Servihabitat: House Prices Will Rise By 4.3% In 2017

7 December 2016 – Expansión

(…) According to Julián Cabanillas, CEO of Servihabitat, the findings from his company’s latest report show that “the trend  (in terms of house prices) will continue to rise in 2017, but at a more moderate rate”.

According to Servihabitat’s forecasts, house prices will rise by 4.6% this year and by 4.3% next year; moreover, all of the other indicators in the sector will continue to make significant improvements. For example, the stock of unsold new homes will decrease in 2017 to 315,000, the lowest figure since 2006, before the real estate bubble burst. In addition, the ratio of the number of years’ salary it takes to pay for a home will amount to six years – three years fewer than in 2007.

During 2016, the construction of new homes will soar by 20% and the gross rental yield (excluding capital gains) will rise to 5.4% (10% if we include capital gains over one year, which the Bank of Spain does in its calculations).

In 2016, property will register its highest price increases since the outbreak of the crisis. The rise of 4.6% predicted by Servihabitat is the highest annual figure since 2007. In 2017, the increase will slow down slightly (by three tenths of one per cent), but residential property prices will increase in every autonomous region. Extremadura will lead the price rises, with an increase of 7.3%. It will be followed by Aragón (+6.9%), Navarra (+6.7%), La Rioja (+6.2%), Murcia (+5.6%), Balearic Islands (+5.4%), Canary Islands (+5.4%), Community of Valencia (+5.4%), Castilla-La Mancha (+5.1%) and Asturias (+4.5%).

Thus, house prices will increase by more than average in ten autonomous regions next year, including Cataluña (+4.3%), and will increase by less than average in six regions, namely: Andalucía (+0.7%), Galicia (+1.2%), País Vasco (+1.5%), Cantabria (+3%), Madrid (+2.4%) and Castilla y León (+4.1%).

Three speeds

Cabanillas points out that the housing market is now operating at three speeds. “The first involves areas where demand is high and supply is at “technical levels””. That is the case in Madrid and Barcelona, where many more homes are being sold than in the rest of the country. (…).

The second speed is happening in “areas where demand is increasing and stock exists”, said the CEO of Servihabitat. In cities such as Málaga, Sevilla and Zaragoza, as well as in the vacation markets of the Balearic and Canary Islands and in the more traditional areas of the Mediterranean Coast. (…).

Nevertheless, residential prices are still recovering at a slower speed in many autonomous regions (the third segment), given that there, prices “are still decreasing (due to the crisis effect) or are stable, because the demand potential is much more contained and/or considerable volumes of stock are still available”.

To this end, it is worth nothing that 72% of the homes sold in Spain in 2016 had a price of less than €150,000. (…).

In this context, there are also considerable disparities in terms of the returns offered from leasing properties in the different regions. For example, buying a home and putting it up for rent would generate a return of 6.9% in Madrid, 5.8% in Cataluña, 4.1% in Galicia and 3.9% in País Vasco. (…).

Clearly, all of the regions offer more attractive average gross returns from rental than those generated by other investments, such as public debt and deposits. Not in vain, the average rental price will rise by more than 10% this year, according to Servihabitat, which highlights the seven most thriving markets in Spain at the moment, namely: Málaga, Balearic Islands, Barcelona, Girona, Alicante, Madrid and Murcia. (…).

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

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

Bank of Spain: Avg. Yield On Housing Was 8.8% In 2015

22 March 2016 – Expansión

Investment in residential property is strengthening due to its low risk. In 2015, the gross yield on flats – rental income plus (property price) gain over one year – recorded its best year since the real estate boom.

As the recovery of the residential market gains strength, so housing is becoming an ever more attractive investment. Nowadays, buying a property to then put it on the rental market is an operation with high returns and low risk.

In other words, the option preferred by long-term investors. Not surprisingly, housing closed 2015 with an average yield of 8.8%, the highest annual figure since 2006, according to data from the Bank of Spain.

The body governed by Luis María Linde takes into account not only the gross rental yield (which stood at 4.6% as at December last year), but also the gain (in property prices) over 12 months, which adds a further 4.2 percentage points to the figure. As a result, many small and medium-sized investors have set their sights on the residential market, as they seek refuge from the low profitability of other investments. The return on housing is six times greater than the 1.44% offered on public debt over 10 years, and 22 times higher than the 0.4% yield offered on deposits. Meanwhile, the performance of the Ibex 35 is negative (down by 24.3% in February, according to the Bank of Spain).

