Tag: young people

Price Rises Continue To Rock Spain’s Rental Home Sector

6 June 2017 – El Mundo

The housing market is trembling and not, like in the past, because of the high degree of sale and purchase activity. The residential sector in Spain is facing an unprecedented phenomenon: a boom (not a bubble) in the rental sector. In a short space of time, this residential regime has gone from being almost residual to accounting for more than 20% of the housing market. And that figure is rising. This leap is driving up prices, significantly. Above all in Madrid and Barcelona.

According to the experts, a change in the mentality of young people and employment mobility are the main factors driving this formula for accessing a home. (…).

Not since the 1960s has the percentage of rental properties been so high in Spain, but, despite the increase, the figure is still well below the levels seen in other European countries – which reach 50% in some places – although it is moving closer to the Eurozone average – 30%. (…).

The cornerstone of this growth in rental properties has been the spectacular boom in demand, which has come up against an unprofessionalised sector, with minimal supply owned, primarily, by individuals. The real estate portal Fotocasa now registers more searches for property rentals than it does for property purchases. The result of this imbalance? An earthquake in terms of prices. How long will this earthquake last? Where are its epicentres? What intensity will it reach? What measures should be taken to soften its effects? (…).

The latest evidence of the rental earthquake has come in the form of the Fotocasa’s price statistics for April, which show that the average rent in Spain rose by 10.2% in one year, to €8.04/m2/month. That cost takes the market back to its 2011 levels but it is still well below (-20.7%) the peaks of 2007 (€10.12/m2/month). (…).

“It is a question of supply and demand”, said Economist and Director of the Masters in Real Estate Development and Management Advisory at the Universidad de Barcelona (UB), Gonzalo Bernardos. “Demand is increasing due to the recovery. There are more jobs and, therefore, more families and young people as potential tenants. By contrast, the supply is decreasing (…)”. In his opinion, this situation will change when the banks start lending again en masse to families who earn less than €2,500/month. “From then on, maybe from 2018 onwards, the rental sector will suffer, as demand will transfer to the purchase market”, he said. (…).

Fotocasa has prepared a seismic map of the rental market. It reveals the evolution of rental prices by autonomous region. Prices decreased in YoY terms in Galicia only (in April) (by -0.7%), whilst they rose in all of the other regions, with marked rises in Cataluña (17%), Madrid and the Balearic Islands (12.1% in both). Together with the Canary Islands (11.9%), these regions are undoubtedly the large epicentres of the increase in rental prices.

“The increase in rental prices is happening across the whole country, but the strong average increase is due to Cataluña and Madrid”, said Beatriz Toribio, Head of Research at Fotocasa. “According to our Real Estate Index report for 2016-2017, these two regions account for 43% of the activity relating to demand”, she said.

In absolute terms, the most expensive rental prices are also in Cataluña, where the price per m2 stands at €11.96/month. In other words, a typical apartment measuring 90 m2 costs around €1,075/month. Next in the ranking, and still in the double digits, are Madrid (€11.36/m2/month), País Vasco (€10.59/m2/month) and Baleares (€10.05/m2/month). These values are even higher in the main municipalities.

Barcelona – the great tip of the iceberg

(…). In the city of Barcelona, the average rental price amounts to €15.14/m2/month. That amount is higher than the figures registered in Sant Cugat del Vallés (€13.61/m2/month) and Castelldefels (€13.58/m2/month), the next two most expensive towns for rental properties in Spain. In Madrid and San Sebastian, rental prices stand at €12.81/m2/month and €11.96/m2/month, respectively. (…).

The analyst at Fotocasa thinks that rental prices will regulate themselves over time. “We are still well below the peaks. The market is normalising”, she concludes. Meanwhile, Bernardos predicts that the rate of growth in rental prices will gradually calm down in Barcelona and Madrid. He forecasts price rises of 12%, 9% and 5%-6% over the next three years in the capital and of 8%, 5% and 3%-4% in Barcelona. (…).

