As a local living abroad but owning properties in the islands, I can tell you there are many great reasons and benefits why to invest in residential property in Canary Islands, Spain. No matter if your plan is to just use it during your family vacations, move in for part of the year when you retire or get an extra income by putting it on the vacation rental market, many of the same benefits apply.
The Covid-19 pandemic has brought some challenges to current owners but also some interesting opportunities for new ones. We assess its impact on the different benefits reviewed below.
1. Awesome weather and mind-blowing nature
The first thing everyone mentions about the Canary Islands is the weather. It is stable mild warm weather with a yearly average of 22 °C / 71 °F and not much fluctuation between summer and winter. This means it is never too hot or too cold, and that is great for holiday home property owners and investors as the property can be used or rented throughout the year. The islands have a long high season and a short low season for tourism, but this only translates into a small decrease in occupancy rate during three months per year. Nothing else in everyday life is altered.
Nature also plays a big role as the variety of it onin each island, and between islands, can be immense. On the east side of the archipelago lays Lanzarote, a volcanic paradise with white sand beaches, while on the west side lays El Hierro with its almost jungle-like environment. Even in islands like Gran Canaria you can switch from a warm, thin-sand beach to a chilly mountain home in a thirty-minute drive. They are called micro-climates and the Canary Islands are famous for having some pretty awesome ones. This variety of nature and the overall yearly warm weather is a big motivator for either sun or sport tourists to keep on returning year after year.
Why is this a reason to invest in holiday homes in the Canary Islands?
As a holiday homeowner or investor, it ensures that your property's value is secured in the long-term as there is the security in the Canary Islands remaining to be an attractive destination for Europeans, maintaining a high demand for holiday homes. Furthermore, if you are also renting out your property, investing in the Canary Islands also assures you a high occupancy rate for years to come, as the tourist destination has mostly become more and more popular, with nature-related tourism being a high growth segment.
2. Long-lasting political and economical stability
As a region of full rights within the Spanish state, the Canary Islands enjoy EU membership status. The political and economical stability that comes with it translates into legal and fiscal certainty for foreign property owners, and that limits the risk of the investment going sour compared to other non-EU destinations. As a European citizen or firm you have full rights like you do on your member state of origin. This political stability also translates into steady tourism, receiving the extra influx of tourists when political tension erupts on other vacation destinations in North Africa, Asia, etc.
The islands have experienced steady and stable economic growth since the tourism industry started to develop back in the 60s. Not being immune to the global economic crisis, the islands manage to recover well every time. Thanks to the well-established tourism industry and the loyalty of European tour operators and tourists, the islands are always in a healthy and safe environment for recovery. This ability to always rebound from economic slowdowns minimizes the risk of a holiday home investment losing value in the mid and long-term.
Source: Aena SME, S.A. Why is this a reason to invest in holiday homes in the Canary Islands?
Being a territory of the EU, as a European, your rights are fully protected, and as a foreigner, there is a clear legal and fiscal framework that has to be respected by authorities. All this gives certainty to the buyers and minimizes the risk of anything going sour. If you are also renting it out, you are also in full control of the situation. Also, if we look at any economic swings in the past, the value of holiday homes in the Canary Islands has recovered, maintained, and grown steadily in the last five decades, and that is a good sign. The same goes for rentals, as despite the swings from the previous global crisis, tourism has been in steady growth since the '70s.
3. Available public infrastructure and overall safety
Since Spain became a European Union member state in 1986, the Canary Islands benefited from a huge increase in infrastructure investment thanks to the Union's cohesion funds for peripheral regions. These funds were not only destined to improve and increase tourism capabilities but the societies within the islands as a whole. This led to an increase in road and mass transit systems, airports, airways and ports, water supply and wastewater management, solid-waste treatment and electrical power, healthcare, education, and security, and other types of public infrastructure. This investment as a whole not only brought an opportunity to locals and foreigners but paved the way for the sustainable growth of the islands.
Why is this a reason to invest in holiday homes in the Canary Islands?
