The sale of houses grows for the sixth consecutive month. Spaniards are looking for a home, but also profitable investments and ‘safe haven’ assets
The real estate sector is going through the pandemic without great scares and, after the halt derived from the confinement, various indicators show sustained activity. The sale price reflects an upward trend and is already close to the values prior to 2020: on average, free housing became more expensive by 2.4% year-on-year in the second quarter, to stand at 1,649.2 euros per square meter, according to the latest statistics on the appraised value of the Ministry of Development.
At the same time, the rate at which operations are carried out has also been progressively recovering and the latest available data, corresponding to August, show a rise of 57.9%, to 49,884 transactions, the highest volume this month since 2007, according to the National Institute of Statistics. The figure represents the sixth consecutive rebound in a year in which it has once again become clear that when Spaniards have money in their pockets, they tend to opt for real estate.
“Without a doubt, we find housing as a safe haven value, given the inflationary trends in the economy, the lack of sufficient remuneration from bank deposits and fixed income,” he points out Samuel Population, National Residential and Land Director of CBRE Spain. Currently, saving faces the bites inflation, which rose to 4% in September, and interest rates, which at historic lows reduce returns to their lowest level (few deposits offer returns of one percentage point). If to this is added “that the bank offers mortgages in very advantageous conditions, both at a fixed and variable rate”, investing in housing is presented as “an excellent option,” he adds. Population.
Reviewing the Spanish market, the sector recorded an investment volume of 7,842 million euros in the first nine months of 2021, 16% more than a year earlier, according to provisional figures from CBRE. And the forecasts of this real estate consultancy suggest that the year will close with an investment of 11,000 million.
Hunting for profitability
So, is it a good time for an individual with a certain financial muscle to bet on the home? “Definitely yes,” he says. Edoardo Corda, CEO of Briwell Group, who raises it both for those profiles with “money stagnant in a checking account that is generating 0% interest”, and for those who have to resort to a mortgage to supplement the savings cushion. “Even with this condition, the option of investing in brick is still very convenient,” he says, since no matter how low the profitability is, Corda believes that the individual could earn more than 4%.
Attending to the guide More common on these potential gains, which is the gross rental return (average return that would be obtained from buying a rental home) calculated by both the Bank of Spain and the different real estate portals, the average profit is 6%. And this is the main reason for buying a home for 3 out of 4 investors, according to Fotocasa, and 84.7% think that housing gives a profitability that no other financial product now offers.
Sell or rent?
This is where the question arises whether to rent or sell & mldr; What is the correct choice? For Sofia Cayuela, responsible for accounts of Financial Institutions at the Valuation Institute, there is no magic formula. “It all depends on the objectives that investors have, the terms they have to recover their investment, the type and condition of the house, and the area,” he says.
The Valencian Community, Murcia and Navarra exceed 7% profitability
For its part, Fotocasa does tip the balance towards rent. In fact, Maria Matos, Director of Studies and spokesperson for the real estate search platform, states that profitability continues to be “the key engine” when it comes to putting a home for rent, in the last two years it has gained weight «waiting for the increase in value “and sell. If the apartment is in good condition and in an area of high demand,” it can be rented at a competitive market price, “he considers. By communities the Valencian Community and Navarra stand out, where profitability exceeds 7% .
The average yield that the Solvia real estate agency assigns to the other option, that of buying to sell, does not seem negligible either: they frame it in an optimistic range of 15% to 20% on average if reform is carried out, and may reach 30% if it is about very old houses. “Reforming flats in poor condition with the intention of reselling them attracts more and more”, they point out.
“Investing in real estate requires prior knowledge of the market, since a bad purchase could weigh down the main objective of the investment: to obtain profitability,” he says. Gonzalo castro, director of retail sales at Solvia. To calculate the possible profitability and make the decision, the investor must take into consideration variables such as the expected annual income or maintenance expenses (IBI, spills, etc.) in the case of rent and, in the case of sale, they will be considered the possible price at which it will be put on the market, transaction costs, taxes or reform.
Although the most relevant factor will always be the cost of the property, since the potential benefit will depend essentially on whether it is acquired at a good price or not. In Spain, the average amount for a typical house of 90 square meters amounts to 223,380 euros, according to the Appraisal Society and, although the European Central Bank has just warned of the risk of prices overheating, experts predict more increases, at least, for next year.
Where to look
In order to look for other trends of the large investment firms that the individual can imitate, the professionals who manage very high private fortunes and of a very high level, “look at two key concepts: niche and differentiation”, he defines Edoardo Corda. Environmental factors or a high segmentation of the target can constitute an important competitive advantage when guiding a financial bet.
In turn, from the Institute of Valuations they comment that there is a high interest in shared housing formats (coliving, student residences & mldr;), as well as the ‘build to rent’ or luxury housing in Madrid, Barcelona and the areas coastal areas, the latter “especially among foreign investors”, points out Sofía Cayuela.
Looking to the future, 71% of large European investors believe that the pandemic has increased demand in the periphery, while 37% expect it to increase in the city center. Another 32% believe that rural areas will also be more popular, according to the third edition of the ‘JLL Living’ survey, prepared together with Abrdn.
It is clear that the pandemic is reshaping the sector and that there is still some uncertainty, both from the point of view of changes in consumption habits and from the economic point of view. There are also short-term concerns about rent regulation or specific construction requirements based on sustainability criteria.
The small investor is going to run into the barrier of entry of money, understood as the amount necessary to acquire a home. In addition, there are other problems associated with the difficulty of accessing capital in the event that liquidity is needed or the management of these assets, especially when they are put up for rent, and that can “be too much effort, especially at a certain age”, the economist thinks Luis Gasca, professor at CEF-Barcelona and financial analyst.
That is why, if what is intended is to enter the brick to put the money to work, it may be convenient to assess alternative investment routes beyond the direct purchase of a house or flat. For example, through real estate crowdfunding platforms such as Housers, Urbanitae, iCrowdHouse or Fellow Funders. The individual participates with a contribution that can start at 50 euros, covers a part of the project and, in return – in the best of scenarios – receives a return that on average can be around 8% or 9% per year. The counterpart is that you cannot withdraw the investment early and that, “if the project in which you have put money fails, you lose it,” Gasca recalls, so he recommends entering several projects or several platforms, for better diversification .
Socimis or exchange-traded funds are alternatives to the direct purchase of a property
Thinking of increasing this diversification and minimizing risk, Individuals can also opt for Socimis and Exchange Traded Funds (ETFs), through which you can enter various national and international projects (in the case of ETFs).
Investing in Socimis shares makes it possible to obtain returns of around 4% or 5% through dividends, “plus a capital gain of around 5% per year due to the growth of the price itself,” explains Luis Gasca. Of the 79 real estate companies listed at the end of April, with a market value of € 22,030 million and an asset portfolio of € 51,277 million – BME data – this expert puts the four that are listed on the continuous market on the radar: Merlin Properties, Colonial, Lar and Arima, with annual increases that range between 20% and 5%.
Regarding ETFs, one of the main advantages is the “high diversification” they offer, and that they allow you to see where you invest to adjust the exposure to the maximum. With Europe and profitability on target, the iShares MSCI Target UK Real Estate offers annual returns of 22%, according to Morningstar data. The podium is completed, with annual revaluations of over 15%, the BNP Paribas Easy FTSE EPRA / NAREIT Developed Europe and the Lyxor PEA Immobilier Europe.
And with a global target, the Morningstar ranking is led by the listed funds Dow Jones Global Real Estate, iShares Developed Markets Property Yield and Amundi Index FTSE EPRA NAREIT Global, all three with annual increases close to 30%.