Investors Now Account For One Third Of Home Purchases

9 September 2016 – Expansión

Barcelona, Madrid, Valencia, Zaragoza and Málaga are experiencing a mini boom in the purchase of homes for rent, thanks to the appreciation of property prices and significant growth in rental prices.

The recovery of the residential market has once again sparked investors’ interest in property, thanks to the high returns that they offer (in the form of rental income) and the expectation of significant and consolidated price rises (appreciation in value). So much so that investors now account for one out of every three homes purchased in Spain’s major cities, according to data from Tecnocasa.

Barcelona is leading the investor boom; there, 40% of homes sold are intended to be let out. That means that just 60% of the buyers acquiring a home in the city actually plan to live in it. Barcelona is followed by Valencia, where the percentage of homes being sold for their subsequent rental amounts to 37%. Madrid is the other major city where individual investors – primarily, although not exclusively – account for one third of the real estate cake, specifically 32%.

The average in Spain amounts to 26%. The other three major real estate parks in Spain – Zaragoza (28%), Málaga (25%) and Sevilla (22%) – also move in this range.

Why are we seeing this mini boom in property investment? The answer is simply: because residential properties are currently offering an average rental yield of 4.7%, and that rate increases to 10.9% if we add the gains resulting to the rise of property prices, according to official data from the Bank of Spain. These figures are extremely appealing, especially compared to the returns offered on public debt (0.987% yesterday), deposits (0.2% in July) and the stock market (-15% in August).

This has led to a mini boom of investors who have found refuge in the residential market, where the risks are low and the returns are tangible. “In fact, the new investors include lots of retired people who are using income from these investments to supplement their pensions”, said José García Montalvo, Professor of Economics at the University of Pompeu Fabra.

Moreover, rental prices are rising significantly in the major cities. In August 2016, it was 14.8% more expensive to rent a flat in Barcelona than it was 12 months ago. In Madrid, prices increased by 7.5% during the same period. “Nevertheless, rental prices cannot continue to rise at such a rapid rate”, warns García Montalvo, because “although rental prices have decreased significantly since 2008, the income (of tenants) has also decreased”.

The most sought-after areas for tenants and those that have resisted the real estate crisis the best are the most attractive for investors. In fact, according to Manuel Gandarias, Head of Research at pisos.com, “the highest price rises are being seen in areas that suffer from a lack of high quality product…”.

So, is now a good time to invest? “House prices are increasing significantly, but for the time being, rental prices are rising in unison, which means that investors can obtain returns”, said García Montalvo. But this train will leave the station sooner rather than later. (…).

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

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