8.8% is the highest return recorded at the end of a year since 2006, when the figure stood at 17.7%. Not even in 2007, the year in which the bubble peaked, was a higher figure recorded (then it was 8.6%). Between 2008 and 2013, returns were negative and 2014 closed with a yield of 6.4%, 2.4 points below the figure recorded last year.

“This data is very strong and confirms the change in the trend for the residential market, which began back in 2014”, says Julio Gil, Chairman of the Real Estate Research Foundation (FEI). “The combination of the positive evolution in terms of house prices and the trend in rental income have resulted in very high profitability, which confirms the stabilisation of the market and puts housing in a strong position versus other investment assets, particularly thanks to the very strong return-risk ratio”, adds Gil. Nevertheless, although “this indicator confirms the increasingly strong stabilisation of the market”, that “should not be confused with a situation of sharp growth”, warns the Chairman of FEI. (…).

As Gil warned, the sector is currently experiencing an impasse of high returns and low risk, something that is very rare. For this reason, experts are recommending investments in homes in good locations where high is demand. Central areas and suburbs of major cities are the best places to buy a property and then rent it out. The best options are one or two bedroom flats that are less than 80 m2, as they generate the best ratio in terms of rental income per square metre.

Moreover, rental prices are on the increase. Rent became more expensive in every autonomous region in 2015, with the exception of the País Vasco, where prices decreased by 0.3%, according to Fotocasa. It is the first time that rental prices have increased in 16 of the autonomous regions since the statistic, which the Bank of Spain uses in the absence of official sources, was first created nine years ago.

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

Bank of Spain: House Rental Yields Soar To 9.1%

29 December 2015 – Expansión

The returns on buying a home have not been as high in Spain since September 2007, at the peak of the bubble. The average gross annual yield on homes currently amounts to 9.1%. That is according to the most recent data published by the Bank of Spain, which relates to the end of the third quarter. Three months earlier this indicator amounted to 8.6%; whilst in March it equalled 6.2%, which gives us an idea of the speed with which residential returns are growing.

The total gross return on residential properties “is calculated as the estimated gross return from rent, plus capital gains”, according to the body led by Luis María Linde. In other words, the calculation takes into account not only the amount an investor can expect to obtain each year from leasing out the property, but also the gain he/she can expect to make from selling it in twelve months time.

The gross annual yield is the most important indicator for investors. Much of the appeal of homes as investments is that they offer returns that are significantly higher than those currently generated by public debt and deposits. Specifically, the average home is 5.2 times more profitable than 10-year State bonds, whilst deposits offer returns of just 0.4%, according to the body led by Luis María Linde. (…).

We are currently experiencing an impasse involving high returns with minimal risk. And there are many reasons for it: house prices are starting to rise (by 2.6% in 2015 and by more than 6% in 2016, according to Servihabitat) and rental prices are on the increase as well, although more gradually (by around 1%, according to the index prepared by IESE and Fotocasa). The average price paid by tenants has increased significantly in Spain’s two largest cities, Madrid (4.67%) and Barcelona (6.19%), according to data from Tecnocasa.

In addition, the percentage of citizens choosing to rent rather than buy is increasing, from 19% to 21.2%. In the last three years, the rental market has increased by 1 million homes and is now 42.5% larger.

For this reason, investors looking to obtain higher returns have started to hunt for properties in very established locations, with high demand, with a view to renting them out.

Rental yield, excluding capital gains

Another way of measuring the attractiveness of investing in homes is the gross rental yield, excluding capital gains. In the second quarter of 2015, that indicator amounted to 4.6% and had been stable since March 2014. Prior to that, such high rental yields had not been seen since June 2003, when house prices were increasing at two-digit rates.

The most profitable city is currently Sevilla. The Andalucían capital offers a gross rental yield of 8.2%, according to a study by Tecnocasa. In Madrid, the yield on homes amounts to 7.7%; in Zaragoza, it is 7.4% gross p.a.; and in Barcelona, it amounts to 6%.

