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How the rental price limit impacts the real estate sector

The Rental Negotiating Agency (ANA) expressed its dissatisfaction with the recent limitation on the rental price increase of 2% imposed by the Government for the coming months. In his statement, he stated that this measure seriously affects the development of the current real estate market.

The general director of the Agency, José Ramón Zurdo, criticized that this measure “freezes” the rental market and makes owners lose up to six percentage points in their profitability. He also considered that the measure turns all of Spain into a stressed area, affecting private landlords, who represent 93% of rent in Spain.

“Private landlords are the main affected by the intervention and freezing of their rents, compared to the large holders and investment funds, which no matter how much is said, they only represent 7% of the real estate market,” Zurdo explained.

A measure implemented outside the Regulations of the CCAA

The announcement of the extension has been rejected by the Rent Negotiating Agency, and it points out that it is a structural measure that will end up affecting all the leases in the country. Likewise, Zurdo has denounced that the successive extensions that are expected to take place in the coming months, the Government is skipping the housing regulations of the different Autonomous Communities.

Faced with this scenario, “the owners have gone from resignation to concern, and are already considering raising the rental price in the face of the immediate freezing of their rents,” Zurdo explained.

Source: Europapress

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The effect of the funds on the stability of the real estate sector

In a recent interview, the president of Gestilar, a developer from Madrid, Javier García-Valcárcel, spoke about the growth that the company has had in recent years, which has managed to build more than 3,000 homes.

The director pointed out that stability is a key factor for the sector to maintain the good health it currently enjoys, and it is clear to him that the real estate sector is today fully prepared to overcome future changes in the cycle thanks to the large institutional funds.

How is activity in the residential sector behaving in the first half of the year?

We are growing in sales compared to last year, but we have detected that the pace of sales is stabilizing. We are no longer seeing the big spike that occurred after Covid. This is a very good and positive thing for the sector, since spikes in any economic activity are not good. We prefer to always have an ascending linear activity, than an activity of ups and downs, since this situation is never easy for the structure of the company.

What is the reason for this stabilization in sales?

As a result of the Covid, the trend and the type of housing where people wanted to live changed. In addition, buyers accumulated a lot of savings and this led to an increase in sales. Now this stock has been consumed and external factors such as inflation have been added to this.

Can inflation be a major brake on the sector?

The truth is that we find ourselves in a scenario that until now we had not experienced and from the sector we must be cautious when raising prices. The population, due to inflation, will have less savings available for the purchase of a home and at the same time will increase its financial effort to pay the mortgage, so we find that the price of housing will be capped. In addition, the price of land, except when there are structural crises, never goes down and on the other hand, the production process of construction, which represents from 20% to 50% of the price, has risen between 15-20%. The equation is really complicated.

Are we in a cycle change?

I think that despite this situation it will be extended with stable prices. I do not see a change of cycle in Spain. There is a lot of intention to buy and there is little supply. The only thing is that you have to be careful not to increase the selling prices. In addition, the sector currently has the backing of large institutional funds, which have significant long-term capital capacity and strength that provide a lot of stability to the sector.

Aren’t you afraid that this purchase intention could change with the rise in rates?

A rate hike always affects the real estate sector and not always positively. In the case of companies, this increase in the level of the production process does not affect us excessively because it is a very small part of the costs. Much more worrying in general for the sector is the rise in construction costs. Although, it is true that a rise in rates can affect the financial effort of the final buyers and also in the case of Build to Rent, it could make the funds ask for more profitability in these operations and that can complicate the agreements.

Have you detected that the rise in construction costs affects the investment appetite of the funds for rental projects?

So far we have not seen a lack of appetite, quite the opposite. The BRT in Spain started a few years ago and therefore one must be very careful with the projects. If there begin to be significant cost deviations or breaches of contracts, obviously the funds will take note and based on that they will act asking for a different return. But now everything runs normally.

Are you negotiating more rental agreements with new funds?

We currently have projects that add up to 2,000 units and that will be delivered in their entirety during the first quarter of 2024. In addition, we are constantly in negotiations for BTR land and we are also interested in the affordable housing that the Madrid City Council is going to offer. In all cases we would always go hand in hand with a partner. We are currently negotiating an important operation in Palma and we are also seeing volume operations in Levante and Andalusia.

What investment in land purchase do you have planned for this year?

