Servihabitat: Rental Yields Now Exceed 10% in Madrid, Cataluña, Balearic & Canary Islands

18 December 2017 – Expansión

“The Spanish residential market has been showing clear signs of recovery in 2017 and all indications are that the rate of growth will be even higher in 2018. The number of house sales will rise by 16.9% this year, to exceed 472,000 operations, and by another 18.3% next year, which means that we will see the sale of almost 560,000 units”. In this way, Servihabitat summarises the trend in the residential sector, which is enjoying a sweet moment.

The key factors contributing to the boost in demand include: the growth of the number of solvent buyers; policies by financial institutions to grant more loans; the progress in terms of the construction of new homes; and the increase in investor interest – in the case of holiday homes, investors now account for 19% of all operations.

This last aspect is fundamental for understanding the boom in the most consolidated areas of Spain. According to data from Servihabitat, the average annual yield from buying a home to let is 10%: 5.5% from the gross rental yield and 4.5% from the appreciation in the property value over 12 months, which the real estate servicer calculates in its forecasts at the end of 2017.

This data tallies with the 9.8% calculated by the Bank of Spain. The difference is that Servihabitat breaks down the yield by region and province. The regions in which it is more profitable to acquire a home to let are: the Community of Madrid, (13.3% gross p.a.), Cataluña (13.1%), the Balearic Islands (11.4%) and the Canary Islands (10.8%).

They are the only four regions where yields exceed the national average, which gives us an idea of the importance that the two largest cities and residential investment along the coast play in the overall calculation for the Spanish market. It comes as no surprise that the most profitable provinces are: Barcelona (13.7%), Madrid (13.3%), Las Palmas (12.4%), the Balearic Islands (11.4%), Málaga (10.1%) and Santa Cruz de Tenerife (9.5%). In other words, the six largest real estate markets in Spain (together with Alicante), where demand from overseas buyers is boosting the sector and the cranes are back on the horizon. Overseas buyers now account for 17.4% of all purchases or one in six. That percentage rises to 47.6% in the case of Alicante, 40.8% in Santa Cruz de Tenerife, 33.7% in the Balearic Islands, 32.8% in Girona, 31.4% in Málaga and 22.6% in Las Palmas.

They are clearly the “hot” areas of the real estate sector, but they are not the only ones to be offering high returns. Other examples include: Salamanca (8.4%), Guadalajara (7.8%), Murcia (7.7%), Cantabria (7.6%), Valladolid (7.5%) and Lleida (7.5%), amongst others. This positive trend will become even more marked in 2018 (…).

In the Catalan capital, yields in the district of Sants-Montjuic are off the scale, with an average gross annual return of no less than 32.9% (5.3% from the rental yield and 27.6% from an appreciation in property prices). It is followed by Eixample (26.8%), Gràcia (25.9%), Sant Martí (25.6%), Horta-Guinardó (24.9%) and Nou Barris (21%). The centre (Ciutat Vella) yields 19%, and the exclusive district of Sarrià-Sant Gervasi 13.2%

In Madrid, yields in the Centre amount to almost 20% (19.7%), followed by Salamanca (19.2%) and Chamberí (18.8%) (…).

Despite this inflation in prices and yields, “there is no risk of a bubble in either city”, according to Cabanillas. “The problem is not speculative; the price rises are resulting from the pressure in terms of demand for the use of second homes and tourist accommodation. The risk is that gentrification will force young people out of city centres, but there is no risk of over-financing”, says the CEO of Servihabitat.

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

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