Other real estate assets offer even more attractive gross rental yields (excluding capital gains) than homes. Commercial premises continue to be the most profitable product (7.5%), followed by offices (6.8%) and garages (4.6%). (…).

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

Funds Will Invest €2,000M In Shopping Centres In 2015

7 July 2015 – El Economista

Shopping centres are still the star asset in the real estate sector; and experts forecast that this year will see the second largest investment volumes of all time.

According to Pelayo Barroso, Director of Business, Analysis and Market Research at the consultancy Aguirre Newman, transactions amounting to €2,000 million will be closed during 2015. This figure is spurred on by the arrival of institutional funds specialising in this kind of asset.

“We do not expect the investment volumes seen in 2014 to be repeated – €2,500 million was invested in around 30 transactions. That was an exceptional year, but the forecast figures for this year are still very strong”, says Barroso.

It is worth noting that in 2013, total investment amounted to just €700 million, whereas during the year to date, transactions have already been closed amounting to more than €900 million. (…).

Centres up for sale

According to Aguirre Newman’s forecasts for the second half of the year, transactions worth €1,000 million will be closed, as a result of the sale of around 15 shopping centres, which are currently on the market. Moreover, Barroso explains that even though some assets are not officially on the market, “their owners are open to offers”.

The shopping centres that may be sold are “located in regional capitals and large towns”, which is just what investors are looking for. He adds that these assets are not only located in Madrid and Barcelona, they can also be found in cities such as Bilbao, Sevilla and Valencia.

In terms of the type of investor interested in these assets, the Socimis will continue to play an important role. The creation of several Socimis in a relatively short space of time and their need to invest within a relatively short timeframe, meant that they accounted for 24% of total investment volumes in 2014, according to data from Aguirre Newman.

Similarly, the arrival of overseas institutional investors with vast specialist experience in the sector has driven a lot of investment; these players accounted for almost 73% of total investment volumes last year.

Both Socimis and institutional investors have a long-term vision, explains Barroso. In this sense, he stresses that their objective is to optimise centres, reposition them and earn rental income from them. “They are not going to do what the funds that purchased shopping centres in 2012 and 2013 did, when they entered the market, only to exit again two years later.

In terms of the yields that these investors are looking for, the director explains that the returns on prime centres range between 5% and 5.5%. Whilst for secondary centres, yields start at around 6.5%.

Original story: El Economista (by Alba Brualla)

Translation: Carmel Drake

Bank Of Spain: Residential Rental Yields Rise To 5%

18 May 2015 – Expansión

Residential market / The average annual return on rental properties is equivalent to 3.1x the return on public debt – a historical record. Demand for rental property has soared by 42.5% in three years.

After seven-years in decline, it seems that the housing sector is back. The residential market is oozing optimism once again, although it is also full of caution, learned during the post-bubble era, and  uncertainty, inherent in a recovery that is still recent.

But the data is improving and housing has become a good investment once again, above all due to the significant rental returns offered nowadays. Investors looking for yields that exceed those on deposits and public debt are on the hunt for properties in good locations, with high demand, with a view to buying them to let.

The data endorses this trend, since the rental income for a residential property offers an annual gross return of around 5%. On average, 4.7%, according to the Bank of Spain. It is the highest percentage recorded since June 2003, during the height of the housing bubble, although other reports, such as the one published by idealista, puts the figure even higher, at 5.3%.

The gross yield is a percentage of the total price of the house covered by the annual rental income. This yield, published by the Bank of Spain, also takes into account capital gains.

Taking into account the data from the body led by Luis María Linde, the average annual rental yield is no less than 3.1x the return generated by public debt on the secondary markets during the last quarter (1.5%). That is a historical record for this comparative ratio, which dates back to 1991. Meanwhile, bank deposits offer a return of 0.6% each year.

What does all this mean? Simply, that the moment is ripe for investment in buy-to-let housing, especially for small investors. The price of homes is beginning to increase and so are rentals, which means that the market is at an impasse of high returns without much risk. Moreover, the percentage of citizens who prefer to rent rather than buy has risen sharply, from 11.4% in the boom years to the current rate of 19%. In the past three years alone, the rental market has expanded to include one million more homes; it has grown by 42.5%.

