Socimi VBARE: Why Are Rental Prices Are So High?

10 November 2016 –

Rental prices are soaring in Spain, in particular in Barcelona and Madrid. And the question on everyone’s lips is what is happening to make rents in Spain’s two major cities increase to such an extent that they are now even higher, in certain districts, than they were during the years of the real estate bubble?

According to the latest report from Idealista, the latest price rises have turned Barcelona into the regional capital where rental prices have increased the most in the last quarter, making it the most expensive capital (€17.40/m2), followed by Madrid (€13.80/m2).

The company VBARE Iberian Properties Socimi (VBARE), which specialises in the residential rental market and which will debut on the Alternative Investment Market (MAB) next month, has been busy analysing the rental market in Barcelona and Madrid with a view to identifying residential investment opportunities for subsequent lease. As such, its President, Fernando Acuña, is well positioned to explain the drivers behind this significant increase in rents in the two Spanish cities.

According to Fernando Acuña, the significant growth in demand, both from households, as well as from domestic and overseas investors, has not been accompanied by any increase in the supply, which is “still very limited”. The expert stresses that demand for housing is greater in Madrid and Barcelona, given that more jobs are being created in those cities, as the economy gradually recovers. He also points out that demand for housing is moving away from the ownership market towards the rental market and that this change is playing an important role in driving up prices.

The President of VBARE stresses that demand for rental properties is continuing to rise, not only because there has been a change in mentality (in favour of renting), but also because many of the people who need housing cannot afford to buy homes because they do not have the purchasing capacity (due to prohibitive mortgage conditions). He gives the example of the number of mortgages being signed – highlighing that, although the figures have been growing for 25 months – according to statistics provided by the National Institution for Statistics (INE) – they are doing so from a very low base. In fact, according to INE, 244,827 mortgages to buy homes were signed in 2015; meanwhile, in 2006, the year before the real estate bubble burst, 1,768,198 mortgages were constituted in total over rural and urban properties.

According to research performed by VBARE, several other factors are influencing the consolidation of the rental market across Spain, including: “short-term circumstantial reasons (high levels of unemployment, restricted (albeit improving) access to credit, loss of purchasing power, job insecurity affecting certain age groups susceptible to buying their first homes…) as well as medium and long-term structural factors (increase in labour mobility, a change in the traditional ownership mentality as the preferred option, decrease in the average size and nature of households…). (…).

According to the Socimi, another factor at play, particularly in Barcelona, is “the record tourism figures, which have turned some of the traditional rental stock into “seasonal rental properties”, especially in the centre, which has led to a rapid decrease in supply (…).

Original story:

Translation: Carmel Drake

INE: House Sales Recorded Historical 16.4% Increase In H1

4 August 2016 – Expansión

House sales rose by 16.4% during the first half of 2016 compared with the same period in 2015, according to data published yesterday by Spain’s National Statistics Institute (INE). It is the largest increase registered during the first six months of the year since official records began (2004). A double digit increase was also recorded in 2010, but that amounted to 10.7%, well below the current figure.

Between January and June, 207,116 residential properties were sold, i.e. 29,000 more than a year earlier. In other words, an average of 1,138 homes were sold every day. If the current trend continues, house sales will surpass the 400,000 threshold for the first time since 2010. And 2010 was the last year when more than 1,000 homes per day were sold, on average.

The autonomous region that leads the ranking of house sales growth is the Balearic Islands, where sales grew by 38% during the first half of the year. It is followed by Murcia (+24.9%), País Vasco (+22.6%) and Castilla-La Mancha (+21.1%). All of Spain is now out of the red; in fact, all of the autonomous regions recorded double-digit increases apart from La Rioja (+6.7%).

Andalucía, Cataluña, Madrid and Comunidad Valenciana account for 64% of the market, in other words, for two out of every three homes sold. (…).

“The reasonable cruising speed for the sector is between 450,000 and 500,000 sales per year”, says José García Montalvo, Professor of Applied Economics at the University Pompeu Fabra. Although the “YoY increases are high, given that they are calculated on the basis of low base levels”, there is no doubt that the residential market is recovering, gradually, to reasonable figures, thanks to: the push from private investors who are buying homes to put them on the rental market; foreigners who are committing to Spanish real estate; and, finally, the slight improvement in traditional demand for housing, which during the worst years of the Crisis was pent up and moved to the rental sector, as people were unable to access mortgage loans and/or were limited by job insecurity.

“The rise of the rental market is generating demand for housing, because more investors are purchasing properties to put them up for rent”. Therefore, “we are never going to see a return to traditional levels of home ownership (85%). Rental properties will end up accounting for 25%-30% of the total market, a reasonable proportion that is comparable to the levels seen in other countries in our environment”, adds García Montalvo.

During the month of June, 36,856 homes were sold, up by 19.4% compared with a year earlier. (…).

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake