“It is not a cultural matter but economy in its purest form”. This is the forceful answer that sources close to the consultant give on whether or not there is a change in mentality that explains the rebound of the rent prices. The sure thing is that there is something going on in the market. It is difficult for Statistics to identify it, since there are not official studies that value the rent prices and there is not even a census of rent. In fact, according to sources of Development, the government studies the best possible way to create one, but the project is still in its infancy.
The only thing official, some years now, is that in Spain hardly 12% or 13% of the houses is for rent whereas the remaining 85% of property. These percentages are opposed to the European average of 70% being owners and 30% being tenants and these are far away from the German reality, where more than half of its population decides to rent a house.
With or without a cultural factor, the influx of the economic boom in Spain after Francoism and, above all the launch of Euro and ‘free access’ credit, had as a result that all financial parameters were suggesting to buy a house instead of renting one. The advantages for the components of the market were: supply and demand.
As far as the demand is concerned, the massive entry of the baby boom generation in the labor market brought a bigger need for house. In this context, the launch of mortgage funding at the minimum rates with repayment terms apparently eternal made the purchase more accessible to almost all the segments of the population.
Then, there was a time when for a house of similar characteristics the rent was equivalent to a monthly mortgage. That promoted the famous slogan: “it is because with the same money, it is better to buy than to rent, so the money is not wasted”.
Because, even though it is certain that when you buy a house you have to pay out a number of expenses during the first year whereas when you rent you do not (incoming payment, taxes, notary, registration, processing agency, among others), the banks then were financing 100% the property’s value if the savings were not enough.
All this was incited by the bull market with price revaluations of double-digit every year and a Public aid system (VPO) and tax deductions that were urging to buy a house like if renting one was out of the picture.
As far as the supply is concerned, one has only to remember that Spain managed to build more apartments than German, France and Italy altogether and having an empty house was possibly one of the most profitable investments, thinking that the price increase would keep on.
But the crisis came into the picture and the boom explosion put an end to the mantra: “houses never lose their value”. Now, everything seems to be in favor of rent.
The houses have become cheaper with an average between 40% and 50% since they reached their maximum prices (according to the consulted statistical information) and the gross profitability is stabilized around 4,6%,as Banco de Espana presents.
Other sources of the financial sector reassure that in specific neighborhoods of high rental demand, the gross return rises up to 7% or 8% “what in net terms gives a profit of 6,5%. No finance product can compete with that”. These two factors (houses even cheaper and perspective of interesting return) urge one in five new owners to buy a house for rent, according to all sources consulted.
Furthermore, the sale prices kept falling at least in the short term, the incomes close the year with average fall 3,06% as a study of Pisos.com indicates and just like as Idealista.com recalls that possibly they will be stabilized within this year. In fact, in neighborhoods of high rental demand such as Madrid or Barcelona they are growing again.
So, for those who have savings “there are houses in interesting price that are being bought without loan and, once the houses are rented, they begin to offer benefits” Luis Corral recalls, who is the Executive director of Foro Consultores.
Those who are thinking to rent a house, whether because they cannot afford to buy one or because they are reluctant to long-term debt, have in mind that there are more advantages than in the past. On the one hand, the great variety of choice is translated in greater price competence. On the other, a plan of Public aid is still in its infancy. If this rent increase continues or not till reaching the European levels is something that nobody knows, but it will largely depend on how fast the recovery will be as well as on the new real estate policy of the banks.
Who will buy a house this year
– Investors: It is about a solvent demand that begins to see that the adjustment comes to its end and the time to buy has finally come. Many of them will buy for rent.
– Foreigners: They see great opportunities in Spain. They prefer the coast and more exclusive zones of Madrid or Barcelona.
– Relocation: Families that need a bigger flat or in a better location, even though the majority will sell their own to buy a new one.
– Building houses: the key segment, but it is what most depends on the economy
“The bank is now also my landlord”
The most obvious proof that rent is getting more followers is that even the banks start showing interest in this segment. Some entities consulted admit that is not their most relevant business but they recognize that in places of increasing demand it is a good option. The banks explain:” First of all because it is not the same for us an empty building than another that gives profits and secondly because the benefits are attractive and with good perspectives short-to medium term.”
Therefore, some entities have started asking how to adapt the empty houses in their portfolios for rent.
About the possibility for some banks to use the rent of their flats in order to sell house packets or buildings to foreign funds, the experts consulted believe that it will be more symbolic in residences and more tangible in services and offices.