We have a land portfolio for more than 3,000 units, of which 1,800 are under construction. In 2021 we have broken an investment record with 130 million and right now we are studying land for a value, as a whole, higher than last year’s figure and that would add up to 1,000 homes. But they are each in different phases so we cannot give a specific figure.

Source: El Economista

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The real estate sector facing the risk of legal uncertainty

The Spanish real estate sector continues to be an attractive area for investment. With solid foundations, the sector remains stable in the face of a possible crisis that could be generated by inflation or the rise in rates. However, different experts in the sector highlight a risk to take into account that can impact their behavior: legal insecurity.

“Spain continues to be a focus of attraction for international investors,” says Antonio Sánchez Recio, partner in charge of PwC Real Estate, who highlights that, although there is caution due to uncertainties, investors consider real estate as a haven asset.

With a privileged situation within the European context

Among the factors that influence the arrival of liquidity in the Spanish market, Sánchez pointed out that it is a market where prices are more attractive and affordable compared to those of other European countries. On the other hand, the real estate manager points out that private indebtedness is not high and that generates a certain peace of mind; added to the fact that it is an area far from the armed conflict.

Faced with the uncertainties that may alter its behavior, the sector arrives stable and healthy. “If we look at liabilities, we have a historically healthy situation,” says Juan Manuel Ortega Moreno, Director of Investments at Colonial, adding that the sector is much more prepared to withstand the temporary ups and downs that may come from the impact of interest rate hikes. The real estate sector today is in a rather privileged situation within the European context.

Source: El Economista

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Will there be a boom in the real estate sector during 2022?

Real estate sales have picked up again in many countries after the pandemic. Spain is one of the places where the cost of the “brick” has increased, with housing construction figures not seen since 2008. Is there a risk of returning to a bubble? How does the future present itself in Spain regarding this issue?

Last 2021 was a good year for the real estate market, with a sale of 674,014 homes, according to data from the Ministry of Transport, Mobility and Urban Agenda (Mitma). Of all of them, 115,038 operations were purchases of new homes, according to the INE.

The 2020 confinement due to the pandemic caused a sharp drop in this figure (415,748 contracts). However, after the economic and social recovery, the figure will probably continue to grow, opening the possibility of a new real estate boom in 2022.

How the housing market has evolved

Regarding the price, there are also three sources that point towards an uptrend. According to data from the Appraisal Society, the price of new housing rose by 3% in 2021 (2-551 euros/m2). Taking the entire market as a reference, Tinsa places the average price of housing in Spain at 1,609 euros/m2.

For its part, Idealista, another expert in the sector, places this price at 1,825 per square meter, during the first quarter of 2022. In this case, it sets a drop of 0.2% compared to the previous quarter.

The savings accumulated during the pandemic, the recovery of the tourist market from the second-hand market and the 0% interest rates maintained by the European Central Bank (ECB) are factors that can drive up the price of money.

On the contrary, high inflation, which stood at 9.8% in March, the economic consequences of the Russian invasion of Ukraine, a near rise in interest rates and the rise in the Euribor could stop the trend . This indicator has remained in negative territory for the past few years, but is about to return to positive figures.

What happens if there is a new housing bubble?

The real estate bubble had a devastating effect on the Spanish economy, causing a crisis from which scars still remain. Hundreds of thousands of mortgages were left unpaid, many construction companies went bankrupt and as a consequence, many homes were left empty.

In the event of a new bubble, these circumstances could occur:

  • A collapse in housing prices, which fell by almost 30% from 2007 to 2016 according to Idealista, falling from almost 2,100 euros/m2 to below 1,500.
  • A collapse of built homes: 2013 marked the historical minimum of new-build homes with 34,288. On the contrary, 2006 was the maximum with 865,561.
  • An increase in delinquencies and evictions, which could increase with a possible rise in interest rates.

It is a hard and accurate blow to one of the most productive sectors of the Spanish economy, although it is far from happening as it did in 2004-05. At that time, Spain built more new homes than France, Germany, the United Kingdom and Italy combined.

If you are looking for advice from a professional in the real estate sector, you can contact us and consult with our team of professionals.

Source: Housell

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Will home values ​​go up in 2022 and 2023?

The residential sector faces innumerable challenges in the coming months. The economy is preparing for a rise in interest rates, which could mitigate the high existing inflation; all this in the midst of a global supply crisis and a war crisis that stalks the European region.