Original story: El Mundo (by Jorge Salido Cobo)

Translation: Carmel Drake

Gentrification Drives Up House Prices In Barcelona

13 March 2017 – El Periódico

It never rains but it pours: property prices in Barcelona are rising in a continuous and alarming way; a bullish process that echoes the trend seen in residential rental prices in recent times. Only those who are very optimistic – or very cynical – will be able to argue that these price rises are not a reflection of the improvement in the economy and that the laws of the market are as follows: the more pressure in terms of demand (from property buyers), the more the supply benefits (owners and real estate companies alike). According to all indications, the worst of the crisis is over, but the reality of the daily economy is far from the one seen during the years before the bubble burst, in 2007-2008 (and probably will not be in the next few years): average salaries have decreased, employment is more precarious and young people looking to emancipate themselves are finding it very difficult to put a roof over their heads.

But Barcelona is fashionable, a phenomenon that seems unlikely to end (nor would that be desirable) – and moreover, available land for new homes is in short supply. The combination of these two factors is fuelling the purchase of properties as investments, in many cases by foreigners and, is leading to a price spiral that, according to reliable samples, means that 80% of the homes currently up for sale cost at least €200,000. Below that price, properties abound only in the neighbourhoods of Nou Barris, Sant Andreu and Horta-Guinardó.

The Town Hall, led by Ada Colau, has taken some initiatives to alleviate these perverse effects of Barcelona’s appeal, but its legal and economic capacity is limited. The problem requires coordinated action with other administrations if a mockery is not to be made of the Constitution, which establishes that: all Spaniards have the right to decent housing and that the public authorities must ensure as such, “by regulating the use of land in accordance with the general interest to avoid speculation”.

Barcelona, at the forefront in many periods in history, still has time to show that success does not have to denaturalise a city to the point of turning against its inhabitants and driving them out through a large-scale gentrification process. Nobody wants Barcelona to end up like Venice, a paradigm of a city, with lots of glamour and many visitors but with increasingly little soul.

Original story: El Periódico

Translation: Carmel Drake

ST: House Prices Will Rise By 3% In 2017

18 January 2017 – Cinco Días

House prices will grow by 3% on average this year, driven by the improvement in the economy and employment, but also by the pseudo boom that is happening in the rental sector, in particular in large cities. That is according to Sociedad de Tasación, one of the largest appraisal companies in the sector.

The year that has just started will continue to be favourable in general terms for a real estate sector that, in the words of the Director General of Sociedad de Tasación, Juan Fernández-Aceytuno, is “recovering its sense of judgement”.

Thus, the volume of transactions will continue to grow, the rate of construction will intensify and more mortgages will be signed (although that figure will always fall below the number of house sales); and all of that means that house prices will end the year 3% higher, on average. Nevertheless, Sociedad de Tasación warns against certain risks and key factors that will determine the extent of this improvement in the real estate sector.

The first is what is happening in the rental market. Fernández-Aceytuno again highlighted the large group of potential buyers, such as young people aged between 25 and 35 years old, who are unable to buy a home because of their low wages and because of the precariousness associated with the majority of the new jobs that are being created. Since those people are not buying, many are choosing to rent, which has caused demand in the rental market to soar, along with rental prices. Sociedad de Tasación believes that if no response is given to this insolvent demand, rental prices will continue to rise and that will, in turn, drive up the prices of homes up for sale.

The Director General recalled that the average yield on rental properties in large cities stands at around 6.1% at the moment, which means that the increase in real estate prices in the major cities will be higher than the 3% forecast for the country as a whole.

Moderate pace

Other decisive factors, in addition to the improvement in employment, will be everything relating to financing. The new accounting standards, which the banks must comply with this year, together with the cost of recent court rulings, such as the judgement regarding floor clauses, and the forecast increase in interest rates may have an impact on the conditions for accessing credit over the medium term, which will determine the behaviour of much of the demand.

In any case, the good news, according to Socidad de Tasación, is not only that the main indicators in the sector are going to continue to stabilise, but also that they are doing so in a much more balanced way than in the past. In this sense, the firm gave the example that house prices are growing at more moderate rates now than they did during the previous boom, with rises in line with the number of new Social Security members. Moreover, it highlighted that land prices have not soared by more than house prices, which was also common during the early 2000s.

What’s more, property developers have not started to build homes in an uncontrolled way, even despite the expectation that more new homes are going to be sold. A study compiled by the appraisal company shows that the supply of new homes in Madrid and Barcelona is actually scarce, which means that it will run out within 10 months in the capital and within 14 months in Barcelona. Finally, it describes the rate of property construction along the coast as “very reasonable”.

