4 July 2018 – El Economista
One of the major challenges facing Spain in the residential market is the organisation of the rental home segment in light of the fragmentation that exists and the boom that is currently underway. There is currently a great deal of demand, but there is also a distinct lack of supply, and the new Housing Plan approved by the Government is not proving sufficient to incentivise the supply with the granting of aid to property developers that build rental housing. In light of this situation, we ask ourselves whether the opportunity that currently exists in Spain to organise the rental market is being taken advantage of?
“I think that the professionals and investors who have launched portfolios thanks to the creation of Socimis are taking good advantage of the opportunity, but I believe that some important players are simply not supporting the sector, such as the Public Administrations. Both nationally and locally, but above all locally, they are failing miserably and this is generating price tensions due to a lack of supply”, explains José Luis Ruiz Bartolomé, Director General of the consultancy firm Chamberí Asset Management.
Along the same lines, José María Cervera, Corporate CEO of Renta Corporación agrees and states that the public sector has been left on the sidelines. “Private capital has taken the initiative in this new segment of the market because it has seen a business opportunity and is looking for returns. And the public sector is going to have to enter, but now the arbitrage and those who are institutionalising it are in the private sector, and so they are going to place more rental properties on the market”.
For all of these reasons, during 2018, we are observing the creation of a new industry. Given that in Spain there are 18.5 million households, according to the latest figure from the Active Population Survey (EPA), and of those, 22% are rental homes, there are 4.7 million rental homes in total. Of that portfolio, only 5% are owned by institutional companies; the remaining 95% are owned by individuals.
“The Public Administration has done something important, which is to reorganise the real estate sector and separate property promotion and development activities, by creating Socimis that operate under a special framework. That has brought us closer to a situation that is more similar to those seen in other European countries. Now, we will have to see how the different players that are emerging in this market position themselves, and in two or three years, we will see the consolidation of this sector, which means that the Public Administrations will have to continue refining their regulations so that the sector can develop and be brought into line with those of other European countries”, says Nicolás Díaz-Saldaña, CEO at Témpore (Socimi of Sareb).
Nevertheless, not all of the experts in the sector concur. David Botín, Director of Real Estate Development at the ACR Group, says that this opportunity is not being leveraged. “It is possible that we are seeing the beginnings of a new rental market, but to date, just 22% of our households are renting and that supply is being provided almost exclusively by individuals. As such, it is very hard to fathom how we will reach the percentages seen in other countries such as Germany, where rental properties account for 48.3% of the market or the United Kingdom (36.6%). It is really hard to increase the stock in Spain because there are 19 million homes, and so a 1% increase means placing 190,000 more homes on the rental market, and that would take between three and four years (…). At that rate, nothing is going to happen quickly. No market works if there is no equilibrium between supply and demand. We need a large and varied supply for this market to work effectively”, he adds.
It is true that, historically, Spain has been a country of property owners, but the cultural and socio-economic changes that have been happening in recent years are drawing some new business lines, where the rental market is taking centre stage and is starting to become institutionalised. The new players in this market are: on the one hand, the Socimis, which are listed companies that serve as investment vehicles with tax benefits. The largest of them is Testa, which will debut on the stock market soon and which is owned by Santander, BBVA, Acciona and Merlin Properties. There are also others such as Azora, Vivenio (Renta Corporación), Témpore (Sareb) and Fidere, amongst the largest. Within this market, we can also include the servicers, which although they do not own properties, manage them, such as Solvia (Sabadell), Anticipa (Blackstone), Haya (Cerberus), Altamira (Apollo and Santander). And then, there are companies owned by the banks, such as Building Center (Caixabank) and other types of companies such as Alquiler Seguro, family offices, etc.
Therefore, now that the new players required to institutionalise this market are starting to be created, the next step is to develop a portfolio of assets. “We are going to need to reach agreements with property developers to build homes for rental (…), and at Sareb, we are going to use some of the land that we have for the co-development of rental homes (…)”, says Nicolás Saldaña.
That is a formula that is starting to spark interest. According to the experts, property developers have always been reluctant to enter the rental market, because they didn’t see it as their business, but in the end, the market trend has changed and whilst the sale and purchase segment will continue to exist, so too will the rental sector and property developers will have to participate (…).
The rental segment is a market that has always existed in the hands of individuals, but now, it is being professionalised, thanks to the arrival of overseas capital. “Investors have contributed many things, besides capital. They have contributed methodologies, rigour, professionalism (…). The banks were not open to this business before, they only financed promotion, but that has changed. For six months now, everyone has been wanting a piece of the pie and now there is a queue of financial institutions wanting to finance this type of business (…)”. Says José María Cervera (…).
Investing in residential properties is profitable. The gross return from investing in rental homes has increased to 7.3% from 6.3% a year ago, due to the strength of demand for rental properties, according to the real estate portfolio Idealista (…).
Original story: El Economista (by Luzmelia Torres)
Translation: Carmel Drake