On the other hand, the price of homes is starting to rise, specifically by 2.65% during the first quarter of the year, according to the registers. This trend towards stability in terms of property prices points to an easing of returns in the rental market, and so analysts believe that now is the best time to invest (rather than waiting to invest over the next few quarters).

According to the experts, the prime areas of the large cities are those that offer the safest opportunities, due to their significant demand, although without exorbitant returns. For example, the Madrid neighbourhood of Retiro, where the average price per square metre for sale is €3,289 and for rent is €11.6/m2/month, according to the index prepared by IE Business School and Fotocasa. A property measuring 100 m2 with these parameters would have an annual return of 4.2%. A second-hand home measuring 100 m2 in the Goya neighbourhood (Madrid) would have a return of around 4.7%.

“Homes in the best locations are the most attractive to rent. They will go up in price and there is no risk of default or lack of demand”, says the real estate consultant José Luis Ruiz Bartolomé. “It is possible that rental prices will also start to rise, although by less that sales prices. The rental margin will narrow, but that is because certainty will increase as well; I do not see that as a bad thing”, he adds.

And in the peripheral areas? “You have to look at where there is more demand than supply”, says Ruiz. Julio Gil, President of the Foundation for Real Estate Studies agrees: “It is the best option for small investors, due to the returns and minimal risk”.

Some properties offer higher yields than housing, such as commercial premises (7.2%) and offices (6.7%), according to idealista.com. Garages yield 4.5%.

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

Rental Prices Fall Again In January By 0.6%

16 February 2015 – Cinco Días

Navarra, Murcia and La Rioja recorded the most significant decreases.

Rental prices decreased again in January by 0.6%, i.e. by a tenth of a point less than in the previous month, representing almost half of the general index (-1.3%) and almost two consecutive years of cumulative decline, according to data published today by the National Institute of Statistics (el Instituto Nacional de Estadística or INE).

By autonomous region, the main decreases were recorded in Navarra (-1.9%), Murcia (-1.8%), La Rioja (-1.8%), Valencia (-1.4%), Madrid (-1.4%), Pais Vasco (-1%), Andalucía (-0.8%) and Castilla-La Mancha (-0.8%). Reductions were also observed in the Canary Islands (-0.3%), Cantabria (-0.3%), Aragon (-0.3%), Asturias (-0.2%), Extremadura (-0.3%), Galicia (-0.3%), Ceuta (-0.3%) and Castilla y León (-0.2%), although these were below the average recorded. Rental prices remained stable in the Balearic Islands and increased only in Melilla (+0.9%) and Cataluña (+0.1%).

On the other hand, house maintenance costs increased by 0.7% year-on-year, i.e. by two percentage points more than the overall rate and were virtually unchanged with respect to the end of 2014.

Original story: Cinco Días

Translation: Carmel Drake

Intu’s €2,500m Plan To Dominate The Retail Sector In Spain

16 February 2015 – Expansión

The group Intu Properties is completing the exercise of its call option over a real estate project in Málaga, as part of a €2,500 million investment program launched by the British company to become the leading shopping centre operator in Spain.

The developer, which last year spent €613 million on the acquisition of Parque Principado (Asturias) and Puerto Venecia (Zaragoza) expects to hand over €41 million to the Peel Group for the purchase of a plot of land near Torremolinos, which has a licence for the construction of a retail and leisure complex measuring 175,000 square metres. According to the company, subsequent investment in this development, which will take three years to construct, will amount to €250 million.

In addition, Intu is considering other options to develop shopping centres in Vigo, Valencia and Mallorca. “Our objective is to become the market leader in the ownership, development and management of large regional (shopping) centres across Spain”, said the group. It is looking to replicate its model in the UK, where it operates 18 retail complexes all over the country.

HSBC estimates that the six shopping centres that Intu now owns or plans to acquire in Spain represent a total outlay of €2,500 million; the bank financed €320 million of the acquisitions in Asturias and Zaragoza. Stephen Bramley-Jackson, an analyst at the entity, said that “Intu’s real estate portfolio in Spain has the capacity to equal that of the current market leader for this type of property, Unibail-Rodamco, in terms of total investment”.

