Azora: Spain Needs to Build 2 Million Rental Homes in 15 Years

12 January 2019 – El Economista

The rental market is gaining more and more followers in Spain and is now the way of life chosen by 20% of the population. That means that the market has doubled in size over the last 15 years, according to data from Eurostat. Nevertheless, its growth is running into many obstacles along the way, given that the increase in demand has not been accompanied by a rise in supply at the same rate, which has led to the saturation of certain markets, such as Madrid and Barcelona, where several neighbourhoods have experienced price increases of up to 18%, making them even more expensive now than they were during the boom period.

Faced with that situation, the major players in the market and the real estate experts assure that the construction of homes dedicated to rental and the policies to incentivise owners to place their homes on the rental market are two of the most important ways to provide agility to a mechanism that is oxidised right now.

“Rental is a sector with enormous social importance, on which more than 10 million tenants and more than 4 million small Spanish savers and institutional investors depend, who use the rental market as a way of supplementing their income and pensions”, explains Azora in a comprehensive report about the rental market.

In its study, the manager says that the rental housing deficit amounts to another 2 million homes, which will have to be built over the next 15 years to satisfy the increasingly growing demand. “Ensuring legal certainty and a contractual equilibrium is basic for attracting around €300 billion in private and institutional savings necessary to finance this new stock of homes. It is an investment equivalent to 30% of GDP over 15 years or 2% of GDP every year”, says the report.

For Azora, which is one of the largest managers of rental housing in Spain, the construction of these homes is fundamental if we are to avoid “structural imbalances between supply and demand, and it is vital to guarantee access to housing through the rental formula for millions of Spanish families, especially the youngest in society and most vulnerable families”. In this way, according to the Ministry of Development and Eurostat, rental has become the solution for accessing housing for 75% of young people in Spain aged under 29 (compared with 40% in 2007) and for 40% of families with a household income of less than 60% of the national average.

The major challenges

According to comments made by Azora in its report, the three most important challenges facing the sector are, on the one hand, “establishing a public social housing policy to resolve the situation of highly vulnerable people and those at risk of social exclusion”.

In Spain, social housing accounts for just 1.5% of the total, compared with the EU average of 15% (…).

Another challenge is “the creation of a rental stock at affordable prices, below market rates, for families with the lowest incomes and young people” (…).

Finally, the need to increase supply by at least another 30% over the next 15 years. “The problem today and in the future in the private housing market is not the increase in prices (which are still 15.5% below their 2007 peaks, according to data from the Ministry of Development), but rather the complete lack of available stock for rental compared with the sharp growth in demand”, says Azora (…).

Original story: El Economista (by Alba Brualla)

Translation: Carmel Drake

Ibiza’s Real Estate Market is a “World of its Own”

11 July 2018 – Diario de Ibiza

The real estate market in Ibiza is not encouraging (for the majority): the available stock of homes “is residual”, the majority of homes bought there are rented out, the peak prices reached in 2017 have been exceeded…and all of this is being compounded by a distinct shortage of land. All in all, it is a troubling scenario for those wishing to live on the island all year round.

Tinsa’s Regional Director for the East and South of Spain, José Antonio López, warned on Wednesday that the lack of land, combined with the demand for housing “is generating a dangerous melting pot” in the Balearic Islands. As such, he is asking the administration to get involved to facilitate the availability of land for property developers.

Those were the words used by López in response to a question from participants at a Proinba-Tinsa real estate meeting held in Palma on Wednesday, where the situation of the residential real estate market was discussed, in particular, the market on the coast.

López warned that this situation may “lead to serious problems” on the islands, where “young people need primary residences” and they “need options”. “For this reason, land is required, and the administration needs to get involved”, said Tinsa’s Regional Director, before adding that the supply of urban land with building permission is “almost non-existent”.

What’s more, “the supply is going to decrease” and with the “surplus demand”, we are seeing “dangerous growth that cannot be met”. In this context, “rental is not an option because those circumstances are also being taken advantage of”. In fact, according to data from Tinsa, in areas such as Ibiza (town), many people are buying to let (…).