In this climate of uncertainty, the residential sector could slow down its growth, but without entering a downward trend. The main reasons for this cooling in the residential segment is an environment of higher financing costs and the lower savings rate of families, as a result of high inflation.

House prices do not reflect bubble symptoms

So far, the effort rate of families, that is, the percentage of salary that they allocate to housing, is below the 35% threshold. At the end of 2021, it was at 33%, although it may rise slightly during this year. However, it is far from the figures that were reached in the real estate bubble, where it exceeded levels of 50%.

In addition, the indebtedness undertaken by families continues at levels that the market calls healthy. The average loan to value of mortgages is 65% and only 10% of them exceed 80%, minimum levels of 20 years. Additionally, in recent years, most of the loans linked to housing signed are at a fixed rate, which represents perfect coverage in a climate of interest rate increases by central banks.

In 2021, more than 566,000 properties were transacted, something unusual since the previous recession. These levels were last reached in 2008. Despite the slowdown, in 2022 and 2023, they estimate that sales will be above half a million.

The price of housing in Spain

The average price of housing in Spain stands at 1,823 euros per square meter; based on transaction data, collected by Brains Real Estate’s Real Estate Big Data platform. This represents 9.6% below the maximum price reached in the real estate bubble, in the first quarter of 2008.

Specifically, new construction is 14% higher in cost than second-hand housing; a trend that is expected to increase in the coming years. However, the number of new property sales continues to be between 11% and 15%.

In the case of rent, it is at a maximum, with a tireless rise since 2015. Renting a home costs an average of 10.5 euros per square meter per month, compared to the 6.8 euros it cost at the beginning of 2015.

The average gross return of those investors who opt for residential rentals is 6.6%; according to Brains Real Estate.

Source: Brainsre News

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The Bank of Spain focuses on the real estate sector

The rise in mortgage credit in Spain was significant in 2021, with year-on-year rates above 40%. Although the risks associated with this boom seem to be under control, certain entities have pointed out the need to put this market under surveillance, among which is the Bank of Spain.

The BdE pointed out the importance of once again focusing on housing in order to exhaustively monitor its evolution given what is being seen in other countries of the community: soaring credit and double-digit price growth.

The entity also referred to the weight of exposures linked to the real estate sector in banks and the existence of shared factors that explain the evolution of housing prices in the region.

Possibility of contagion of imbalances

The BdE also highlighted the risk of generating a kind of contagion or transmission of the imbalances suffered by some countries in the area, which could also be a source of great risks for the Spanish banking sector.

The monetary authority indicates that there are no signs of the application of lax granting criteria in loans, but the possibility of a certain transmission of the effects of real estate imbalances within the euro area represents a significant source of risk for the Spanish banking sector.

According to the report, the growth of new mortgage credit in Spain was especially significant in 2021, with year-on-year credit growth rates above 40% in the final part of the year.

However, the body points out that, due to the low levels from which it started, the ratio of the annual flow of new credit over GDP remains in line with that of the rest of the countries of the euro area in which the European Board Systemic Risk Assessment (ESRB) has not found any systemic real estate imbalances.

Rise in property prices

Despite the strong economic contraction that occurred as a result of the pandemic, house prices continued to grow throughout 2020 in the euro area, and this advance intensified in 2021.

The growing trend observed in prices is somewhat more intense in the group of countries that received alerts and recommendations from the European Systemic Risk Board, although in the second half of 2021 an increase in the rate of increase in prices in the rest of the economies, including Spain.

Regarding the situation of total mortgage debt, most countries have experienced slight increases in the ratio of the total balance of mortgage credit to GDP since the start of the pandemic. Among them, it is worth distinguishing between the countries whose ratio has increased as a result of the accumulation of debt, and those in which this increase is mainly due to the drop in GDP generated by the pandemic, as is the case of Spain.

Synchronization of markets in Europe

The Bank of Spain points out that, although there are marked differences between the countries with the greatest vulnerabilities and the rest, a certain synchrony is observed in the evolution of the housing markets in Europe.

In principle, the regulation of real estate markets or the footprint left by the global financial crisis could hardly explain this common factor, given its heterogeneity between countries. On the other hand, there is greater synchrony in the cyclical position and, above all, in the “lax” financing conditions in an environment of low interest rates.

