11 May 2015 – Expansión
The real estate sector is taking off / The real estate sector is becoming more attractive for investment purposes. Now is the time to buy, above all in the exclusive neighbourhoods of the large cities and in certain areas along the coast. Renting generates good returns.
Real estate investment is gaining lustre. Increasingly, experts are saying that the market has bottomed out and now is the time to buy.
House prices, which fell by 50% on average from (the heights of) the property boom, are experiencing a clear process of stabilisation and are now showing signs of gains in some places. The valuation company Tinsa highlights that Barcelona, Palma de Mallorca, Málaga and Burgos are the cities that experienced the highest inter-annual price increases during the first quarter, of between 0.1% and 5.4%. On average, prices rose by 3.3% during the first quarter, according to Sociedad de Tasación, reflecting even more optimistic data.
But beware, the experts warn that although investment opportunities exist, not all investments are good – many homes are still valued above market price. Nevertheless, in the most sought after areas, waiting to buy could be a mistake, since homes will be more expensive and there will be more people interested in making bids for them.
Location is key. The most profitable areas to invest in are the best areas of the large cities, especially Madrid and Barcelona, as well as the most established coastal enclaves, such as the Costa del Sol. For example, the gross annual return on a 100m2 home in a prime area of Madrid is around 5.2%.
The banks have more than 150,000 properties to sell through their websites. The discounts (they are offering) are less aggressive than during the peak of the crisis and there is an extensive supply of holiday homes. The most pronounced reductions are located outside of the premium areas, but homes in those regions are more difficult to monetise.
One of the most recommended strategies at the moment is ‘buy to let’. According to the President of the Foundation for Real Estate Studies, Julio Gil, “buy to let is currently one of the best alternatives for small investors in terms of return and risk”. You can obtain an average return of 4.7%. In the case of retail premises, the return that you can obtain increases to 7%; for offices, it amounts to 6.4%; and for parking spaces, it averages 4.6%, according to a report from Idealista.
These returns are significantly higher than the 1.6% offered by a 10-year Spanish treasury bond. Meanwhile, according to the Bank of Spain, average returns on 12-month deposits are below 0.5%.
One of the elements that reflects the reactivation of the real estate market is mortgage lending. It increased by 1.6% in 2014 to reach 203,000 loans, whereby turning the tables on seven years of decline. The improvement was even more dramatic in February, with an increase of 29.2%. Nevertheless, the figure still falls well below the equilibrium point, which is 450,000 (mortgages) per year, according to Sociedad de Tasación.
The financial institutions are optimistic and say that new credit will increase this year. Analysts at Moody’s ratings agency agree. They consider that the increase in mortgage lending will improve demand in the real estate sector, which in turn may help to increase property prices.
The financial institutions have already launched (campaigns) to secure clients and obtain customer loyalty during this period of recovery. Most of the offers from the banks are variable rate products (mortgages). The best deals have spreads of between 1% and 1.75%. However, it is important not to focus on the differential alone, since in some cases opening and cancelation fees apply, whereas in other cases they do not. Moreover, each entity usually requires a minimum income, which varies from one to another (from between €500 to €5,000 per month). Furthermore, in almost all cases, the banks require borrowers to purchase other products such as insurance and pension plans or (to commit to a minimum) credit card spend. Meanwhile, interest rates on fixed rate mortgages vary from between 2.4% to 5.5%.
Original story: Expansión (by C. Rosique)
Translation: Carmel Drake