2025: Another Strong Year Coming on the Costa del Sol

Nobody can agree on the exact numbers for the growth of prices and sales in the Spanish housing market, but everyone is agreed that they will be strong. That applies to Spain as a whole and to Costa del Sol in particular.

For instance, an article in El Economista at the end of November noted that there will be a “price increase that experts estimate to be between 4% and 10%.” At the conservative end was a study by Caixa Bank in Catalonia while the higher estimate came from a study by Forcadell and the University of Barcelona.

The latter study sees home sales reaching the numbers last achieved during the peak of the boom in the 2000s, before the 2008 crisis.

Of course, those numbers are an average for all of Spain and both sales and price increases are spread unevenly across the country. In Malaga province, for instance, there was an estimated rise in prices between 2023-24 of 13.9%.

Spain as a whole saw a 10.7% price increase, according to Idealista.com. That means that Malaga province saw price growth substantially above the national average.

Whatever the final price numbers, another strong year can be expected on the Costa del Sol, barring any major shocks. There are several factors behind this.

The first is that the economy in Spain remains one of the strongest in the EU, growing by over 2.8-3% in 2024, compared to Germany, which is in recession. Next year, predictions are that it will grow by 2.3%, compared to 1.3% for the EU as a whole.

Housing Supply

Secondly, the Spanish housing market continues to face a long-term lack of sufficient housing to meet the rate of new household formation. According to another Caixa Bank study, that deficit in home construction is about 40,000 per year.

A lack of supply is pushing up the price of homes, both new and resale. It’s important to point this out because, in comparison to 2007, the growth in prices is not driven by a speculative bubble, as El Pais notes.

Supply problems, while less explosive than bubbles, are more protracted. “The solution is more complicated: I see it as more complicated to affect the market on the supply side and the production of housing than on the financial side,” according to professor José García Montalvo.

The problem of inflation post-Covid took less than two years to solve using tight monetary policy. Building an extra 40,000+ houses per year requires more than one measure. As a result, house price rises, including on rentals, will continue above the rate of inflation.

That is especially true in places along the Costa del Sol, where the demand is at a higher level than in the interior. That, for instance, is why house prices in Malaga province have surged more than anywhere else in Spain.

New Planning Laws

There is, however, hope for relief in this area as well. In 2021, the Junta de Andalucia passed a new planning regime known as LISTA. That seems to have either opened the doors to reforms at the local level. Or, at least, it has been part of a shift in thinking and policy urgency.

Marbella will soon – after a decade in limbo – have a new overall planning law (POU). It will be followed later this year or early 2026 with a detailed law zone by zone (PGOU).

This shift is already having an impact in other Costa del Sol municipalities, with Vélez-Málaga moving to approve the construction of 3,500 homes. This is the first of what will ultimately be 25,000 new homes, which will include at least 10% for affordable housing.

A November study by Caixa Bank also suggested that at the national level the gap was narrowing between new household formation and new construction as the former declines somewhat while the latter increases. There’s still a gap but it is a sign for optimism.

Why is that important for homeowners? Isn’t it better to have prices rising rapidly to increase your equity?

Perhaps in the short term. But, at some point, it doesn’t matter if there is technically a bubble or not if houses are priced beyond the reach of buyers, meaning you can’t actualize your equity in any case. An equilibrium needs to be found.

At a political level, if house prices keep rising at a rate far above inflation, it leads to political instability. Spain has witnessed some of the largest demonstrations around housing affordability since the Indignados protests in 2011. Hopefully, the changes in the pipeline will help alleviate this pressure over the next couple of years.

There have also been recent announcements in the luxury housing area, with Rafael Nadal’s firm announcing 100 new homes, while the purchase of La Zagaleta in Benahavís is also going to accelerate the development of several hundred luxury homes.

This will increase the image of the Costa del Sol as a luxury destination, which will strengthen the local market and provide tens of thousands of jobs.

There are likely other changes coming this year that will affect the housing market.

At the EU level, but filtering down to Spain, there will be reductions in the interest rate. Inflation has been defeated and some countries, such as Germany, are facing difficult economic situations requiring stimulus.

It is predicted that rates could fall to 2% from their peak of 4.5% in May 2024. Low interest rates and a general loosening of credit will lead to greater sales activity and stimulate prices.

Tourist Rental Market

However, there are downside pressures that may slow market activity. There has been much talk of housing affordability and the right to housing. A lot of that has revolved around Airbnb style holiday lets and luxury housing. Many cities, such as Málaga, have frozen new licenses in areas where tourist rentals make up more than 10% of the housing stock. Other local regulations and restrictions are in the works.

In mid-January, Prime Minister Pedro Sanchez announced a 12-point plan to take on the affordable housing crisis in Spain. This plan likely won’t take effect until 2026 but if it passes – by no means certain – it will add to the weight piling on holiday rentals.

Sanchez’ plan will include imposing the same taxes on Airbnb rentals as are applied to hotels for instance. There will also be more money to permit local authorities to hire more inspectors to crack down on unlicensed holiday rentals.

This comes on top of moves by resident associations in many suburbs to ban Airbnbs in their statutes. Many foreign buyers, from the UK for instance, rent out their vacation properties when they aren’t in Spain. This could have a negative impact on sales and thus prices. Owners will be forced to cover a mortgage and community expenses year-round without any occupancy to offset the costs.

The plan will also include large property transfer taxes on non-EU, non-resident home purchases. This could dampen enthusiasm in the luxury market, which will obviously impact Marbella and other locales where foreign buyers of luxury homes are an important part of the market ecosystem.

With the Golden Visa scheme likely to be eliminated this spring, this tax will be a double whammy to this important market segment. The hope must be that the strong reputation, quality properties and extensive infrastructure and services – from golf to transport – will maintain the region’s momentum.

On the other hand, there will be tax incentives – basically a 100% tax holiday – on anyone who provides a long-term rental at an affordable rate. As the region grows, including with construction workers and service providers for the new, planned luxury developments, that could ease the inevitable pressure on housing.

However, while there are some challenges facing the Costa del Sol, the picture is overall positive. The strong and stable economy will continue. And the region is a mature market with high quality services, pristine beaches and a quality of life that is unmatched.

Given all the factors, especially with interest rates falling again to very low levels on par with the rate of inflation, it is a good time to make a purchase or to sell. There are several good years ahead for the region.

By Adam Neale | Property News | January 27th, 2025

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