24/09/2014 – Cinco Dias
Disgraced since the beginning of the financial crisis, the real estate sector in Spain has been recovering trust of investors over the last year. The property bubble burst, though, opened a door for a sustainable investment model: buy-to-let which turned out to be affordable and profitable for a private investor disposing of necessary funds.
Alvaro Alonso, director of real estate advisory firm Irea assures that, currently, this is the most interesting option for this kind of investor. ‘Thanks to relatively low prices, the return on investment in residential assets has increased from 2% – 3% few years ago to 5%. Also, rentals make a good alternative for State bonds or equities‘, he says.
‘Now is a great time to invest in property. There are plenty of small and medium conservative investors who had deposits, fixed-income or funds and now they wish to turn to the real estate market‘, confirms Fernando Encinar, research director at Idealista. ‘If you buy a home for €100.000 and rent it for €500 per month, it gives you a gross return of 6% and 5% net. It is not a high return but perfect for a cautious investor. The return doubles the State bonds, he illustrates.
‘The market abounds in the product, a quality one, and there is a margin to negotiate prices, above all when you pay in cash‘, explains Mr. Encinar. In fact, 83% of all property purchases in the first half of the year were paid in cash. The datum comes from a recent report by Tecnocasa which furthermore states that 28% of these acquisitions were done with view to renting the dwellings. This type of buyers usually opt for a 60 square meter home priced at €95.000 on average.
However, cheaper and also pretty lucrative seems to be buying a garage. As per the data compiled by Idealista, return from this investment hits 5.8% in provinces like Almeria but it falls to 4% in Barcelona and to 3% in Madrid.
Depending on size and location, retails may bring up to 11.2% profits in Cordoba and around 7% in large cities. ‘Some of the commercial properties facing the street have not decreased the prices‘, remarks Miguel Fuster, investment director at CB Richard Ellis. Instead, he points at the office market as the most juicy in terms of ROI.
Analysts agree that due to decline in population, high unemployment rate, lack of financing and foreclosure oversupply, rental is the most secure option nowadays, let alone the demand for lettable property has doubled during the recession.
‘As the prices have gone down and they are reaching the rock bottom level, buying a property positions an investor to benefit from rise in prices. There will be no bump, but the return will be improving gradually‘, portends Ernesto Tarazona, land and residential executive at Knight Frank.
Purchase of a dwelling to intend it for rent brings a 6.4% return in Lleida, 5.7% in Gran Canaria and around 5% in Huelva or Alicante. In Madrid, the ROI posts 4.3%, while in Barcelona 4.1%, informs Idealista.
Much cheaper, the garages give back 5.8% in Almería and 5.5% in Pamplona, Santa Cruz de Tenerife or Tarragona. In Madrid 2.9% and 4% in Barcelona.
Today, this is the most lucrative investment with 11.8% returns in Malaga and 7% in big Spanish cities.
Irea analysts warn that ‘as a result of a tremendous surplus of housing, purchasing at low prices gives no guarantee for safe renting. Certainly, Madrid and Barcelona are always secure, as well as university cities like Granada, Santiago or Salamanca‘.
‘Renting requires experience, effort and skills in terms management and knowledge about the area, tenant privileges and agreement warrants‘, adds CBRE.
Another key choice at the moment of acquisition is the vendor. The sector strongly recommeds the offer of banks but also tells the quality of the product is not the first class.
When it comes to the property sold by developers, for the new construction homes one often has to wait for two to three years before being able to rent them.
Finally, an investor can buy from private sellers who might be additionally feeling pressure to sell before the end of the year, as from 2015 on the Government is going to raise the Personal Income Tax for home vendors, especially in case of properties acquired before 1994. The tax burden involved in a house sale can go up from 200.000 to 30.000 euros more. Thus, to sell still this year, slashing prices is inevitable.
Original article: Cinco Días (by Juande Portillo)
Translation: AURA REE