As a foreign owner of holiday homes, investing in a place with good infrastructure lowers the risk of a loss of value. If you are planning to enjoy the property at times or during the whole year, you want to have all these infrastructures at your disposal to make your life more safe and enjoyable. If you are also renting out your property, guests are likely to want to have these infrastructures at hand, as it also lowers the risk of their vacation time going sour. One way or another, investing in a foreign home located in a place with varied and good quality infrastructure is the safe way to go.
4. Safe and rewarding holiday home market
The effects on the real estate market are first of price correction, especially on the higher risk properties, with a steady recovery in the years following. This has been the case in 2000 and 2007 and to a milder degree, the one we are experiencing today is related to the pandemic. The one important difference is that in the previous the price correction came from excess in new properties for sale, while today the correction is related to the excess of properties on the vacation rental market. In today's case, there has been a reduction in the price of some segments of the holiday home market, but those opportunities are starting to fade. As the vacation rental market picks up (and it is picking up faster than hotels as there is a perception of less risk of infection), the prices of holiday home vacation rentals are getting back to the levels before the pandemic.
Why is this a reason to invest in real estate in the Canary Islands?
Except for a few exceptions in highly risky development areas in secondary islands, overall the Canary Islands real estate market is a safe choice. Despite the market corrections in previous times of economic crisis, the historical evolution of the market and price proves it to be safe and rewarding in the return of the investment. At this time, it is also a place of opportunity, as the current pandemic-related crisis will affect the market, with an average of 10% decrease in prices. Since the demand for these opportunities is high, as a foreign investor you are keener to access them with the support of companies like Sijoitusasunnot Kanarialla and its local networks of trusted partners.
5. Loyal year-round tourism
Due to its subtropical climate with little variation between winter and summer, the Canary Islands are a year-round tourist destination. Although there is a slow-down between October and November, and between February and March, the arrival of tourists from mostly Europe but all over the world does not stop. Even if it is a few degrees colder than in the summer, it still is way warmer than anywhere else in continental Europe, and that is why apart from the summer, there is another high season that lasts all December and January.
Of course, you need to take into account which island and wherein each island, as the micro-climates mentioned in section one of this post can surprise you. For example, the southern parts of the islands tend to always be sunny and carry no rain. Also, the eastern islands tend to be warmer and less humid, which of course has to do with their own orography, meaning if they are flat, have mountains, etc. For those who want to enjoy both warmer and cooler climates, both Gran Canaria and Tenerife are the winners, as the variety of nature and weather within a small distance can be impressive.
Why is this a reason to invest in real estate in the Canary Islands?
As a property owner, investing in a place with weather that you can enjoy any time of the year is much more attractive than other tourist destinations that are alive with people during part of the year but then turn into a ghost town in the winter. Most importantly, if you are trying to maximize the return on your property's investment through vacation rentals, you want to do it in a place where you can rent it out the maximum amount of days per year. Apart from the Canary Islands, there are not much more than a handful of other places in Europe you can do that, and the islands rank as the top tourist destination in Spain. Easy choice!
6. Foreign-friendly environment
The Canary Islands have a rich history of interaction with people from all over Europe, North Africa, and the Americas due to its geographical location. Since America was discovered, and that was just fifty years after the Canaries were conquered by Spain, the islands have been in a very important trade route which meant an influx of goods and people from all over. This continued with the rise of tourism in the 60s as people from Europe and Spain moved to the islands to make a living. On top of that, there are all the foreigners who have also bought a vacation property in the last thirty years to enjoy during their vacation and/or after retirement.
This mixed society not only has evolved into a very foreign-friendly environment but also a place where different nationalities sell goods and services in their own mother tongue. Especially in the tourist areas, this means that you do not even need to speak the local language to get services like banking, healthcare, education, etc. Although it is recommendable for someone who spends long seasons in the islands to learn some basic Spanish, it is totally doable to get anything done without speaking the local language.
Why is this a reason to invest in real estate in the Canary Islands?
Being a foreign-friendly environment is a big benefit for a foreign property owner, compared to a place where the local language is a must for any communication. As an owner, it means you can access the goods and services needed for your property easily and from different providers. As a resident during the times you enjoy your property, it means there are a lot more activities to enjoy since language will not be a barrier. It also means that you can create friendships with locals or other foreign property owners, as they also speak foreign languages, making your relationship with the island more interesting. As for vacation rentals, tourists, in general, prefer foreign-friendly areas especially at times of emergency when communication is critical, for example in a medical situation.
