Profitability of Buy to Let increasing in Spain
Purchasing a property as a buy-to-let investment is growing in popularity in Spain and data released by the property portal Idealista reveals that it is also becoming more profitable. The study, based on Q4 2014 sales and rentals price data, shows that residential property now offers on average a 5.3% annual yield up from 4.7% in Q4 2013.
In 2014 we published an article on the conditions in the Spanish property sector which seemed to make it a prime target for buy-to-let investors. This new data backs up this theory and makes purchasing a property in Spain as a buy-to-let a viable option and one which foreigners may choose in order to take advantage of current low prices.
This investment vehicle could be of particular interest to younger first-time-buyers from countries such as the United Kingdom, Belgium and Sweden where in many cases they are priced out of the market. A Spanish buy-to-let property could be an ideal way to get onto the property ladder and begin to build capital.
Some UK pensioners could also be looking at this as an interesting opportunity. The UK government will enact pension reforms this April which will allow pensioners more freedom to use their pensions as they wish including cashing them in as a lump sum. This should lead to more pensioners searching for investments with stronger returns than annuities or bonds.
Looking at the Idealista data in more detail one can see that the provincial capitals of the major tourist provinces generally offer stronger than average returns for investors. Alicante offers a 5.4% yield, Malaga: 5.3%, Palma de Mallorca: 5.6% and Las Palmas de Gran Canaria an impressive 5.9%.
These figures are better than those for Spain’s two major cities with yields in Madrid at 5.1% and in Barcelona at 4.7%. Office property offers even higher yields for investors at an average of 6.7% with yields for retail property at 6.9%. Garage space is currently the worst performer with average yields of just 3.6%.
Chinese investors looking for exclusivity, quality and professional management. Since the Golden Visa was launched in Spain demand from China has risen although perhaps not at the rate people were expecting. However, the vast potential of the Chinese market and the steady growth in the number of Chinese buyers over the last couple of years makes it a market that is worth pursuing for Spanish property professionals.
There are two main types of Chinese buyer, those that are looking to relocate permanently to Spain and are therefore interested in purchasing apartments close to the centre of large cities and those who are looking at the property solely as an investment, whether this be to obtain the Golden Visa or not.
The second group of Chinese buyers will not only have a larger budget but also a broader scope in terms of the location of the property and will look at it in terms of its rental potential and potential capital growth. This type of Chinese buyer will look for property situated either in prime areas of major cities or areas of the coast/mountains in which demand is highest.
Mr Fan, a Chinese employee at the agency Grupo Inmobiliario Alting, believes that Chinese clients are more demanding than other nationalities and value quality of service above price and even product. He says in an interview with news portal Inmodiario that the Chinese want the process to be transparent and for the agency to be able to offer a full service.
Therefore they prefer agencies that have Chinese staff and can provide legal services in Chinese, either directly or through a partner, and also want the agency to be able to provide interior design, the option to purchase additional products/features for the property as well as post-purchase services such as property management.
The type of property preferred by Chinese investors are apartments of 2 or 3 bedrooms, either new-build or unique re-sales, with strong rental potential and priced at ?500,000 or above. Some also have more specific requirements such as only considering properties which are south facing due to Feng Shui.
Registry statistics for Q2 2014 showed a 45% year-on-year increase in the number of Spanish property purchases made by the Chinese. Their percentage share of sales to foreigners is also on the increase with Chinese buyers representing 3.95% of all sales to foreigners in Q3 2014, up from 3.31% in Q3 2013.
This suggests that, although the Chinese may be more demanding in terms of what they expect from property sector professionals, it is worth catering to their needs.
Moody’s and Eurostat see positives in Spanish property sector
The credit ratings agency Moody’s and the European Union statistics institute Eurostat see Spanish property prices as having bottomed out. According to Eurostat the price of property in Spain increased by 0.2% in the third quarter of 2014 while Moody’s believes that price data is improving in line with the strengthening of the Spanish economy.
Fernando Encinar, Head of Research at Idealista, a major Spanish property portal, believes that prices have now completely stabilised in prime areas where there is interest from investors. However, he sees prices as still having further downside in many spanish provinces although price falls will be minor.
Moody’s sees mortgage default rates as having already hit maximums in Spain as the country’s economic environment improves. Spain’s economy is now growing, unemployment is on the decline and consumer confidence is rising: all factors which will cause the number of evictions due to non-payment of mortgages to decrease.
Meanwhile the Eurostat price data for Q3 2014 showed Ireland leading the increases with a 6.2% rise followed by Latvia (4.9%) and Croatia (4.7%). Spain’s increase is a relatively small 0.2% but the fact that Eurostat is also recording rising Spanish property prices shows that there is now a wide consensus on price stabilisation in the country.
Mortgage concessions still on the rise
Data for November from the Spanish National Statistics Institute show mortgage concessions as having risen by 14.2% year-on-year. This strong increase marks the sixth consecutive month of double digit rises after concessions rose in June (19%), July (28.8%), August (24%), September (29%) and October (18%).
Mortgage statistics are important in determining the health of a country’s property sector and the impressive rebound in the second half of 2014 is evidence of the Spanish sector’s return to health. Data for the first 11 months of 2014 reveals a year-on-year fall of 0.2% on the same period of 2013 showing an annual stabilisation in concessions.
November saw a total of 15,900 mortgages granted worth a total of ?1.666million, a figure which is up 12.2% on November 2013. The average value of mortgages conceded during the month did fall however, and was down by 1.7% year-on-year to ?104,817. Concessions were down on October by 10.1% with total capital lent down by 5.6% on the previous month.
The Spanish regions which registered the highest number of mortgage concessions for November were Andalucia with 3,183, Madrid (2,565), Catalonia (2,264) and the Valencia region (1,743). Only three regions recorded year-on-year decreases in concessions and these were Cantabria (-24.2%), Galicia (-17.1%) and the Balearics (-12.7%).
Permission to re-publish granted by Fuster & Associates.