Based on data from Tinsa, the average monthly mortgage payment on the Balearic Islands is very high, €792, well above the average for Spain as a whole, €543/month. The financial effort being made by families on the islands is also greater, given that they spent 22% of their household income on mortgages during the first year, compared with the national average of 16.8%.

Ibiza and Formentera set a new record

Of the 12 coastal municipalities analysed on the Balearic Islands, Sóller leads the increase in prices over the last year, with price rises of 21%. Ibiza and Formentera towns came in close behind, with 17.8%, followed by Santa Margalida (17.7%), Palma (14.7%) and Llucmajor (13.8%).

Palma is one of the top five most expensive capitals in Spain, with an average price of €1,951/m2, and in the last year, its growing trend has exceeded the average for the autonomous region.

By contrast, the municipalities that have grown by the least are Sant Lluís and Mahón (3.7%), Ciutadella (4.5%) and Manacor (7.1%) (…).

Ibiza is “recovering too quickly”

According to data from Tinsa, the real estate sector on the coast in Mallorca is “clearly recovering”, whilst in Menorca, there are “signs of recovery” and in the case of Ibiza, there may even be an “excessive recovery”, in López’s opinion.

Prices have been “rising rapidly” on the white island, on a consistent basis for the last few years, and the YoY variation is well above the average. In fact, current prices have already exceeded the maximums seen in 2007.

On the basis of all of these indicators, the Regional Director at Tinsa said that Ibiza’s real estate market could be considered “a world of its own, set apart from other islands and provinces” (…).

Original story: Diario de Ibiza (by E.P.)

Translation: Carmel Drake

Tecnocasa: Second-Hand House Prices Rose By 12% In Barcelona In H1

6 September 2017 – Expansión

The Spanish real estate recovery varies by neighbourhood. Whilst in smaller cities such as Zaragoza and Sevilla, second-hand house prices rose by 1.7% and 2.1% during the first half of the year, in Madrid and Barcelona, the value per square metre soared at a rate of 7.3% and 12.7%, respectively. On average, in Spain, second-hand house prices rose by 8.24% during H1, according to the latest report from the estate agent Tecnocasa and the Universidad Pompeu Fabra (UPF).

It is the largest increase registered in a single 6-month period since the price curve hit rock bottom at the end of 2013 and began its recovery with a slight increase of 1.12% at the end of 2014.

At that time, at the height of the real estate depression, the cumulative decrease in second-hand house prices peaked at 57% with respect to 2007. Nowadays, prices are 48.10% below the peaks recorded before the crash. The average value amounted to €3,500/m2 then, compared with €1,811/m2 now.

Despite the dizzying increase in prices currently being seen, there are no signs that a new bubble is being created. The CEO at Tecnocasa, Paolo Boarini, said yesterday that one of the most important factors to take into account is “the new attitude of the banks”. Whilst in 2007, mortgage loans represented 86% of the value of homes on average, that ratio has now decreased to 72%. (…). Moreover, mortgages that exceed the value of the home are no longer being granted, which was not the case during the years leading up to the burst of the bubble.

Tecnocasa’s report points to the ratio between the monthly mortgage instalment and a borrower’s monthly income, which is also one of the most significant risk indicators. To minimise the risk of non-payment, it is recommended that the aforementioned ratio not exceed 35%. At the end of H1 2017, the ratio between the mortgage instalment and the monthly income of mortgage applicants amounted to 25.5%. On average, mortgages in Spain cost around €375 per month (…).

In terms of the bargaining power in the market, according to data from Tecnocasa, the discount made by sellers with respect to the initial price was 2.7% in 2005, a figure that rose to 13.4% in 2012 and that currently stands at around 5.1% (…).

The study performed by Tecnocasa and the UPF is based on data from transactions brokered by the real estate agent itself involving loans advised by Kíron, the financial services company owned by the same group. José García-Montalvo, professor at the UPF and coordinator of the document, stressed that, unlike other reports, this document uses only real prices of actual sales and not the initial asking prices of homes for sale.