Original story: Cinco Días (Raquel Díaz Guijarro)

Translation: Carmel Drake

Spain’s Rental Market Is Thriving, Boosted By Buy-To-Let

9 January 2016 – Expansión

Thanks to strong investor appetite / The high profitability of residential investments has increased expectations in the rental market, given that it is the option now chosen by 21% of Spaniards. Experts forecast rental price rises of more than 5%.

The rental market closed 2016 with price rises of 6.7%, but in many large cities, the increases were in the double digits. The difficulties facing young people when it comes to affording a home, the emergence onto the market of hundreds of thousands of homes that were empty and the high returns of real estate investments have increased expectations for this residential option, once forgotten in Spain and which is now the alternative chosen by 21% of Spaniards.

This year, “given that interest rates are not expected to rise in Europe over the medium term, housing will remain attractive as an investment asset”, said Jorge Ripoll, Director of Research at Tinsa. “Speculative demand will push more and more savers towards the sector”, predicts Miguel Cardoso, Chief Economist for Spain at BBVA Research.

In this context, the consensus of the panel of real estate experts consulted by Expansión is that the rental boom will not only continue during 2017, but that the rises may even be larger, especially in the large cities. Julián Cabanillas, CEO at Servihabitat, highlighted that his forecasts indicate an average YoY growth in rental prices “of more than 10%”.

The increase in prices will be “particularly noteworthy in the large cities, whose weight over the national average is also more significant”, added Cabanillas, who warned that: “If prices continue to rise in the double digits, many households will be priced out of the market, particularly those formed by young people”.

The President of Tecnitasa

José María Basañez points out that “during the last few months of 2016, the rental market in Spain was more robust than the market for house sales”, a trend that will continue into 2017, in his opinion. “Therefore, we may well see price rises of more than 5%, on average”. (…).

Other analysts, such as Julio Gil, Chairman of the Foundation of Real Estate Studies, and José García Montalvo, Professor of Economics at the Pompeu Fabra University, think that the rental price rises will be more moderate. Nevertheless, like in the case of house prices, “there will be areas where rental prices will grow more quickly (such as in Madrid, Barcelona, the Canary Islands and the Balearic Islands)”, said Montalvo.

“The rental market is here to stay in Spain. We are seeing a change in mentality, with more and more people convinced that it is the way forward”, says Beatriz Toribio, Director of Research at Fotocasa.

House prices are also rising

Finally, it is worth noting that two new phenomena are being seen in the rental market. On the one hand, rental prices are rising and the volume of house sales are increasing, as Jaime Cabrero, President of the Real Estate Agents’ Association in Madrid, explains. On the other hand, the rise in rentals is making house purchases more expensive, according to Juan Fernández Aceytuno, Director General at Sociedad de Tasación: “The rental market is causing house prices to rise because there are increasingly more investors who are buying properties to rent”. “The high returns offered on buy to let properties are behind the tensions in terms of prices that we have been seeing and will continue to see in 2017”, adds Toribio.

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

Gómez-Pintado: House Building Up By 15% In 2016

6 October 2016 – Expansión

Yesterday, the Chairman of the property developers association APCE, Juan Antonio Gómez-Pintado, opened the association’s National Conference with moderate optimism. “We have not recovered completely”, he said, but he highlighted that his forecasts point to “a 15% increase in house construction” in 2016, “with signs of continued increases in 2017 and 2018”.

Gómez-Pintado highlighted that the major problem in the sector is the large latent demand for housing from young people who find themselves dissatisfied. For this reason, he asked the public administrations “to address” this debate. We need “stability regardless of whoever is in Government”, he said. He also urged property developers to “reduce production costs by focusing on innovation”.

“We face a significant challenge, to facilitate access to housing for young people (…). If not, the current improvement will be a new mirage”, added the Chairman of the association of property developers.

The Secretary of State for Finance, Miguel Ferre, did not take the hint and refused to discuss the possibility of any incentive plans for the sector. In his opinion, the fact that VAT has not been increased for property renovations and that a very favourable fiscal framework has been created for the Socimis are “measures that already carry weight” in the residential sector.

