Barcelona is one of the most popular cities in the world, and many people who come for a few months end up staying longer, sometimes even indefinitely.
The biggest expense you will face in Barcelona will undoubtedly be that for your accommodation, usually in the form of an apartment. Prices typically range between 800 and 2000+ Euro per month, to which you will also need to add the utility bills.
Once you’ve been here for a few months you will probably start to wonder whether it makes more sense to buy property rather than rent. This question will definitely pop into your heard if you’re from Southern Europe, where most young people aspire to own their property. In Northern Europe, this way of thinking is less common. In any case, it’s worth thinking about this choice as it is a decision that will have a considerable impact on your future.
As you will probably know, Spain has been passing through tough times and the word ‘crisis’ must be one of the most frequently used words in this country. Following years of inflated property prices, the bubble finally burst and prices were decimated, with some properties even selling for half their previous value. This was more common in developments that were purely built for the purposes of speculation. Properties in the hearts of important cities like Madrid and Barcelona were less severely hit.
After years of stagnation 2014 and 2015 have been promising for the real estate market. Prices seem to be stable and slowly starting to get into an upward trend. Whereas in previous years 95% of the buyers were investors, we are now seeing regular folks start to purchase properties again.
Typically local banks will finance up to 80% of the value of the property (or the price you’re paying for it, whichever of the two is lower). This is a far cry from days gone by where banks were more than happy to finance the whole purchase as well as vehicles to boot. Nevertheless, at present things are still accessible and interest rates on loans are quite decent too.
Therefore if we wish to buy we would need to put a downpayment of 20% of the property’s value. However, one must not forget that there are taxes and fees to be paid when purchasing property, which will likely push up that 20% towards the region of 30% to 40%, so it’s best to factor those in too when making your calculations.
Banks will ask you to have life insurance and home insurance with the same bank before giving you loans, and it is typically quite difficult to finance the purchase of a property with a loan from the bank back in your home country. This is quite logical. If you fail to make your monthly payments, the bank back home will find it quite difficult to repossess your home in the worst case, compared to repossessing homes in the home country. Hence they are quite careful when it comes to giving out such loans. As always, there is always some room for negotiation.
Right now prices are quite stable and although there have been some signs of growth it is really difficult to predict what will happen in the short term, hence it is not recommended to buy a property purely for capital appreciation, as this is far from guaranteed. In fact, in 2020 the trend is looking downwards not upwards, due to political instability and new laws that penalize owners and investors.
If you do a quick search online you will find many buy/rent calculators that will help you understand the financial implications of the decision. However you should definitely not rely 100% on these calculators, these are only tools to help you understand things, and they will inevitably not fully cover your particular scenario. Also, check out my other articles on ratios and formulas to use when considering the purchase of a property.
Keep in mind that Barcelona is a city in which there will always be a lot of demand for property, even when the real estate market in surrounding towns and villages will be practically dead. There is simply too much tourism and commerce going on in Barcelona, plus the fact that the city has reached its natural borders and there is not much more room to grow outwards.
The yields on apartments in Barcelona at the moment are simply too low for my liking. From my own real estate investments and those of people I know, it seems that 3-4% is a good return, and that’s before you consider any expenses related to the property plus the work involved in managing it and dealing with tenants.
However, it excludes capital appreciation, which in a city like Barcelona could be a factor that is even more important than the rental yield. Buying an apartment for capital appreciation would however mean resorting to speculation and trying to predict the future. Prices could very well go down, and given the political mess Spain is in at the moment, I wouldn’t exclude it.
Rent vs Buying – Practical Considerations
Apart from the large financial commitment that comes with buying a property, there are many other things to keep in mind when comparing renting to buying.
Probably the number one reason for renting would be flexibility. Rental contracts have a minimum of 6 months, so after that period is over you can move out and get your deposit back provided that you announce your intentions one month in advance. That gives you a lot of flexibility especially if you don’t know how long you will be staying in Barcelona yet, or you just came here to explore the city and decide whether it’s the right place for you or not.
Of course, the flip side of that is lack of stability. Imagine that you have raised a family in a very nice apartment, and one fine day the owner calls and gives you some bad news. His children are moving out and want to live on their own, hence he needs the apartment back so that they can use it. Rental contracts are usually done for three years, and after that, they are renewed yearly, so you are never really guaranteed that you will be able to retain the apartment/house for the next year.
Having your own property also means that you can customize things as you deem fit, heck even paint the walls in pink if that’s what you fancy. With rental apartments this is obviously not the case, the place must be returned in its original condition and many contracts specify that you cannot make any modifications to the place. Even drilling a tiny hole to hang a painting might be disallowed in some cases, so that could be a downside especially over the longer term.
Owning a home is, of course, considered an investment although there is no guarantee that the value will rise, and you also need to consider the maintenance costs that arise on a yearly basis.
With rentals, you are not responsible for maintaining the property and paying the communal fees, so that’s one less headache for you.
However, if prices shoot upwards and you are renting, you might be kicking yourself for not buying at an earlier stage. This can be doubly frustrating if you end up paying a higher rent due to the real estate prices rising across the board.
Buying or renting is ultimately a personal decision, however, I tend to agree with those who advise that given the current market conditions, the best is to rent unless you find a perfect apartment/house that you want to live in yourself for many years. Renting simply involves much less hassle and the costs of buying are quite elevated, so you shouldn’t feel bad if you decide that renting is the way forward for you.
In fact, many foreigners here rent for the first few years until they get a better feel for the city and the different barrios. Then when they are settled, have kids (consider school locations) and hopefully have a bit more capital they will start looking at buying that perfect property that will be best suited for them.
The idea is to buy only when you know you want to live in the same place for 15+ years. Only then does it make sense to invest a lot of money and energy into a place while also depriving yourself of the flexibility to move to other places or invest your money elsewhere. When you buy a house or apartment, you are also buying into the place you’re living in and its economics and political system. Right now, I don’t think the Catalan economy and politics are right for me to feel confident in taking the step to buy property here, hence I will continue to rent and keep my options open.
If you do eventually decide to buy, I would recommend checking out Housell, which is a platform helping you buy a property and avoiding the tons of commissions that are usually paid to agents.
So what’s your take on this subject? Have you decided to rent or buy in Barcelona?