Housing financing

Specifically, the principal components analysis shows that the first common component explains between 50% and 60% of the variations in house prices. This first common factor is more important when it comes to explaining the developments in house prices in countries with alerts.

However, this first component also explains a very high percentage of the variability of house prices in Spain, around 60%, a higher proportion than that of the rest of the euro area countries with lower vulnerabilities. Therefore, the presence of a common cycle is more pronounced in the economies with the greatest imbalances, but it is also present in the rest and, in particular, in Spain.

Source: El Economista

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Strong economic growth ahead in the real estate sector

According to data provided by AENA, the Spanish company that manages airports of general interest in Spain, during the month of March 2022 there has been a much higher arrival of planes in the Canary Islands compared to what had been registered in 2019.

This new influx of people has undoubtedly had a positive effect on the global economy of the Canary Islands. Furthermore, it is no coincidence that in the ensuing months there has been significant growth in the real estate sector.

Since October of last year there has been an increase in the number of apartment reservations, which is clearly related to the increase in the number of tourists arriving on the island. In recent months we have also seen that many tourism-oriented activities have been opening, as well as both trade.

We know that the pandemic left us with a health crisis, but not an economic crisis. The tourism that enters the island today is high in purchasing power. During the pandemic, these people who arrive in the Canary Islands today were able to increase their savings capacity, and now they come to the island to invest part of that money.

Increase in the sale of mid-high level properties

This increase in sales shows that the tourism that is entering the island today has high purchasing power. And Tenerife is working to take advantage of this boom. As reported by AENA, in June, a direct air connection will be established between New York and the island, with the idea of ​​convening and attracting a public with high purchasing power.

Both in the United Kingdom and in New York, the average to buy a home is much higher than the existing average in Tenerife. The money that someone can invest in one of these places to buy a small property, here could buy a larger property, let’s say a villa.

Without a doubt, this new entry will be a good boost for the economy, and clearly this will be reflected in the real estate sector.

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Could Spain become the Florida of Europe?

In 2021, REMAX offices invoiced €47,094,921, which meant a 46% increase in revenue compared to the 32.2 million reached in 2020. This is an increase of 28% compared to the figure recorded for 2019 (36.9M). The number of transactions was 16,7874, compared to 11,753 in 2020 (43.6% higher), a third of them rentals and the rest sales.

Of course the numbers in the individual offices of our franchise are very diverse. Several offices (even previously consolidated) multiplied their turnover by three, four and even more. According to these data released by Javier Sierra, president of Remax Spain, 2021 has been an exceptionally good year for most of the sector.

The best destination for residential tourism

The forecast for 2022 is to continue growing, an increase of 20% in our income has been foreseen in the offices as a whole. In general, we have enough experience to know that it is not really possible to predict the future. A pandemic, a war or any adversity can always come your way.

Despite any difficulty, at Remax we continue to believe that in the near future Spain will become “European Florida”. Our great strength and the potential we have as a country will allow us to be the best destination in the world for “residential tourism”.

In the near future for the real estate sector in Spain

Thousands of people from other European countries will buy residences in Spain in the coming years. The pandemic has increased and accelerated this process, many people have decided to change their way of life in search of well-being, given the possibilities offered by remote work.

The US states whose economy has grown the most in the last 50 years are Nevada, Florida and Arizona, states with sunshine and good weather. They grew much more than the industrial states of the north, even more than New York or California. We believe that in the case of Europe, Spain will be the destination that many will choose to invest in property, and this fact will open up the best possible outlook for our real estate industry.

Source: Franquicia Remax

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Is it a good time to open a real estate agency?

The real estate business in Spain has been cataloged by some experts as a cyclical growth sector. However, in relation to other productive sectors (such as the automobile business or investments in variable income), this «cyclicality» is more limited due to the fact that housing is an essential good for people; while cars or investments are not to the same extent.

In the midst of a crisis like the current one, for some it could be a “risk” to open a real estate agency. However, things can go well if you have a strategic plan to cope with it. And in this situation the solution is to convince customers that they have to lower the price and put a value according to what exists in the market. On the other hand, it is also necessary to have a list of investors ready when the situation begins to reverse.

What is the current moment in the real estate market?

According to Gozalo Bernados, professor of economics at the University of Barcelona, ​​the real estate market is not strictly heading towards a crisis, rather it seems to be heading towards a new real estate boom and even towards a possible bubble. This scenario would be possible within the framework of an unprecedented international economic recovery and progressive GDP growth.