7. EU building quality and energy standards
Especially during the last decade, Spain adopted all the same building standards as most European countries. Although developments older than the 90s might be deficient on some of these standards, most real estate built after that has had to comply with all types of certifications and quality control. This ensures a real estate investor a certain degree of peace of mind from future costs of renovations, etc. By law, a real estate property owner is also entitled to (1) a 10-year construction guarantee covering serious structural faults, (2) a 3-year warranty covering less serious structural faults, for instance leaking roofs, and (3) a 1-year warranty against minor problems with the fixtures and finishings. You can read more details on each case in this article by a Spanish lawyer. Also, Spain adopted the European standard for property energy certificate in 2013, which is obligatory in case of rental or sale.
Why is this a reason to invest in real estate in the Canary Islands?
Although it has to be looked at case by case, in general, the construction quality of property in the Canary Islands during the last twenty years follows European standards, and the energy certificate helps foreign investors anticipate costs and minimize the risk on the property they are buying. This certainty is an advantage when analyzing risk, compared to other tourist destinations in and outside Europe.
8. Thriving vacation rental industry
As in many other places in the world, vacation rental services as Airbnb have been a game-changer for real estate property owners, especially at tourist destinations. Being able to rent a property for short vacation rentals has almost doubled the return of the holiday home investment. In the Canary Islands, this has been especially true as there have been very few new tourism-related real estate developments in the last fourteen years, with most growth happening in this new segment. You can go deeper on the exact numbers and trends in 2019's Vacation Property Report by the ASCAV (vacation home association of the Canary Islands).
Why is this a reason to invest in holiday homes in the Canary Islands?
Despite the trend of tourists currently preferring vacation rentals to hotels due to the perception of lower infection risk, the COVID-related pandemic has put huge stress over vacation rentals. Many property owners not being able to take the financial hit. Luckily the long-term rental market is still thriving with high prices so there's been an easy way out. This can be also taken as a correction of the vacation rental market, which means that when tourism starts coming back in high numbers (as expected in early 2021), the demand for vacation rentals will be higher and those old and new owners will enjoy greater occupancy and greater daily prices.
9. Effects of the pandemic and post-covid rebound
The official indicators and the general perception is that the pandemic was extremely negative to holiday homes on the vacation rental market. A closer look at the different property categories within this market tells a different story. While the segment of vacation rentals competing on price suffered steep declines in occupation and average daily rates, the higher segments mostly consisting of bungalows and villas had a very profitable year. For a closer look at how this happened, check out our article titled How Holiday Homes in the Canaries Maintained Record ROI Levels During 2020's Travel Ban.
While the post-Covid rebound has not gone as fast as hoped, especially due to the islands staying for some months within the danger zones for two of its most important tourism markets, the UK and Germany, the recovery is steady and accelerating. It is important to understand that hotels and traditional accommodations are the segments that are recovering slowest. In general, data suggests that occupation rates of vacation rentals double that of traditional accommodations, and while average daily prices are still 10 to 20% lower than pre-pandemic, the increase is accelerating fast. For perspective, note all other EU tourism hotspots apart from Madeira are far from the level of recovery being achieved in the Canary Islands. If you invested in the south of France, Bulgaria, or Asia, you are much worse off than if you invested in a holiday home in the Canary Islands.
Take-away
In a nutshell, investing in the islands is not only a safe choice but right now a great choice too. There is economic and political stability, and as a foreign investor, certainty in fiscal and legal rights as a property owner. Being part of the EU means being a safe choice for European home investors and tourists especially in times of economic turmoil, which assures the value of your property and the potential of extra earnings through rentals, higher on the vacation property market. As the crisis-related price correction hit the market, interesting opportunities for investment are still available. A great choice are villas or bungalows, for they have the potential to generate the highest return based on that property type prices in rental platforms like Airbnb and others. Last, vacation home types of rentals generate the highest return on investment, and its demand has not stopped increasing since 2008's crisis due to the lack of new developments, and the effects of the pandemic- the perception of being a safer option than other types of properties, decreasing the chance of COVID-infection.
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