The most expensive square metre in Spain’s major cities was located in Barcelona for another half-year, at €2,754/m2, followed by Madrid, at €1,970/m2. The cheapest major cities include Córdoba (€1,009/m2) and Valencia (€893/m2).

Original story: Expansión (by Marisa Anglés)

Translation: Carmel Drake

Servihabitat: House Sales Will Rise By 15.2% In 2017

12 July 2017 – Expansión

According to the “Residential Market in Spain” report compiled by Servihabitat Trends, the analysis platform backed by Servihabitat, house prices are forecast to rise by 4.1% on average this year and the number of sales operations is set to increase by 15.2%, to exceed 465,000.

In addition, the number of new house starts is expected to grow by 15.3% and the number of finished properties will increase by 20.2%, whilst the stock of new homes looks set to decrease by 17.8%.

According to the report, the residential market is showing clear signs of recovery this year.

The CEO at Servihabitat, Julián Cabanillas, has said that “all indicators show that the sector is enjoying sustained and established growth, albeit at different rates. The process of normalisation in the market, with an increase in pressure from demand and the consequent increase in prices, is not happening in a homogeneous way across the country”, he explained.

According to Servihabitat, demand is continuing to rise due to job stability, an increase in household incomes and an increase in the volume of loans granted.

Moreover, demand for investment is growing – it already accounts for between 20% (primary residences) and 22% (holiday homes) of all operations.

The volume of supply of new homes is also continuing its rising trend.

The number of new homes started will increase by 15.3% this year, to 75,500 and the number of finished homes will rise by 20.2% to 48,500.

In terms of construction permits, the figure is expected to amount to almost 116,000 this year, which will represent a rise of 25.9%.

The stock of new homes is set to decrease by 17.8% to amount to 324,000.

According to Cabanillas, the technical stock will amount to between 160,000 and 170,000 homes.

The pressure exerted on demand will drive up prices but in a moderate and non-homogenous way.

This year, the average value of a home is expected to rise by 4.1%.

Cabanillas rules out the possibility of a real estate bubble building in the short and medium term because “the fundamentals are nothing like those that existed before the crisis”.

In terms of the rental market, the report reveals that rental prices rose by between 4% and 5% during the first half of 2017.

Increases of between 2.5% and 5% are expected during the second half of the year, depending on the location of each property.

Servihabitat renders services for the integral management of financial and real estate assets.

Original story: Expansión

Translation: Carmel Drake

BBVA: Málaga Has The Most Active RE Market In Spain

27 March 2017 – Málaga Hoy

Málaga is the Spanish province with the most real estate tension, given that it has the highest index of sales as a proportion of existing stock, a parameter that indicates the dynamism of the area. Moreover, that pressure is leading to an increase in house prices, to the extent that Málaga has seen the third highest price rises of all of Spain’s provinces over the last three years.

Those are the findings from the Real Estate Market in Spain report, prepared by BBVA, which was presented in Málaga on Thursday by the analysts Félix Lores and David Cortés. The study reveals that between 2014 and 2016, 28.4 homes were sold in Málaga for every 1,000 property stock, thanks to an increase in demand during the period of almost 15%. The only other province to come close was Alicante, with 25 purchases for every 1,000 homes; and Málaga was thirteen points above the Spanish average. That was, in part, due to the fact that Málaga and Alicante are the two Spanish provinces where most homes are sold to non-resident foreigners.

When demand exceeds supply, prices rise. On average, Málaga was the third-ranked Spanish province in terms of the highest house price rises between 2014 and 2016, at 3.1%, triple the national average. During that period, property prices rose by more only in the Balearic Islands (3.5%) and Barcelona (3.3%). In more than half of Spain’s provinces, not only has a reactivation of the market not been felt, but house prices are continuing to fall. In Sevilla, for example, house prices decreased by 1.6% during the same period.

“Sales have been recovering since 2013, with Madrid, Barcelona and the Mediterranean region, together with the islands, leading the way”, said Lores. According to these experts, this boost is consolidated because it is being driven by an improvement in employment and household income, which means that it is not subject to speculative movements (with feet stuck in the mud) like in the case of property price bubbles. In fact, the analysts from BBVA deny that we are seeing the start of a real estate bubble.

