2025-05-20
Is a Real Estate Bubble Forming in Madrid?
Real estate bubbles tend to occur when property prices rise. This increase is usually rapid and happens over a short period of time. Although temporary, these conditions can significantly impact the affected housing market, as prices become less affordable for potential buyers.
UBS’s annual analysis of this phenomenon offers an interesting perspective on the Spanish capital. In its 2024 Global Real Estate Bubble Index, UBS classifies Madrid as a “city with a moderate bubble risk”.
Madrid presents a moderate risk of a housing bubble.
Globally, housing price growth has been relatively subdued. Nevertheless, cosmopolitan cities like Madrid – especially in high-demand areas such as the Salamanca, Retiro, or Chamberí neighbourhoods – are experiencing a complex housing supply shortage that has led to a price increase of over 5% compared to the 2023 analysis.
This shortage is explained by a sharp increase in demand in recent years. The growing interest in Madrid's real estate market is driving a rise in investment demand from both Spaniards and foreigners interested in buying apartments in Madrid or acquiring luxury homes in the city.
This rising demand sets Madrid apart from other major European cities, which have recently seen more stagnant growth.
While Milan, Italy’s financial hub, remains at 2018 price levels due to a market constrained by inflation, Madrid is not following Milan’s trend. The Spanish capital, on the rise, has recorded a 5% increase in real housing prices (inflation-adjusted) between mid-2023 and mid-2024. Added to this is a sharp 15% rise in rental prices over the past year, highlighting the profitability of rental property in Madrid – even in a less favourable economic context.
In fact, according to the UBS Index, Madrid ranks 16th in terms of "real estate market bubble risk", with an increase of 0.56 points (Miami ranks first with an increase of 1.79 points, while São Paulo is in last place, 25th, with a decrease of 0.04 points).
Although Madrid is not currently at the epicentre of a housing bubble, several warning signs are emerging. The steady rise in home prices, the significant growth in rental costs, and the increasing investment demand all contribute to a moderate risk of market overheating. As affordability decreases and supply struggles to keep up with demand, it will be crucial to maintain close monitoring and implement responsible policies to prevent this upward trend from turning into a full-blown bubble.
CONTACT
.jpg "Castellana Madrid")