Socimi VBARE: Why Are Rental Prices Are So High?

10 November 2016 – Invertia.com

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: Invertia.com

Translation: Carmel Drake