The Franco-Dutch group now has 16 (shopping) centres in Spain, after it sold the ones it owned in Albacete and Torrevieja last year. The average size of their shopping centres is smaller than those of Intu, which seeks to focus its investment in complexes measuring more than 100,000 square metres. In 2014, Unibail-Rodamco generated revenues of €147.1 million from the rental of its Spanish properties. Rental income from Parque Principado and Puerto Venecia amounted to €28.6 million.

The two other major players in this sector are Klepierre and Corio, which have invested around €500 million in shopping centres in Spain in recent years.

To maintain its role as market leader, Unibail-Rodamco has invested €600 million in several projects: it plans to expand two centres in Barcelona and construct two new centres in Palma de Mallorca and Benidorm. However, the firm has put the brakes on the development of the Oceania centre in Valencia.

Unibail and Intu seem set to share the market without competing directly in the same geographical areas. Intu, for example, has not yet launched any projects in Madrid or Barcelona, whereas its rival has a significant number of properties there. Meanwhile, Unibail does not have any centres in Asturias, Zaragoza, Malaga or Galicia. The slow down in the development of Oceania leaves the way open for Intu to develop its gigantic Puerto Mediterráneo centre, measuring 300,000 square metres in the Valencian town of Paterna. The two companies have parallel plans in Mallorca only, although Unibail’s Palma Springs centre is more advanced and looks set to open at the end of 2016.

According to Intu, the opportunity that it sees in Spain to launch new projects is focused on the regions “where ownership of shopping centres is fragmented and there is not currently a dominant destination for retail and leisure”.

With a market value of GBP 4,800 million (€6,480 million) and debt amounting to GBP 4,000 million, according to analysts at Investec, the British company is looking for partners for its Spanish ventures. The pension fund manager Canadian Pension Plan Investment Board acquired 50% of Parque Principado and may participate in other projects, according to HSBC. In addition, Intu Properties is evaluating the possibility of publicly listing its Spanish subsidiary or some of its (shopping) centres to secure foreign capital.

Some analysts wonder whether Intu has arrived too late in Spain, given that property prices are already recovering. The expected rental yield at Puerto Venecia (acquired in December 2014) is 5%, compared with 7.2% for Parque Principado, which was purchased in October 2013.

In terms of the next steps, Intu’s shareholders must approve the group’s purchase of the project in Malaga.

Original story: Expansión (by Roberto Casado)

Translation: Carmel Drake

Housing: Rental Yields Now Exceed 5%

3 February 2015 – El País

Property has become a safe haven again for savers and retirees.

Rental properties offer returns of between 5% and 7%. After almost seven years of falling prices, credit constraints and low yields on bank deposits, property “has become a safe haven again for savers and retirees” said Jesús Duque, Vice-President of Alfa Inmobiliaria.

Buy-to-lets have become a good investment option once more, as they provide much higher returns than those offered by financial institutions. Furthermore, prices continue to fall, although that trend is now slowing. The price of second-hand homes in Spain decreased by 0.1% during the month of January to reach €1,592 per square metre, according to the latest real estate price index published by Idealista. The year-on-year decrease was 5.1%. Nevertheless, the outlook is set to change as prices in five autonomous regions (Murcia, Valencia, Cataluña, Madrid and the Balearic Islands) increased.

To generate income, one cannot buy just any house. When looking to invest, one should focus on homes that have permanent demand, i.e. those with a central location. The most stable investments are properties located in middle class neighbourhoods, since they have risk-reward relationships that offer more stability over the long-term.

“It is much more worthwhile to invest in a neighbourhood in any city, rather than in a house on the beach, where the possibility of renting is usually limited to the summer months”, explains Duque. The greater the rate of rotation, the lower the profit. Several months may pass between tenants during which time the owner receives no income and also has to upgrade and repair the property. “Whenever possible, if you are looking for a stable investment, you should try to rent out your property for long periods”, said the expert.

Family homes amd those with space for at least two adults are better than one-person studios, for one-income households. And, almost more importantly, you must ensure that the rent will be collected and that it will cover the investment. This can be done through an objective analysis of the tenant’s ability to pay, but can also be supplemented by non-payment protection insurance, which although decreases the profitability of the operation, does provide security.

One should keep in mind that from the expected yield of 5% to 7%, an owner should deduct 1% to cover the payment of IBI, community costs, garbage collection, insurance and the repair and maintenance of the property.

Original story: El País (by Sandra López Letón)

Translation: Carmel Drake