The arrival of foreign millionaires boosts the price of luxury housing in Madrid

PUBLISHED ON

Diciembre 03, 2024

CATEGORY

Real Estate

Serrano 92, Núñez de Balboa 3, Velázquez 53, General Oraá 9, Santa Engracia 65 or Hermosilla 47 (the Mandarín Oriental Residences) are some of the exclusive (and scarce) new-build or refurbished developments located in the heart of Madrid. Most of them are located in Barrio Salamanca, the traditional epicentre of the prime segment, although other areas such as Jerónimos, Justicia, Chamberí, El Viso and La Finca are also on the map for wealthy buyers.
The luxury market is booming in the Spanish capital (thanks in part to branded residences) and the interest of large foreign fortunes (mostly of Latin American origin). Prices continue to rise and have reached unprecedented levels due to the scarcity of supply and robust demand. Currently, Serrano 92 is the most expensive development on the market: the price per square metre is 25,000 euros, a figure that would have been unthinkable a few years ago.
The exclusive development has seven homes with three bedrooms, communal areas surrounded by interior courtyards and even a secret garden with an integrated swimming pool in a gallery. This project, located in a 4,000 square metre building originally built in 1929, is the first new development to be launched on Calle Serrano in the last five years.

‘Madrid is increasingly approaching the sale prices of other European capitals such as Paris and London. In second hand we are also seeing assets at 18,000 per square metre when it comes to unique properties in the best locations and with the requirements that the buyer is looking for: classic property, representative entrance, high floors or penthouses and many balconies overlooking the street. Currently, the price per square metre prime in Madrid averages 16,500 euros.

Foreign capital
Foreign buyers are the main drivers of the high-end market in Spain. Large fortunes come to Madrid attracted by the city's lifestyle, cultural and gastronomic offer, security and legal stability. The arrival of a demanding clientele, with high purchasing power, has helped to create an offer to match. Madrid continues to be that friendly city, still affordable compared to other European capitals, that welcomes foreigners like no other. But it is also now, ten years later, much more international and cosmopolitan.

As for the origin of the buyers, they are mainly from Latin America, mostly from Mexico, Venezuela, Peru and Colombia. Alongside this profile, we are also seeing national investors from Barcelona or other provincial capitals. In general, they are entrepreneurs with prosperous family businesses who want to own a property in Madrid and diversify their wealth. Finally, in recent months we have seen American and French clients who have set their sights on Madrid as a trendy city with great potential for revaluation.

In terms of the type of property most in demand, potential buyers are looking for properties located in the city centre that have large spaces, first-class qualities and communal areas such as a wine cellar, gymnasium, swimming pool or spa. They use them as first or second homes.

Price developments
In terms of price trends, luxury housing rose by 5.5 per cent year-on-year in the third quarter, according to Knight Frank's Prime Global Cities Index (PGCI) report. ‘Madrid has demonstrated a unique stability with a quarterly growth of 1.2% between July and October, supported by its investment appeal, quality of life and the interest of an increasingly sophisticated buyer, both nationally and internationally’, highlights the text. The Spanish capital ranks 12th in terms of price increases, narrowly beaten by Lisbon (5.6%) and Perth (5.6%).
Globally, prices in the luxury sector slowed with an average annual growth of 2.9%, ‘significantly lower than the 4.6% average of the last ten years’. Looking ahead to the next five years, the consultancy expects continued price growth underpinned by a stable local economy and well-established fundamentals. With a limited housing stock, falling interest rates and an increasingly international market, the forecast will be for increases close to those experienced in 2025 but much more dynamic. That is, as long as the political environment guarantees a certain stability for investors.

And what is happening in the prime rental market? Globally, prices are evolving at the same pace as the buy-to-let market: slowing down. According to the Prime Global Rental Index, rents rose by 1.9% in the world's major cities during the third quarter, the most moderate increase since the second quarter of 2021.
‘The rental market is feeling the pressure of affordability constraints after a two-year period in which rent increases outpaced inflation in almost all markets. Despite the slowdown in prices, our view is that the structural shortage of new housing in major cities means that rents are likely to rise faster than trend levels over the next few years,’ notes Liam Bailey, global head of research at Knight Frank. The largest price declines were in Toronto (5.6%), followed by Singapore (4.8%) and Hong Kong (0.1%). In contrast, rents rose in Sydney (8.4%), Zurich (5.6%), Berlin (5.4%), Los Angeles (3.7%), Miami (3.2%) and Auckland (2.9%).