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We found it was interesting to publish the main points of this research:
- The Spanish real estate market continues to be an attractive sector for investments.
- The demand will grow to exceed the threshold of 500k homes throughout 2018 thanks to the expansion cycle of the Economy, improving employment, low labour costs and low financing costs.
- The average price of housing will increase at rates close to + 4%, driven by the scarcity of supply and the boom of rent in the most consolidated areas.
- Bankinter believes that buying opportunities are depleting and the upside potential of prices is already more limited, once the price premium areas have reached pre-crisis peaks.
- The gradual reduction of stock and the strong growth in new work visas suggests that this time, the promoter activity will awaken from its lethargy.
- Finally, returns on real estate assets are being reduced by the higher expectations of inflation.
The most attractive investment ideas according to Bankinter are:
- The purchase of real estate assets in very consolidated locations and with solvent demand: for instance: large cities and tourist areas, with a view of rental yield slightly above 3% and a minimum investment horizon of 3 to 5 years.
- The investment in the real estate companies (check Bankinter full report at the bottom on this)
Chart of expected return vs the mortgage costs
Residential markets: The favourable cycle continues
Check our chart of the yearly transactions in Spain by Spaniards and foreigners:
Yearly data. Source: Ministerio de Fomento
Economic cycle, profitability and conditions of financing are strong positive factors
- Economic growth and job creation The economy expansion in the years 2017 and 2018, for which we estimate GDP increases of + 2.8% and + 2.6% respectively. This expansion will give continuity to the Positive trend in the labour market.
- Attractive investment Real estate investment has become one of the few assets capable of generating higher returns than inflation. The gross profitability of the housing rental rate stands at 4.36% in Dec16 according to the Central Bank of Spain and exceeds 8% if you take into account the capital gains (see our chart above). The real estate sector will continue to attract investment flows.
- Good financing conditions Interest rates mortgage loans are still very low and the cost of financing is an incentive for the acquisition of housing.
Prices continue to rise. Are we facing the latest buying opportunities?
- Scarcity of the supply 2016 marks a new low in construction, with a figure of 40k homes completed. The combination of a supply shortage and the increase in home sales will continue to push the soaring prices.
- Increases in the main cities Madrid and Barcelona are recording year-on-year + 4% and +7.7% respectively and have already accumulated 8 quarters consecutive rise. The price trend in Madrid and Barcelona continues to accentuate price inequality in the residential market. Thus, while average prices continue adjusting slightly lower in annual rate in cities such as Bilbao (-2.9%) and Seville (-4.1%).
Check our chart of the yearly and quarterly price evolutions in Spain:
- Increases in the rental prices By the end of 2016, consolidated the trend of rising rents. The index Rental Contracts Updater (ARCA) accumulates 9 months consecutive increases, with strong increases in the neighbourhoods with scarcity. According to Urban Data Analytics, the rise in Barcelona exceeds 20% in districts like Sant Andreu and Sants-Montjuic and reaches 15% in neighbourhoods such as Gràcia, where prices suffered a slight adjustment during the crisis. This increase in rents will continue to be consolidated in the districts centres of the big cities by the rise of tourist floors exploited through platforms like Airbnb. The high profitability of these leases is already generating an increase in rents in more central districts in Madrid (Retirement + 17.3%, Center + 14%) and Barcelona (Eixample + 19.8%; Ciutat Vella + 12.8%). According to Bankinter, these double-digit increases derived from the shortage of supply and the boom of the tourist rental will not last in the long term will not extend to the whole of a market.
Residential development: a turning point in 2017 from historical lows.
- Reduction of the stock of new housing.
- Strong growth in new building visas The visas of work presented in the Colleges of Surveyors for construction of housing closed 2015 with a rebound of + 38% and have increased + 33% until October 2016, which would give us a projection close to 65k visas of new construction for construction of housing in 2016. This figure would be the best figure since 2011.