Rental Boom Triggers Investment in Madrid & Barcelona

27 January 2018 – Expansión

Markets are booming / The central parts of Spain’s two largest cities are the most sought-after by those investing in housing in search of returns, but rental prices are increasing more quickly in the districts on the outskirts of those cities, with rises of more than 10%. The experts forecast an accentuation of this trend, given that the supply of rental properties in the prime districts is starting to prove insufficient to cover all of the demand.

The real estate recovery is happening at three speeds. On the one hand, the large cities and most established areas along the coast are experiencing significant house price rises, a notable increase in sales, an increase in rental prices, a rise in non-residential investment and even a shortage of land for sale. On the other hand, medium-sized cities have left the lethargy behind and are now recovering, although with less energy than the large real estate centres. Finally, the less populated provinces are still recording ups and downs, although even there it is clear that the worst of the crisis is now over.

A large part of this improvement is due to the country’s underlying macroeconomic performance, but not all of it. The impact of private investors is playing a crucial role in the strengthening of the two large real estate centres, whose prime areas are the most sought-after by those looking to buy homes to put them up for rent, where they can obtain returns of more than 10%. Why? Because, in addition to the immediate increase in value that they are obtaining, a kind of rental boom is also happening in Madrid and Barcelona.

That said, “rental prices may be starting to peak in cities such as Barcelona and Madrid” says Beatriz Toribio, Head of Research at Fotocasa. “The market is normalising”, and so “although rental prices will continue to rise during 2018, they will do so at a lower rate than they did in 2017”, she adds.

The district of Chamberí exceeded the district of Salamanca in 2017 as the most expensive in the capital for renting a home. The average price of a rental home in Chamberí is €16.41/m2/month, followed by Salamanca (€16.07/m2/month), Tetuán (€14.94), Chamartín (€14.46) and Retiro (€14.35). At the other end of the spectrum, the district of Villaverde, with an average rental home cost of €8.91/m2/month was the most affordable. It was followed by Vicálvaro (€9.58), Moratalaz (€9.68), Villa de Vallecas (€9.90) and Usera (€10.15).

Almost all of the districts in the capital saw rental prices increase with respect to 12 months earlier. The district that rose by the most was Hortaleza, which increased by 13.1%, followed by Puente de Vallecas (12.9%), Ciudad Lineal (11%), Usera (9.4%), Retiro (9.1%) and Tetuán (9%) (….).

In Barcelona, the same thing is happening. The two districts that closed 2017 with decreases in rental prices are two classics in the rental market: Eixample (-1.4%) and Ciutat Vella (-1.2%). How come? “The rental boom started in the best locations and so when those areas reach very high prices, demand starts to withdraw from these areas and move to other more peripheral neighbourhoods”, says the real estate consultant José Luis Ruiz Bartolomé, Managing Partner at Chamberí AM. “The push from investors is also moving to other less central neighbourhoods, which are very well connected and cheap compared to the city centre”, he adds (…).

Specifically, the district of Ciutat Vella is the most expensive in all of Spain when it comes to renting a home. The average price there amounted to €17.16/m2/month in December 2017, despite the decrease seen YoY. It was followed by the second most expensive district, Sarrià-Sant Gervasi, whose average price amounted to €16.63/m2/month in December (…). Compared to 2016, prices rose in eight districts in the Catalan capital. The leader of that ranking was Sant Andreu, where prices rose by 12%, followed by Gràcia (9.5%), Les Corts (8.1%), Sants – Montjuïc (6.7%), Nou Barris (6.4%), Horta–Guinardó (4.8%), Sarrià-Sant Gervasi (3.9%) and Sant Martí (2.7%).

Gustavo Rossi, President of Alquiler Seguro, adds that “2017 will be remembered as the year in which the supply of rental housing became insufficient to meet demand”. The sector needs to be professionalised and the owners of empty properties need to realise that putting them on the market is a good option”, he says.

“Over the last decade, rental has established itself as the preferred option for young people and new families. In 2018, we are going to move closer than ever to the European model, where the rental segment has many followers”. (…).

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

Registrars: 99,343 Second-Hand Homes Sold In Q2 2017

4 September 2017 – Expansión

More than 1,000 second-hand homes were sold per day in Q2. During the second quarter of 2017, 99,343 second-hand house sales were recorded, the highest quarterly figure since 2007. That statistic confirms the consolidation of the residential market.

Over the last 12 months, 429,624 properties were sold, and so the experts consider that the sector is reaching its cruising speed. Moreover, they forecast that prices will rise by around 5%, which is the “healthiest” rate to avoid a bubble (…).

Each day, 1,090 second-hand homes are sold in Spain, according to data from the College of Registrars. It is true that not all of those homes are strictly “second-hand”, given that although they have all been sold in the past, some of them have never been lived in (those sold to the banks). However, new build sales are also recovering and overall, demand is booming. Over the last twelve months, 429,624 homes were sold, which is very close to the psychological threshold of 450,000, which real estate analysts consider would represent a return to normality in the housing sector.

“In most markets, the recovery is starting to take hold or has already been established”, said Julio Gil, President of the Real Estate Research Foundation. In his opinion, there are three speeds of recovery: “The first, in large capital cities, islands and the most established areas along the coast. The second, in the most heavily populated capital cities. The third, in small capital cities and areas without much activity”.

“The forecasts indicate that 2017 will close with between 450,000 and 500,000 residential property sales. I think that we are going to reach cruising speed”, says Manuel Gandarias, Founding Partner and Director General at Civislend PFP (…).

New build sales are taking off

“New builds are starting to gain ground. All of the off-plan sales made in 2014, 2015 and 2016 are starting to be recorded in the statistics now. The numbers are going to start to grow”, says Gandarias. According to Julio Gil, this recovery depends “on demand from the youngest generation, i.e. from first-time buyers, being able to access the market”. In reality, new families have been displaced to the rental market, which is experiencing a boom: rental prices are rising significantly and returns on homes are much higher than those being offered on deposits and public debt.

Gandarias explains the effect of this displacement on the buy-to-let market as follows: “There is still a lot of upwards potential for new builds. We are always talking about pent-up demand, and that demand exists, but it still doesn’t fulfil the solvency criteria demanded by the financial institutions”. Gil adds that “ It is absolutely necessary (for society) to redouble efforts in terms of access to housing for young people, with help to make purchases that can be reversed. That is one of the major challenges facing the housing market.

In other words, the market could still grow more. That will happen if employment continues to grow. However, there is a significant threat to mortgage financing and therefore home buying: that of a possible increase in interest rates.

The inevitable rise in interest rates

“A large part of the current recovery is due to the extraordinarily low interest rates” says Gil. “A rise in rates, which will happen sooner or later, will have a significant impact on the real estate market”. The other factor that will determine the behaviour of the future growth of the sector will be the behaviour of demand from first-time buyers.

Meanwhile, house prices are continuing to rise, but not by too much, dispelling fears of a new bubble. In comparison with the same period last year, second-hand house prices have risen by 1.7%, according to Idealista, up from €1,529/m2 in August 2016 to €1,554/m2 now. The highest rises were seen in the Balearic Islands (+1.7%), followed by the Canary Islands (+0.8%), Cataluña and Castilla-La Mancha (+0.7% in both cases). They were followed by prices in Comunidad Valenciana (+0.6%) and Andalucía (+0.5%) (…).

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

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