We see it almost every day on the news. Accessing a house in Spain is a complicated task. On the one hand, prices have risen by almost 5% in 2022. On the other, for the half of buyers who resort to mortgages, costs are also higher. The Euribor has multiplied by 17 compared to the month of April. The average increase in installments for a variable rate loan is already around 3,000 euros a year.
But it’s also that there are fewer and fewer options. The supply of used housing decreased by 7% in the third quarter. In Madrid and Barcelona the decline was slightly higher, 9%. Decreases equal to or greater than 10% were recorded in half of the provincial capitals. And in cities such as Santander, Alicante or Valencia, the number of second-hand homes for sale in the third quarter of 2022 was more than 20% lower than in the previous year.
The panorama in the new work is no longer encouraging. At the end of 2021, the buffer stock of new homes has not reached 450,000 units, the lowest since 2007. The lack of new developments, the increase of costs and, also, of financing have sent prices to skyrocket. Fewer than 100,000 houses are built in Spain each year, when experts believe 150,000 or even 200,000 would be needed.
The rental opportunity
Things don’t get better when it comes to renting. The supply of vacant homes decreased by 25% in the third quarter. As a result, prices have risen. No less than 8.4% at the end of December, according to Idealista. No autonomous community escapes this trend, while in the capitals the decreases exceed two figures. Given what we have seen betting on the rental, it looks like what is called a in English a madnessREAL?
Beyond the private investment of a lifetime – the purchase of an apartment to renovate and rent – institutional actors have moved to alleviate this shortage. that’s what it’s called build to rent o BTR, the construction of houses intended to be rented by private individuals. For tenants, it has the advantage of allowing them access to homes in good condition; for investors, that of achieving 5% returns with moderate risk.
However, some of the reasons that make you attractive also work against you. “Inside build to rent we have two problems that can slow down its development“, explains José María Gómez-Acebo, director of institutional clients at the real estate investment platform Urbanity. “One is rising interest rates, which makes trading BTR start to look less attractive, basically by comparison.” Added to this is the limitation on rental prices. “The owner, who also pays interest at a non-discounted price, sees the product as less attractive because he has less room for manoeuvre,” explains Gómez-Acebo.
For the consultancy firm Savills, the challenge lies in promoting institutional participation in the market and, in short, in a professionalisation of the sector which brings us into line with Europe. This is the only way to deal with the imbalance between supply and demand, evident in large cities, which requires no less than 1.2 million rental homes more before 2030.
A very profitable investment
2022 has been a good year for the build to rent. CBRE advisory points out that the BTR “has become a very attractive asset for investors, anti-inflationary in nature”. In the first nine months of the year, Investment in this sector in Spain amounted to 1,135 million euros, 12% more than in the same period of the previous year. The figure represents 30% of the total allocated to the sector lifewhich includes, among other things, student residences.
Urbanitae has already ventured into the sector of build to rent by the hand of Gestilar. In April 2020 it funded the development of a promotion of more than 40 houses in the center of Pozuelo. Although they started at the worst time of the pandemic, the works should finish next April, just 3 months late. At that point, the project will be handed over to the ABRDN fund, which will manage the rental homes. The operation should produce a final return of over 40% for Urbanitae investors.
So the opportunities are there if you know how to exploit them – and also the returns, thanks to formulas like the fund-raising real estate-. The inflationary environment, which has reduced the purchasing power of households, could limit the further journey of rent, as CaixaBank points out. That same context is at the basis of the rental boom, which could reach 26% of households -according to CG Capital Europe- and relaunch a sector, the build to rent continuously growing since 2020. We’ll find out in the next 12 months…
