How the independence referendum will affect the Barcelona property market

On October 1, Catalonia held an independence referendum. According to the local government, over 90% of voters were for the region’s secession from Spain. However, the Spanish government considered the referendum illegal.

Catalonia is the most developed Spanish region. It is home to 16% of the country’s population, and accounts for 20% of the country’s GDP. The unemployment rate in Barcelona has steadily remained below than the national average – the gap was 3.7% in 2014.

The local property market is particularly attractive. Prices per square metre in Barcelona are higher than other Spanish cities. In Q3 2017, residential real estate prices there were 2.5 times higher (€4,335/m²) than the national average (€1,716/m², Figure 1). Prices are growing more rapidly. Since early 2017, the average price per square metre in Barcelona has increased by 12%, which exceeds the Spanish average by three times.

Because of the referendum, some investors have suspended their property purchases, unwilling to take risks amid uncertainty. How will the recent referendum affect the local market? Tranio analysts see two possible scenarios:

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Catalonia secedes from Spain

Carles Puigdemont, President of the Government of Catalonia, has claimed that the region is expected to proclaim independence any day now. The region’s secession will lead to a number of economic and political changes, including the possible exclusion of Catalonia from the EU, the Schengen Area and the eurozone.

The tax system and property market regulations are likely to change, which would affect a particular category of buyers in Barcelona, namely, those aiming at “golden visas”.

A Spanish “golden visa” can be obtained with the purchase of property of at least €500,000 in value. Over 2,000 residence permits have been issued since the launch of the programme in 2013, with almost a half of them given for property investments in Barcelona. An independent Catalonia would make EU travel terms unclear for the holders of these visas.

From 2013 to 2016, almost 42,000 residential real estate transactions were closed in Barcelona, with over 6,000 of them registered to international buyers. In Barcelona, 893 properties, or about 15% of properties, were bought by foreigners under the residence-for-investment programme. Catalonia's capital will lose this segment of investors if independence is proclaimed.

Catalonia remains part of Spain

One of the Spanish government’s main arguments is that the country’s constitution does not allow its regions to voluntarily secede. Furthermore, it says the referendum was conducted improperly as no international observers were present, and because Madrid prevented Catalonia from using the common electronic voter registration database.

If Catalonia remains part of Spain, the local real estate market will not change much. Some transactions will be postponed, but the market should soon return to normal activity and continue growing for a number of reasons:

• Low mortgage rates: Spanish banks provide non-residents with up to 60% LTV loans at 2.5% per annum on average and issue up to 80% LTV loans to non-residents.
• Demand exceeding supply: according to CBRE, Barcelona needs 7,900 newly built properties per annum, while fewer than 2,000 are under construction. Moreover, there is a shortage of land to build on. Barcelona’s geographic expansion is limited by the sea in the south, by the mountains in the north, and densely built-up municipalities in the east and west.
• Increase in population and private consumption: the number of inhabitants in the city grew by 0.4%, reaching 1,608,000 in 2016, while private consumption has been growing since 2013. It amounted to €22.88 billion in 2015, an increase of 5.4% from the year before.
• Growth in tourists: according to Statista and Turisme de Barcelona, 8-9 million tourists visit the city annually, a number that is rising.

Anna Danishek, Tranio