BACKGROUND TO SPANISH REAL ESTATE INVESTMENT
Spain is considered a residential real estate investment market with varying rental yields, including modest returns in areas of highest construction density. Significant construction occurred as a result of the liquidity and finance available before the 2008-9 crisis. A sudden drop off in demand followed, with Spain probably the European real estate market most harmed by the crisis.
Many developments were abandoned, complete or almost complete, but without buyers. In addition, construction on a massive scale (hundreds or thousands of units per project) characterised the Spanish real estate landscape. This was fuelled largely by Brits chasing their dream of buying a cheap “place in the sun”. With so much supply, many buyers purchased cheaply without much thought to resale. The focus was as a second home that might generate a little capital to cover costs. Yield expectations generally, therefore, have not been high. The seasonal market, combined with plenty of inventory, dampened yields.
REALISTIC EXPECTATIONS OF THE SPANISH REAL ESTATE MARKET
Capital appreciation in Spain has, in line with many other European markets, been strong (albeit from aa very low base following the financial crisis of 2008-9). However, unlike its neighbour Portugal, where growth has been phenomenal, Spain continues to represent excellent value for money because the amount of available inventory and the size of the country, with many different and distinct market, mean that many towns still demonstrate scope for growth. A good example is Valencia which, despite almost a decade of real estate price growth, continues to be one of Europe’s best value coastal cities.
With the construction sector often being a way for the economy to create jobs and power its way through a crisis, new-build inventory (such as that which has occurred in increasing volumes from 2017) is a direct competitor to existing stock. Resale prices do not typically increase much in value except in very specific cases or locations (such as front-line sea view).
More recently, with developer forays into sectors such as student housing, more investment product, especially in main cities such as Madrid, have emerged. The senior living and care sector already represent a mature real estate investment class, especially for institutional investors.
Spain continues to be a country with interesting real estate investment opportunities, as long as expectations as regards timing are well managed. Spanish real estate represents excellent value for money. If a lifestyle element is built into the purchase, Spanish real estate value represents a good pick among stable mature global markets. However, investors must be realistic with regards to both their yields and the length and timing of any exit.
Our team has an excellent track record of delivering rental yields from properties in Iberia. This knowledge and skill are of particular relevance if clients are looking for a personal purchase which needs to generate some income during the months during which they do not use the property.
Gross yields in Spain have traditionally been in the 2-4% range and although options for the professional investor can be as high as 8 or 9%, it is still the case that most real estate agents do not have the experience or understanding of what constitutes a good investment. While “nice sea views” clearly are a contributing factor to how well the property rents, location alone is not a substitute for a more balanced set of factors which make one property more likely to generate income than another.
The majority of traditional real estate agents do not understand this nuance. They are mainly accustomed to selling lifestyle properties. At a basic level, price matters. It is important to understand whether a price premium will translate into a proportionally higher rental yield. Having a trusted partner with access to good deals and with the expertise to distinguish the better ones, is essential.
Further, working with a company that is able to generate international clients beyond the peak summer periods, is just as important. The Spain Senior Living team have the expertise in generating income across a broad range of property types and locations.
Bearing this in mind, property investors in Spain should ensure that they work with experts knowledgeable both in the real estate market and the methods of sweating the asset (getting maximum yields from properties).