Ferre highlighted that the Socimis – listed real estate investment vehicles – already hold more than €9,300 million in assets and have a stock market value of more than €5,000 million. “It is one of the things that this minister is most proud of”, he said, referring to Cristóbal Montoro, who he stood in for at the conference. There are currently 30 Socimis in Spain, and 25 of them are listed on the Alternative Investment Market (MAB).

On the other hand, Ferre emphasised that, thanks to the fact that work to repair and renovate homes still carries a reduced VAT levy, of 10%, means that “the turnover of repair and renovation companies has increased by 13%”. The European Commission has mobilised €4,200 million of investment for potential low-carbon economy projects and “those funds should be redirected to building sustainability”, he added. (…).

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

Demand For Rental Housing Will Soon Exceed 500,000

19 May 2016 – El Mundo

Demand for rental housing from the population cohort aged between 20 and 39 will exceed half a million within the next few years in Spain, in a market in which 15% of homes are already occupied on a rental basis.

That was one of the findings from the XVII Annual Meeting of Esade Alumni’s Real Estate Club, which focused on the residential rental market in Spain and Europe and its viability from the point of view of operations, financing and capital markets. The meeting was attended by more than 150 specialists from the real estate sector.

The President of Esade Alumni’s Real Estate Club, Eduard Mendiluce, said that residential rental properties represent “an investment in the future” and he made reference to the business models that operate in other European countries, where a couple of companies manage stocks of 200,000 and 300,000 homes.

Eduard Mendiluce, who is also CEO of Anticipa, said that the residential rental market “is here to stay” because it responds to structural changes and he said that we do not currently have a stock of residential homes for rent of the quality that meets demand.

Meanwhile, the Professor of Applied Economics at the Autonomous Universiry of Barcelona, Josep Oliver, explained the reason for that demand. According to data from INE, 42% of young people aged between 20 and 39 live with their parents, approximately five million people, of which 2.3 million have a job. “From this group, we can expect to see a demand for 500,000 rental homes in Spain over the next few years”, he said.

Similarly, the Director of Diversified Industries and Real Estate for EMEA at JP Morgan, Guillermo Baygual, analysed the market from the point of view of investors, who “are looking to obtain returns with minimal risk”.

Within the European framework, he made reference to UK legislation, which most protects the interests of owners and Dutch legislation, which is the most favourable towards tenants. In turn, the CEO of Sogeviso, Pau Pérez de Acha, made reference to social rental housing, given that in Europe the average proportion of rental housing allocated for that purpose amounts to 12%, whilst in Spain, that figure ranges between 0.8% and 2%.

Similarly, the CEO of Immeo, Thierry Beaudemoulin, analysed the German rental market, where just 45% of the population live in their own homes, one of the lowest rates in Europe. (…).

Finally, the Director for Strategy and Business Development at Acciona Real Estate, Luis Morena, also predicted a positive future for the residential rental market.

This will involve the elimination of tax incentives for house purchases; the maintenance cost of home ownership, which is similar to rental cost; and the recovery of the labour market, which is increasing geographical mobility and therefore demand for flexibility in terms of the residential real estate market.

Moreno pointed to insufficient financing to buy a home as another one of the key factors that will influence the increase in the percentage of residential rental homes in Spain in the short term. Currently, 15% of Spanish homes are occupied on a rental basis, whilst in 1970 that figure accounted for 30% of the available stock of homes.

Original story: El Mundo

Translation: Carmel Drake

New Investment Formula: Buy-To-Let Cooperatives

5 March 2015 – Expansión

Investing in the Spanish real estate sector has been not only an option, but almost an obligation for large investors in recent years, both Spanish and international. But, what about small savers? Do they have any options left to fall back on?

Away from the real estate companies that are listed on the stock market, there is an investment proposal that involves buying homes to let them out. Nevertheless, this model has not been operated on a professional basis in the past. Now, the Spanish company Alquiler Seguro, which specialises in the management of rental contracts for both tenants and landlords, has decided to launch a cooperative project involving homes intended for rental, which are designed precisely for that purpose from the outset. “Last year, we realised that our most frequent transactions involved clients who were owners of some properties and at the same time, tenants of others”, explains Gustavo Rossi, Chairman of Alquiler Seguro. “A change is happening in the market, whereby young people, who are accessing housing through the rental market, are becoming good savers whilst also being tenants”, adds Antonio Carroza, CEO of the company.

