I don’t have to read the newspapers to see that property in Barcelona is overvalued.

Exhibit A: the apartment below mine is on the rental market. It’s newly restored, is 200 m2 in size (that’s about 2000 sq feet, for the Anglo-Saxons out there ), and is going for 2000 euros/month.

Exhibit B: the apartment exactly opposite mine on the other side of the street is for sale. It’s also newly restored and 200 m2 in size, and is going for 1.27 million euros.

These numbers imply that the gross rental yield in the city is about 1.9% per year. That’s if the property is fully rented, and without discounting any maintenance, agency fees, taxes, or other expenses. A more realistic net yield might be below 1%.

Considering that inflation in Spain is currently running around 3.5%, this means that property rental is a negative return business these days.

Consider also that property values are no longer rising, so owners can’t count on capital gain to overcome the negative real yield of renting.

Finally, consider that for typical Barcelona salaries, apartment rent of 2000 euros is extremely high and out of reach for almost all single and even double earners.

This is a new economic reality for Spain, where people have become used to double-digit returns every year in the past decade for owning property. I’m not sure how quickly people will adjust, or even how they will do so.