Bank of Spain: Avg. Yield On Housing Was 8.8% In 2015
22 March 2016 – Expansión
Investment in residential property is strengthening due to its low risk. In 2015, the gross yield on flats – rental income plus (property price) gain over one year – recorded its best year since the real estate boom.
As the recovery of the residential market gains strength, so housing is becoming an ever more attractive investment. Nowadays, buying a property to then put it on the rental market is an operation with high returns and low risk.
In other words, the option preferred by long-term investors. Not surprisingly, housing closed 2015 with an average yield of 8.8%, the highest annual figure since 2006, according to data from the Bank of Spain.
The body governed by Luis María Linde takes into account not only the gross rental yield (which stood at 4.6% as at December last year), but also the gain (in property prices) over 12 months, which adds a further 4.2 percentage points to the figure. As a result, many small and medium-sized investors have set their sights on the residential market, as they seek refuge from the low profitability of other investments. The return on housing is six times greater than the 1.44% offered on public debt over 10 years, and 22 times higher than the 0.4% yield offered on deposits. Meanwhile, the performance of the Ibex 35 is negative (down by 24.3% in February, according to the Bank of Spain).
8.8% is the highest return recorded at the end of a year since 2006, when the figure stood at 17.7%. Not even in 2007, the year in which the bubble peaked, was a higher figure recorded (then it was 8.6%). Between 2008 and 2013, returns were negative and 2014 closed with a yield of 6.4%, 2.4 points below the figure recorded last year.
“This data is very strong and confirms the change in the trend for the residential market, which began back in 2014”, says Julio Gil, Chairman of the Real Estate Research Foundation (FEI). “The combination of the positive evolution in terms of house prices and the trend in rental income have resulted in very high profitability, which confirms the stabilisation of the market and puts housing in a strong position versus other investment assets, particularly thanks to the very strong return-risk ratio”, adds Gil. Nevertheless, although “this indicator confirms the increasingly strong stabilisation of the market”, that “should not be confused with a situation of sharp growth”, warns the Chairman of FEI. (…).
As Gil warned, the sector is currently experiencing an impasse of high returns and low risk, something that is very rare. For this reason, experts are recommending investments in homes in good locations where high is demand. Central areas and suburbs of major cities are the best places to buy a property and then rent it out. The best options are one or two bedroom flats that are less than 80 m2, as they generate the best ratio in terms of rental income per square metre.
Moreover, rental prices are on the increase. Rent became more expensive in every autonomous region in 2015, with the exception of the País Vasco, where prices decreased by 0.3%, according to Fotocasa. It is the first time that rental prices have increased in 16 of the autonomous regions since the statistic, which the Bank of Spain uses in the absence of official sources, was first created nine years ago.
Original story: Expansión (by Juanma Lamet)
Translation: Carmel Drake