Now Is The Time To Invest In Housing

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.

Rental returns

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

Tinsa: House Prices Decreased By 3.67% In February

12 March 2015 – 20 Minutos

House prices have recorded an average cumulative decrease of 42.6% since the end of 2007.

Homes on the Mediterranean Coast have lost more than half their value.

Prices may bottom out in the next few months.

In areas with low demand and significant stock, further price decreases are expected.

A change in the real estate cycle has begun; but since it is a cycle, the changes will not happen overnight. In this way, although prices are now rising in some areas of Spain, in many others, they are still declining and those areas are, for the moment, in the majority.

According to data published by Tinsa, house prices fell by 3.67% in February with respect to the same month in 2014. On the Mediterranean Coast, homes have lost more than half of their value due to the crisis, but prices may bottom out in the next few months.

With respect to the peak prices recorded at the end of 2007, house prices have recorded a cumulative decrease of 42.6%, according to the index prepared by Tinsa. On the Mediterranean Coast, the decrease has been much more pronounced, according to the appraisal company, which highlights that in this region, the cumulative decrease during the crisis has amounted to 51.1%.

In February, house prices decreased by 4.9% and 4.4%, respectively, in large cities and metropolitan areas. Since the peak of the cycle, capitals and large cities have recorded a cumulative decrease of 46.5%, whilst metropolitan areas have experienced a cumulative reduction of 45.5%.

By contrast, the Balearic Islands and Canary Islands recorded a year-on-year increase of 0.7% (in Feburary), whilst on the Mediterranean Coast, the decrease was 4.7%. From the peak levels recorded before the crisis, house prices on the islands have decreased by 32.4%.

In the towns included within “other municipalities”, the decrease in February with respect to the same month in 2014 was 2.1% and since the peak, was 36.1%.

Optimistic forecasts?

Tinsa notes that average house prices began a stabilisation process in 2013, characterised by a moderation in the rate of decline in average prices. “If the optimistic forecasts that various official bodies are predicting for economic growth and employment are fulfilled, then average prices in Spain may bottom out in the next few months”, says the company.

However, it warns that this forecast does not exclude the fact that in localised markets, where demand is particularly weak and there are significant levels of stock, (downwards) adjustments are still expected and there may yet be significant year-on-year decreases.

Original story: 20 Minutos

Translation: Carmel Drake