What does the real estate sector in Spain need to function well?

Employment creation

The projection in terms of job creation for the coming months is favorable, according to experts. In September, 64,100 employed workers were registered, a higher number in relation to that registered in December 2019. During 2022, a historical employment record is expected, which it is estimated will also happen in 2023. Currently, in specialized professions, it is known that there is an excess demand for workers.

Increase in demand for first homes by young people

Access to housing for a group of people “under 35 years of age” will be possible only under frankly good mortgage conditions that allow them to access the purchase, even if they do not have significant savings.

The purchase of homes by this segment of young people can boost the demand of another segment called “improvement”, in which there are people between 35 and 45 years old who will sell their home, smaller and cheaper, to people of the younger segment.

Is the year 2022 expected to be very good in the real estate market?

According to the data collected by the specialists, the year 2022 will be a year in which we will see a 15% increase in real estate transactions and a 10% increase in prices. This means that for a real estate business, income can increase by around 26.5%, simply as a result of the combination of price increases and transactions. Undoubtedly, an increase is difficult to achieve in other types of business.

What is expected for 2023 and 2024?

Real estate agency revenue growth

If interest rates stay the same and real estate management stays average, revenue growth for 2023 and 2024 could be around 14%. And, if the business is well done, either because it has an advisor, or because technological solutions are offered, which help to develop a series of skills that distinguish it from the competition, the logical thing is that this increase in income can be well above that number.

New investments in the sector

In the savings ranking of European countries, Spain is ranked number four. It is estimated that Spanish savings in 2020 have been 104,000 million euros (126.6% more than in 2019). This money will go mainly to consumption. However, an important part of Spaniards will wonder where to invest it, with the real estate market being one of the main options for these investors.

In this sense, according to the specialists, the forecasts are that in 2024 around 750,000 homes can be sold. It will be a market that will multiply the homes sold in 2013 by approximately 2.5, which is the year in which the fewest homes have been sold in the last 21 years. If compared to the 485,000 homes that were sold in 2020, a very interesting development is expected in the sector.

Source: Franquicia Remax

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Learn about the new trends in the real estate sector in Spain

One of the pending subjects of the real estate sector for this year and the coming ones is the rehabilitation of the residential real estate park. A great challenge since half of the buildings intended for housing in Spain are more than 50 years old and less than 5% have an efficient energy rating (A, B or C).

According to data from the Ministry of Transport, Mobility and Urban Agenda, in Spain around 30,000 home renovations are carried out each year. At the current rate of reforms, it takes 308 years to rehabilitate the entire Spanish real estate park and reach the decarbonisation goal of 2050, according to UCI estimates.

For this year it will be key to the push for energy rehabilitation in Spain. UCI’s expectations are positive in this regard and it estimates that this sector of activity will move close to 30,000 million euros and will generate up to 400,000 jobs in the coming years.

The thrust of energy rehabilitation in Spain

The arrival of European funds may be one of the main impulses for the rehabilitation of homes, with average subsidies of 10,000 euros to undertake these works, to which the owners will have to add private capital or specific financing solutions for this purpose. Regarding the mortgage market, according to INE figures, the number of mortgages constituted on housing has grown by 15% between 2021 and 2019, while the average amount of loans has increased by 6% in the same period of time. In addition, the percentage of financed purchases remains at only 45%, a very stable figure in recent years.

The trend towards a fixed rate

According to UCI experts, one of the differential factors in the mortgage market will continue to be the fixed-rate trend, which has been the norm in 2021. As with mortgage firms, purchase and sale levels have recovered in 2021. In fact, 676,775 new and used homes were sold in Spain last year. This translates into an increase of 38.1% compared to the sales registered in 2020 and 19.4% more than in 2019, according to provisional data from the General Council of Notaries. This is the highest figure since 2007, when there were more than 850,000 home sales nationwide.

The thrust of energy rehabilitation in Spain

UCI experts point out that Spaniards will continue betting on second-hand housing over the next few years. Faced with this trend, from UCI they emphasize the importance of betting on the rehabilitation and energy reform of the housing stock from the moment of purchase, taking the opportunity to finance the reform together with the acquisition to benefit from the mortgage rates and terms.

Source: El Economista