Is Marbella Property Market heading for a Bubble?

Real estate markets, similar to many aspects of life, experience cyclical fluctuations—rising and falling in a predictable pattern. Following four years of significant growth characterized by strong demand and swift price escalations, there are concerns among some observers that the market could be approaching a bubble. This raises the question of whether we are nearing the conclusion of the current growth cycle.

In the years preceding the Financial Crisis, the fundamental demand for housing in Marbella was largely supplanted by investors purchasing properties solely for speculative purposes. This speculation, coupled with an overly lenient lending environment, ultimately contributed to the severe repercussions of the 2008 financial crash on the local real estate and construction industries, as well as the banking sector. Currently, banks are exercising greater caution and have been recapitalized, the Spanish economy is experiencing healthy growth, and unemployment rates are low. Wages are slightly outpacing inflation, leading to an increase in quality job opportunities, which in turn stimulates consumer spending and saving, potentially encouraging individuals to enter the property market.

The reality is that the situation does not appear as it might seem. Despite the sustained high demand and increasing prices, there is no evident indication of a property bubble in Marbella, nor do any factual metrics suggest such a trend. While demand remains robust, the growth rate is gradually decelerating from the unsustainably elevated levels observed in 2022. Similarly, prices continue to rise, albeit at a slightly slower pace. When comparing the current landscape to the lead-up to the 2008 Financial Crisis, it is evident that we are still quite distant from that scenario.

Costa del Sol

The information presented primarily reflects the national landscape and extends to other predominantly domestic markets, such as Málaga. In this region, the escalating prices of inner-city properties are prompting an increasing number of buyers, particularly younger individuals, to seek homes in the newer outer suburbs and nearby areas like Torremolinos and Benalmádena, which are also likely to experience growth in property values. Conversely, in Marbella and its vicinity, the majority of demand is driven by foreign buyers, predominantly from Europe, many of whom are affluent individuals purchasing second or primary residences, as well as investors. The fundamental demand for Spain remains robust, evidenced by record tourist arrivals and spending—contributing over 20% to the Spanish economy—alongside home acquisitions and foreign direct investment across various sectors, particularly in property development.

While many investors engage in buy-to-let ventures, there is a governmental initiative aimed at reducing the number of properties with tourist licenses that permit holiday rentals, a move supported by numerous homeowner associations. Recent legislation has empowered property owners with greater authority to evict illegal squatters, thereby benefiting the long-term rental market. Nevertheless, most buyers still acquire properties in Marbella and its surroundings primarily as vacation homes or, increasingly, as permanent or semi-permanent residences. This sustained intrinsic demand for real estate in the Costa del Sol continues to foster a vibrant market. Although a slight deceleration in growth may alleviate some pressure on property values, they are still projected to increase between 5% and 15% this year, influenced by a relative scarcity of supply and rising construction costs due to land price increases and labor shortages.

This situation particularly impacts newly constructed homes, which are projected to see price increases of 15-20%. In contrast, existing resale properties are anticipated to decline in value by 5-15%, influenced by the specific home and its location. Additionally, gradually falling interest rates will contribute to rising prices. Although these trends are expected to persist into 2025, many analysts believe that the growing availability of new homes will start to address the supply-demand imbalance by next year. This could lead to a more significant deceleration in the appreciation of real estate values in the Costa del Sol and Málaga.

A long story short.

In summary, the aforementioned points indicate that we are able to:

• Anticipate that 2025 will be another exceptionally active year for real estate transactions in Costa del Sol, with the broader Spanish market and domestic sector also rebounding following a minor decline last year.
• New construction projects are projected to help ease the property shortage by 2026; however, before this occurs, we can expect resale prices to increase by 5-15% and new-build prices to rise by 15-20% throughout 2025.
• Property prices are expected to continue their upward trajectory due to the imbalance between limited supply and high demand, particularly from the domestic market and notably from high-net-worth individuals in Marbella and its vicinity.
• Recent and forthcoming legislation is likely to complicate short-term rentals, while simultaneously benefiting homeowners and investors involved in long-term rentals.
• Although the pace of property transactions in Costa del Sol may experience a slight deceleration in 2025 and 2026, the market is expected to remain robust.

The prevailing sentiment in the market suggests we are not approaching a property bubble, and that 2025 is expected to be another robust year for real estate in Málaga province. This perspective is reinforced by key indicators, indicating that the growth cycle is still ongoing, driven by sustained strong demand that currently aligns with rising prices. He notes that an increasing supply of properties should alleviate some of the pressure on property values, leading to a deceleration in price growth rates by 2026, which would contribute positively to maintaining market equilibrium.

Data

• Spanish economic growth for 2025 expected at 2,8% – 1pp higher than originally estimated, and one of the fastest-growing economies in the EU (source: BBVA Research based on official data from INE).
• PRICES: +13,6% increase in Málaga province in 2024 – 5-15% expected in 2025 for existing resales and 15+% expected in new-builds (source: TINSA).
• SUPPLY: 8,900+ new properties approved in Málaga province in 2024, up 27.5% from 2023 (source: Official College of Architects of Malaga).
• INFLATION: expected to drop to around 2% in 2025 (source: European Union Economy and Finance Dept.).
• MORTGAGES: loans now often rising from 70% to 80%, with interest rates as low as 2% (source: Forcadell).

Sources: DM Estates.