The executives of Alquiler Seguro propose that these tenants use their savings to purchase homes, for an average price of €120,000, which offer investment returns after 18-24 months (the time taken to construct the properties). “These are homes that are designed to be rented out; they are expected to generate returns of between 3.5% and 6% and achieve an investment return within ten years”, says Carroza.

Currently, the company has two developments underway, both located in Madrid, in the neighbourhoods of Carabanchel and López de Hoyos. “We have chosen areas where there is demand from tenants and prices (of the properties) are affordable”.

Both developments offer financial support. “Our model is 50% equity and 50% bank financing. Entities are willing to subsidise some of the land purchase since the properties have (already) been sold to the cooperative members”.

“In the case of these two projects, each investor has acquired one home, but the goal is to move towards a model that does not involve horizontal divisions, but rather one in which many investors buy the whole development. We already have several plots of land in our portfolio that we intend to develop in this way”, says Rossi.

It is not the only buy-to-let investment project that the company is working on. “We are also evaluating the possibility of creating a Socimi, where investors contribute assets instead of capital but, at the moment, that is not a profitable model, due to the expenses associated with municipal gains”.

Original story: Expansión (by R. Ruiz)

Translation: Carmel Drake

Financial Institutions See 2015 As “Year Zero” Of The Recovery

9 February 2015 – El Mundo

Many banks (49%) believe that financing will return to normal between 2016 and 2018

Although many large banks are already taking positions in the real estate sector to benefit from its recovery, with transactions such as Operation Chamartín led by BBVA, or Santander’s increase of its stake in Metrovacesa, the financial sector does not believe that 2015 will be the year that marks the full recovery of the real estate sector. That is the conclusion of a study conducted by the consultancy KPMG, based on the views of more than 200 sector experts in the Spanish market.

According to the document, 2015 is going to be “year zero” in terms of the start of recovery of the Spanish real estate sector in Spain – 80% of Spanish banks and Sareb do not expect credit for housing and other real estate activities to flow normally this year, despite the fact that according to data published by the Bank of Spain, consumer loans and mortgages recorded a slight increase towards the end of 2014, for the first time since 2007.

Many financial institutions (49%) expect that financing will return to normal between 2016 and 2018, whilst 31% do not expect that it will happen for more than two years.

By that time, i.e.. from 2018 onwards, 79% of the banks surveyed (plus Sareb, the bad bank) expect that the stock of real estate assets, which is still being accumulated in Spain and which continues to weigh down on the results of the financial sector, will be absorbed.

Nevertheless and despite the high levels of unemployment, demand could increase significantly from 2016, according to 51% of the financial institutions that have participated in the study.

The sector is divided in its assessment of how this demand will behave and there is no consensus as to whether there has been a change in the mindsets of young people following this economic crisis. 50% of the banks surveyed (plus Sareb) believe that young people (aged less than 35 years) in Spain will continue to prefer to buy a home rather than rent one and most of the rest (44%) think that there will be a change in the home buying trend and that young Spaniards will chose to rent rather than buy as we learn from the past.

Nevertheless, there is complete consensus amongst respondents as to the involvement of financial institutions in supporting the recovery of the real estate market and the importance of their role as lenders, given that the other methods that are currently being used to close transactions – such as direct lending or investment by specialist funds – are necessary but not sufficient for the sector to fully recover.

There is also strong consensus (85%) that the old financing model of high leverage, which generated the property boom in Spain will not be repeated.

Construction reduces its weight over total GDP

According to estimates by the National Construction Confederation (Confederación Nacional de la Construcción or CNC), the construction sector accounted for around 23% of Spain’s GDP in 2007; by 2013, that weight had decreased by more than half (to 10%). The study, conducted by KPMG’s Real Estate team, concludes that 82% of the players involved in this business (banks, Sareb, companies, investors and the public sector) believe that construction’s contribution to national wealth will exceed 10% within five years, however it will have to reach 15% for it to really constitute a recovery. The majority of the participants in the survey agree that employment will be generated in the sector over the next five years. More than half think that the construction sector will provide work for more than 7% of the active population and more than a third believe that this figure will amount to 10%. But everyone agrees that the figure will not reach the level (14%) seen before the crisis.

Original story: El Mundo (by María Vega)

Translation: Carmel Drake