Why Are Rental Prices Soaring In Madrid & Barcelona?

17 October 2016 – Expansión

The real estate recovery has led to a boom in rental prices, which has attracted thousands of investors and savers. Buying an apartment to put up for rent represents a low risk, high return investment, which is a very unusual thing at the moment, verging on the edge of “the liquidity trap”. For this reason, rental prices are soaring in the major cities, above all in Barcelona and Madrid, the two lungs of the Spanish residential sector.

Rents in the Catalan capital cost, on average €17.4/sqm/month, up by 18.5% compared to a year ago. In Madrid, rental prices have also risen sharply, by 14.6% with respect to the third quarter of 2015, to €13.8/sqm/month. As such, rents in Madrid are now 20.7% cheaper than those in Barcelona.

However, rents are now more expensive than ever in both cases, including during the years of the real estate boom. In Madrid, the rents previously peaked at €13.4/sqm/month in June 2008 (€0.4/sqm/month lower than today) and in Barcelona, the figure peaked at €14.2/sqm/month, well below the current prices.

All of these findings come from the latest report published by Idealista, based on data at the end of September and an analysis of 63,817 second-hand homes across Spain. In July, August and September, residential rental prices grew by 10.7% YoY and decreased by 3% QoQ, taking the price per square metre per month to €7.6. Rental prices rose in every autonomous region with the exception of the País Vasco.

For Fernando Encinar, Head of Research at Spain’s largest real estate portal “the opening up of the mortgage tap and the high returns from rental properties are turning the sector into a safe haven for small and medium-sized savers”. (…).

Barcelona is the capital city with the highest rental prices in Spain, well above all of the others. And rental prices there are increasing at a rapid rate. In the last three months alone, rents have increased by 7.7% in the Catalan capital, from €14.6/sqm/month to €17.4/sqm/month.

The quarterly increase in rental prices in Madrid amounted to 5.3%, from €13.1/sqm/month to the aforementioned €13.8/sqm/month. A year ago, that figure stood at €12.1/sqm/month.

In the ranking of capitals, Barcelona and Madrid are followed by San Sebastián (€12.8/sqm/month), Palma de Mallorca (€11), Bilbao (€10.7) and Vitoria, Málaga and Las Palmas (all €8.1). At the bottom end of the table are the cities of Lugo (€4.1/sqm/month), Ourense (€4.2) and Cáceres (€4.3).

Julio Gil, Chairman of the Foundation for Real Estate Studies, thinks that there we are seeing a natural shift from ownership to rental, which makes the rental market more expensive. “The homes up for rent in Madrid and Barcelona, which are mature markets, are still the same more or less, but there is now a lot of (new) demand from emancipation, which means that owners are raising prices”, he added. “The growth in supply is much lower than the growth in demand”, said Gil. This explains why the increases are so acute in Barcelona and Madrid.

Rental prices in Barcelona are increasingly more appealing for investors (and increasingly less so for tenants). Nine of the city’s ten districts saw prices rises in the double digits during the third quarter of the year and three of those exceeded 20% YoY. The main rises were seen in Gràcia (+24.6%), Sant Martí (+23.3%), Eixample (+22.3%), San Andreu (+19.5%) and Sants-Montjuic (+19.4%). Moreover, six districts in the Catalan capital have not only recovered the ground lost following the burst of the real estate bubble, they are now at historical highs. For example, rents have never been so expensive in Ciutat Vella (€19 euros/sqm/month), Eixample (€18.8), Sant Martí (€17.5), Sarrià-Sant Gervasi (€17.5), Gràcia (€17.2) and Horta Guinardó (€12.6). (…).

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

Ministry Of Development: City Land Prices Soar By 38%

16 June 2015 – Expansión

The cost of land increased significantly in the year to March, especially in Castilla-La Mancha (381%), Asturias (176%) and Castilla y Leon (99.7%). The experts do not seen any signs of a new bubble…yet.

The price of urban land has increased significantly in Spain’s major cities. During the first quarter of 2015, land prices increased by no less than 37.8% YoY in municipalities with more than 50,000 inhabitants. The price per square metre rose from €220/m2 to €304.3/m2 in one year. And the number of plots of land sold in the major cities was 596, down by 1.3% from the first quarter last year, according to the Land Price Statistics published by the Ministry of Development, which are prepared using data from the College of Property and Commercial Registrars.

And land prices in large cities in certain regions have gone through the roof. That is the case of Castilla-La Mancha, where prices grew by 381% with respect to Q1 2014, Asturias (176%), Castilla y León (99.7%) and País Vasco (60.8%). The highest decreases in urban land prices were recorded in Galicia (-42.7%) and Murcia (-20.2%).

The average increase in Spain was 5.9%, a rate that is much less marked than that observed in the large cities. Not surprisingly, the average price across the country is €149.9/m2, less than half its value in the large cities.

The significant increase in the price of land in major cities raises fears of a small over-heating effect, due to the strong outlook for the sector, but the experts do not think that we are witnessing the birth of a new boom. We should remember that the Spanish real estate bubble had a clear spur in the price of land: between 1990 and 2007, house prices increased by 288% and land prices rose by 762%, according to a report from BBVA. (…).

The role of the banks

Julio Gil, Chairman of the Foundation for Real Estate Studies, offers an alternative view and points to the significant impact that the banks have on the market. “There were very few transactions and so the statistics are greatly affected by the intervention of financial institutions in the market for land. They are operations that relate more to the value of debt to property developers than the real price of land in the market”. In other words, the difference is because “before no one wanted to providing financing for land and now the financial institutions are funding it again. (…).

The highest prices in towns with more than 50,000 inhabitants were recorded in the provinces of Madrid (€546.2/m2), Barcelona (€448/m2) and the Balearic Islands (€353/m2). This explains why there is more interest in developing land, for both tertiary and residential use, above all in the central areas of large cities and on the outskirts, in high-class areas. (…).

Finally, the number of transactions completed during the first quarter of 2015 amounted to 3,465, i.e. a 4.4% YoY increase.

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

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