office building facing vacancies, refurbishment costs and an approaching debt refinancing could instead be hit from several directions at once.
Debt adds another dimension because property is one of the economy’s most capital-intensive asset classes.
Higher market rates can increase the cost of financing an acquisition or refinancing existing debt while simultaneously increasing the return investors expect from the property itself. For developers, the consequences can be even more pronounced because higher construction finance costs can coincide with lower anticipated end values.
If that happens, a project can be squeezed from both directions: it becomes more expensive to deliver at precisely the time investors become less willing to pay yesterday’s price for the finished asset.
The direct property market generally takes longer to reveal that adjustment.
An A-REIT can lose five per cent of its market value in a trading session. An office building may not transact for another year. Owners can reject lower offers, transactions can be withdrawn and valuers must wait for comparable sales to establish new evidence.
That lag is one reason listed property can be useful even for investors who have no intention of buying a REIT.
The same principle eventually extends to residential property, although houses and apartments are generally valued using comparable sales rather than capitalisation rates.
Residential property is particularly sensitive to credit. Higher bond and swap rates can influence bank funding and fixed mortgage pricing, while higher borrowing costs reduce the amount households can service.
If prospective buyers can borrow less, the number of people capable of paying yesterday’s price can shrink. Vendors may initially resist that adjustment, resulting in fewer transactions rather than immediate price falls, before motivated sales eventually establish new comparable values.
For investors, rental growth can provide an important buffer. Rising rents can help offset higher financing costs, just as increasing commercial rents can compensate for some expansion in capitalisation rates. Investors relying primarily on capital growth while accepting a low rental yield have considerably less protection when the cost of money rises.
That is why movements in listed property and bond markets deserve attention beyond the trading floor.
They provide a constantly updating view of how investors are pricing interest rates, debt, future income and property risk, often months before those changes become obvious in direct transactions.
For an A-REIT investor, that means looking at gearing, debt maturity, hedging, interest cover and the discount or premium to net tangible assets rather than simply chasing the highest distribution yield.
For a commercial property investor, it means testing what happens to valuations if capitalisation rates move 25, 50 or 100 basis points higher.
For residential investors, it means understanding mortgage costs, borrowing capacity, realistic rental income and how much of the investment case relies on future capital growth.
The cash rate will continue to attract most of the attention in Australian property. But investors looking for an earlier indication of how the market is repricing risk should also be watching the bond market.
Property prices might take months to respond to a changing financial environment. The price of money moves considerably faster.
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