Buying property in Spain. Will the drought scare off investors?

Investment in houses and apartments is one of the most attractive ways to multiply capital. Buying property in Spain – a country of sunshine, rich culture and fantastic landscapes – is becoming increasingly popular among Poles. But pictures of vacations on the Costa Brava don’t show the dark sides of life on the Iberian Peninsula that an investor has to reckon with. Prolonged drought and depleting water resources is a serious problem, not only economically.

Poles invest in Spain

Spanish real estate sales statistics indicate that in 2023. Poles were the ninth largest group of foreign investors in the country. By quarter, our compatriots accounted for between 3.31 and 3.93 percent. Foreigners buying Spanish apartments and houses. The top three investors were the British (8.8 percent), the Germans (7.25 percent) and the French (6.56 percent) – against this background, Polish capital is very prominent.

Pekao Brokerage’s analysis shows that Spain’s real estate buying boom had already begun a year earlier – in 2022. Poles bought 3,000 apartments, an increase of 161 percent. compared to the previous year. Interestingly, most of these investments are covered by the company’s own funds, with only 10 percent. transactions are based on credit.

Buying property in Spain or other Western European countries is growing in popularity among Poles. The phenomenon is partly explained by the war in Ukraine and concerns about potential Russian expansion.

What are the benefits of buying property in Spain?

Comfortable distance from the front in the east is not the only advantage of investing in Spain. Market analysts point to the fabulous climate on the Iberian Peninsula, how different from Polish winters, as the main benefit, of course. Buying a property in Spain may involve a desire to move permanently (or at least have that option in the back of your mind) or an annual trip to a warm destination.

In addition, houses and apartments on the Costa del Sol, Santa Cruz, in Alicante or Malaga are often an investment with renting in mind. Vacation websites make it easy to profit from properties in tourist-attractive regions even without personal supervision. The strong interest in a vacation in the west-south corner of Europe goes hand in hand with a well-developed transportation network, including convenient links to Africa and North America.

And Spain, in addition to its fantastic climate, rich cultural life and magnificent sights, also offers quite attractive real estate prices. The latter depend on the region – the most expensive are the Balearic Islands, where ^1m2 costs 4.7 thousand. euros, the cheapest is the La Mancha region with an average price of approx. 951 ^euros/m2. At the same time, prices continue to rise – by 2-5 percent per year – making buying property in Spain an even more profitable investment.

Obstacles for foreign investors

Buying a house or apartment in sunny Spain is formally not difficult – all you need for this is an ID card and an account in a local bank. However, there are, of course, additional fees awaiting investors, such as the progressive transfer tax (ITP) or VAT on new units, notary fee, Land Registry entry fee, etc. Not all paperwork is easy and transparent for foreigners, either. In 2022. The British daily Express, for example, reported on the problems of retired English expatriates in Murcia, whose homes were declared illegal by the new authorities, denying them access to water and electricity.

However, this is not the end of the problems that buying property in Spain can generate. Prolonged drought is also a growing challenge in many regions, forcing restrictions on water use. February 2024. Catalan authorities have declared a state of emergency to protect dwindling resources.

Spain’s water crisis

On March 22 of this year, on the occasion of World Water Day, ClientEarth published a report on the state of Spain’s water reservoirs and national water management plans. It shows that the goals of the Water Framework Directive are not being adequately met, and more than half of the water bodies are far from achieving good status. The Mediterranean climate, bolstered by record high temperatures, is limiting water resources and degrading important natural ecosystems.

The problem is not only the drought itself, but also the high use of water in agriculture – in the catchment areas of the Guadalquivir, Seguro and Ebro rivers it reaches 85-92 percent. total consumption. Plans involving the implementation of smart irrigation systems and a shift to less water-intensive crops are still in development.

The situation is particularly serious in the Seguro River basin, where there is an annual water deficit of 311 ^hm3 – covering it requires overexploitation of aquifers. High water use index (WEI) is also recorded in the catchments of the Guadalquivir and Tagus rivers. To make matters worse, according to experts quoted in the ClientEarth report, the prolonged drought will recur every three to four years, something that anyone planning to buy property in Spain should take into account.

The situation is particularly dramatic in Catalonia, where in February this year. Water reservoirs serving the needs of 6 million residents were less than 16 percent full. The region’s president, Pere Aragonès, is adamant that these are not periodic difficulties, but the beginning of a new climate reality. In many villages around Barcelona, wells on private land are drying up at a dramatic rate, and obtaining safe to drink water is increasingly challenging.

The village of Gualba, where the springs once beat, as of December 2023. is deprived of access to clean water, and citizens must bring it in bottles from other cities. In Vallirana, it has already become obvious that at certain times the only source of water is the tankers that are substituted daily. Elsewhere, such as in Espluga de Francoli, the water supply to taps is completely cut off from 8 pm to 10 am.

Will it still be profitable to buy property in Spain?

It is difficult to judge how the climate crisis will worsen living conditions in various regions of Spain – drought and heat waves are already taking their toll on many local communities and have nothing to do with holiday paradise. National and regional governments are seeking remedies – Barcelona, for example, is functioning with desalination and water purification systems. Many municipalities are also planning investments to reduce losses associated with leaking water supply networks.

Meanwhile, there is a growing conflict between residents of water-deprived regions and tourists who pay and expect hotel showers twice a day and freshly laundered towels. A report by the NPR media agency proves that visitors to Barcelona often have no idea of the state of emergency that has been imposed, and during their vacations use 2 to 5 times more water than Catalans restricted by restrictions.

It is difficult to predict today how much the water crisis in Spain can be neutralized to ensure a stable investment environment. In 2023. The government has announced that it will allocate 2.19 billion euros to build new infrastructure, including seawater desalination plants, to reduce water stress in the country. Given local conditions on the Iberian Peninsula, however, a policy of saving water by reducing consumption will remain a priority. Its implementation will require an increase in water utility fees. And this, too, is worth taking into account when planning to buy property in Spain.