Residential Investment: Which Are The Most Profitable Districts?

30 May 2016 – Expansión

Madrid and Barcelona are pulling the real estate wagon. The recovery is happening at two speeds, at least. On the one hand, house prices are rising in the large cities, where sales volumes are also increasing significantly, rental prices are growing, non-residential investment is on the up and there is a shortage of land available for sale.

Most of this improvement in due to underlying macroeconomic trends, but not all of it. The impact of private investors is playing a crucial role in the strengthening of the two large real estate regions, whose central areas are the most sought-after by investors, both businesses and individuals, and Spaniards and foreigners alike.

The prime districts of the Madrid and Barcelona offer the highest rental yields for those looking to buy homes as investments. If we also include the appreciation that these properties are experiencing in terms of price, then the total return on these homes exceeds the 10% threshold.

That is according to a report about rental yields, by district in Madrid and Barcelona, prepared by Fotocasa.

The analysis of the Madrilenian capital concludes that the districts that spark the most interest for rented housing are: Centro, Carabanchel, Tetuán, Puente de Vallecas and Latina. They currently offer an average yield of 6%, almost one percentage point higher than the average return in Spain, which stands at 5.3%. The yields offered from rents in these districts range from 4.9% in Centro to 7.4% in Puente de Vallecas.

In Barcelona, the gross yield from buying a home and putting it up for rent (excluding capital gains) is 5.3%, in line with the national average. The districts that are most sought-after by investors in Barcelona are: L’Eixample, Sant Martí, Ciutat Vella and Gràcia, which are currently generating an average return of 4.7%, i.e. 1.3 points below the yield being offered by an average home in the most sought-after areas of Madrid. In any case, the prime returns range between 4.2% in L’Eixample and 5.3% in Ciutat Vella. (…).

Double-digit price rises

In terms of prices, nine of the 10 districts in the Catalan capital recorded double digit increases in 2015. “Within the last few months, we have seen unheard of increases in rental prices in the city of Barcelona. Whilst historically, the Madrilenian district of Salamanca was the most expensive place to rent a home in Spain, now that ranking is led by the Catalan district of Ciutat Vella, after prices there rose by more than 20% YoY. In fact, Ciutad Vella is currently 11% more expensive than the Madrileñian district of Salamanca”, said Beatriz Toribio.

“The high demand for rental housing in the most central areas of the city, and the limited supply of homes, are combining to cause rental prices in Barcelona to rise to record breaking levels. They are even causing rental prices in less central areas, such as Sant Martí and the district of Horta Guinardó, to see double-digit YoY increases in rental prices”, added Toribio.

The most sought after rental properties in Madrid are smaller than the most sought after properties for purchase. Whilst to buy, the average home measures 80 sqm and has two or three bedrooms; to lease, the average home has a surface area of 57 sqm and two bedrooms. The same thing is happening in Barcelona: the average home to buy measures 80 sqm, and has between two and three bedrooms. Nevertheless, to rent the average house size is 60 sqm with two bedrooms.

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

Idealista: Rental Prices Rose By 1.8% In Madrid In Q1

8 May 2015 – El Confidencial

The property crisis; the difficulties faced by thousands of citizens when it comes to buying a home; and the havoc wreaked by evictions have all resulted in a significant boost to the (residential) rental market in Spain. Over the last seven years, many citizens and families have been forced out of the property market and, given their need or desire to become independent or start a family, their only exit has been through the home rental market.

Thus, although owned homes still win by a landslide over rented homes – 78% to 22%, i.e. a very similar level to the one seen at the end of the 1980s – the fact is that in recent years, the balance has tipped a little less towards the property side and although, many experts consider that it is unlikely that we will reach the levels seen in other parts of Europe, where rental properties account for 50% of the residential market in some countries, it is clear that something is changing. “The rental market is here to stay and not just as a lifestyle option, but also as an investment”, says Fernando Encinar, Head of Research at idealista.com.

The rental market in the Community of Madrid is showing the first signs of recovery, as too is the sale and purchase market. Similarly, some areas are sparking greater interest than others in terms of demand, which, in turn, is starting to create a certain amount of tension in terms of prices.

The differences between neighbourhoods are clear. It does not cost the same to rent a flat in the centre of the capital or in the neighbourhoods of Chamberí and Salamanca, where the price per square metre is around €14/m2 (€1,120 for an 80m2 flat) as it does in Villaverde, Carabanchel or Puente de Vallecas, where the price per square metre barely exceeds 8€ (640€ for an 80m2 flat).

These price differences are explained, in part, by the location of the homes – clearly, it does not cost the same to live in the centre of the city as it does in the suburbs – but also due to the excess supply, in places such as Carabanchel and Vallecas, and the strong demand, in areas such as Sanchinarro and Las Tablas, where the experts detect a lot of activity due to the presence of Telefónica and the future arrival of BBVA.

(….)

The tension in terms of rental prices is palpable. Madrid ended the winter with a quarterly increase in rental prices of 1.8%, taking the average price per square metre in the capital to €11.60, however, that represents a cumulative decrease of 15.8% from its record high of €13.80/m2 in 2008.

Moreover, during the first three months of the year, the increase in rental prices was generalised, with rises in almost every district in Madrid, with the exception of Villa de Vallecas and the neighbourhood of Salamanca, according to the data from idealista.com, which also reflects significant increases in the districts of Barajas (5.8%), Retiro (4.7%) and Hortaleza (3.6%).

(….)

Original story: El Confidencial (by Elena Sanz)

Translation: Carmel Drake