Looking to the future, Málaga is also one of the leading provinces in Spain, given that it is one of those that has most contributed to the increase in visas in the country, together with Madrid, Barcelona and Alicante. Between 2014 and 2016, the number of housing visas granted grew by 55% in Málaga, although it is worth remembering that the starting point was very low and well below than the volumes signed at the height of the real estate boom. More business is forecast because, amongst other factors, the sector has been so quiet in recent years, also demand exists and supply is limited, however there are several uncertainties, such as the effect of Brexit on British residential tourists, the macroeconomic impacts that Trump’s protectionist policies in the USA may have and the results of upcoming elections in several European countries.

Original story: Málaga Hoy (by Ángel Recio)

Translation: Carmel Drake

BBVA Research: House Prices Will Rise By 3% In 2016

19 April 2016 – El Economista

BBVA’s Research Service forecasts that house prices will grow by around 3% this year across the country and that house sales will increase by 10% to amount to 440,000 homes, assuming that the economic and political uncertainties do not end up having a negative impact on demand.

In this sense, BBVA Research argues in its report, that the sector, just like the rest of the economy, is not without its risks.

The uncertainties that exist around global growth and relating to economic policy over the next few years may be conditioning the investment decisions of households and companies and so may end up affecting demand and supply in the sector.

In addition, the report forecasts that investment in housing will grow by 3.8%, taking its weight over GDP to 4.6%, and house prices will continue to be supported by increases in demand and the gradual reduction in supply, although this evolution will be relatively heterogeneous.

Large cities and the Mediterranean Coast

Whilst price rises will be more intense in the most active markets (i.e. in large cities and along the Mediterranean Coast); they have not started their recovery yet in the least active markets and will remain stable there in real terms.

The volume of new homes is also expected to grow in some markets in 2016…(…). As such, in terms of construction permits linked to the initiation of new homes, the report forecasts an annual growth rate of around 30%.

This, together with the greater dynamism seen in the market for land, will ensure the progress of construction activity. Moreover, the evolution of employment and household income will be positive and will continue to stimulate demand for housing.

Building work begins

The improvement observed in the real estate market has also moved to the construction segment, which will result in a significant increase in activity in the residential construction segment, which is set to be the big star of the sector in 2016.

Not only have residential prices have moved on from their minimum values, but also the trends indicate that more markets will have positive revaluations in 2016. Furthermore, mortgage financing is playing a significant role in the recovery and will be key for its development over the course of this year. The report adds that financing for property developments is expected to gradually consolidate this year.

Original story: El Economista

Translation: Carmel Drake

BdE: House Purchases Are Becoming Less Affordable Again

29 March 2016 – Cinco Días

As well as looking at average house prices in Spain, the experts always like to analyse how many people can pay those prices and with what degree of difficulty. Or to put it another way, how accessible housing is for households. In this way, they assess how much potential demand may be left out (the so-called insolvent cohort) and determine whether social housing policies, amongst other initiatives, need to be developed, such as the ones applied since the end of the 1980s.

When it comes to measuring the accessibility of house purchases, there are two, more or less official, ways of doing it, which are accepted by the consensus of analysts. The first involves calculating the percentage of household income that is used to repay the mortgage. At this point, it is worth remembering that for the banks’ risk departments, the monthly mortgage instalment should never represent more than one third of a family’s income. (…).

The critics of this formula point out that this monthly mortgage instalment figure does not include any money that a family would have had to pay by way of deposit, and nor does it reflect the notary or registry fees, or the taxes that are levied on house purchases.

Removal of the tax deduction

Currently, according to the statistics prepared by the Bank of Spain, families spend an average of 32.5% of their incomes on mortgage repayments, which falls in the range considered healthy by the banks. But just before the burst of the real estate bubble, when real estate prices were sky high and the Spanish economy was growing at a good rate in terms of activity and employment, that percentage exceeded 60% of income, excluding tax deductions, and 48% if we include those incentives. Now that difference no longer applies as the Government abolished the possibility of making deductions from IPRF (income tax) for the purchase of a primary residence in 2013.

The other formula..is based on the relationship between the average house price and average salaries, with the resultant ratio understood to represent the number of full years of salary that would be required to pay for the home in full. The experts believe that accessibility is measured more correctly in this way. Moreover…, they established that this ratio should amount to around four years.

In other words, if it is healthy for a household’s monthly mortgage payment to absorb no more than one third of its monthly income, then in full salary terms, the ideal thing would be for it to take no longer than four full years to pay off the house purchase.

The Bank of Spain has been measuring accessibility using this ratio since 1987 and the historical series perfectly reflects how the effort required to buy a home has increased when prices have risen disproportionately.

In this way, since the end of the 1980s until the year 2002, accessibility ranged between three years of an annual salary and four and a half years, which the analysts classified as acceptable; but since then, a much steeper trend has been observed, to reach the series peak with nine full years of salary to pay for a home in 2007. (…). The minimum seen in recent years was recorded at the beginning of last year, at 6.08 years, but the Bank of Spain recorded slight increases in the ratio during the second and third quarters of 2015 at 6.29 and 6.32 years.

The reason is none other than the change in the trend led by property prices, which after accumulating an average depreciation of more than 40% since the end of 2007 (when they reached their peak), have now been rising again for a year and a half. And although the dominator of the ratio (salary) is also increasing, it is doing so at a lower rate than house prices. (…).

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake

ST: Some House Prices Still Need To Fall By 15-20%

28 September 2015 – Cinco Días

Is it compatible to say that the market is moving towards stabilisation and at the same time that the prices of some homes still need to decrease by a further 15% to 20%? Most of the experts and the CEO of Sociedad de Tasación, Juan Fernández-Aceytuno (pictured above), think so. They argue that those two facts can coexist in time and that they show that the real estate market is slowly emerging from the worst crisis in its recent history.

“We are currently undergoing a period of stability, not recovery”, said Fernández-Aceytuno last week during the presentation of his appraisal company’s latest report, prepared in conjunction with Planner, which outlines the new profile of the home buyers attending events such as SIMA in Madrid. The Head of Sociedad de Tasación explained that there is still some way to go in terms of what needs to happen from now on for us to be able to speak more openly about a recovery in the market.

Greater confidence

Given the evolution of appraisal market, Fernández-Aceytuno considers that there are still many places where house prices need to decrease by a further 15% to 20% for the supply to match up with the demand. In fact, he points out that we can only talk about a recovery in a handful of regions, where sales now significantly exceed the levels recorded a year ago and where new developments are being constructed once again.

Moreover, he said that the improvement in the market for the securitisation of mortgage loans must continue following the first operation (for several years) signed in June, and that the growth in employment, household income and GDP must all strengthen. “All of the ingredients are present for demand to react. What is happening now is that an increased level of confidence is being demanded, investors are being more prudent and potential buyers have realised that investments in housing are not infallible”, said Fernández-Aceytuno.

In this sense, he commented that we cannot talk about a full recovery yet in a market in which the transactions being conducted by foreign investors and buyers carry a greater weight than those being undertaken by first time buyers, as a result of the creation of households, or those that want to acquire better homes (as corroborated by Solvia’s study published on Tuesday). How long do we have to wait for this recovery then? “It is impossible to say, but it will take years, not months”, concluded the CEO of the appraisal company.

Meanwhile, the report prepared by Planner and Sociedad de Tasación, which analyses the profile of potential buyers attending real estate fairs, such as SIMA, reveals that the typical profile is younger (aged between 25 and 35), with greater confidence in the future, with larger budgets and looking for larger homes, according to the CEO of Planner Exhibitions, Eloy Bohúa.

According to the report, in parallel, there has been an increase in the number of older buyers whose main motivation is to improve their current home or to move from rented housing to their own home.

Some of the impediments that prevent the closure of more operations include, in order of importance: price, financing (a lack of it) and uncertainty regarding employment conditions.

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake