Rental properties will not fall in price due to a serious shortage of supply in large cities, which will continue to put pressure on the real estate market
The average price of housing in Spain has continued its upward trend in 2022 until the end of the year with an increase of 3.3%, which amounts to an average of 1,507 euros per square meter in Spain. But the days of this trend are numbered, as the rise in interest rates by the European Central Bank (ECB) and its impact on the Euribor will slow down purchases during the newly launched year 2023, experts said. The situation of economic uncertainty will not help either, creating a perfect cocktail for house prices to fall for the first time since the pandemic, although it will not be a significant drop due to the lack of supply in the most populous cities.
It should be borne in mind that there are two Spains in the home buying and selling market. On the one hand, cities where prices remain the same year after year or even fall because many of their inhabitants go to live abroad for work or study, such as Extremadura (prices fell by 1.4% in 2023) or Castilla-La Mancha, where they do not exceed 1,000 euros per square meter. Compared to others that receive residents every year, which puts pressure on the market due to the lack of supply, such as the Balearic Islands, which for the fifth year mark the peak with 2,611 euros/m2, followed by Madrid (2,412 euros) and the Basque Country (2,309 euros). .
In Spain, about 80,000 homes are built every year, while demand is three times as high. In the years of the housing bubble, 700,000 were built. Luis Corral, CEO of the Real Estate Consultants Forum, explains to this newspaper that the offer is very low, both for new construction and second-hand. In his opinion, the cost of building new homes has risen and developers are not getting the bills. more difficult.
For this reason, second-hand homes have received “huge demand pressure” and are exhausted. Corral assures that the hike in rates will slow down purchases, “but that doesn’t mean prices will fall, because there’s very little to look for.” This situation forces many young people and working-class families to live in rent “under duress”. “There are many people who would like to buy a house, but the market prevents that, so they choose to rent and that drives up prices,” he explains.
Fotocasa predicts that rental prices in Spain will rise by 5% this year and warns that “intervention” in this market will push prices up, contrary to what is intended. In 2022, they shot up 8.4%, according to data from Idealista, which places the rent per square meter at 11.4 euros.
The professor of economics at the University of Barcelona Gonzalo Bernardos assures that the supply of rental apartments is very scarce because the price restriction has “charged it”. He indicates that many owners are switching to seasonal rental of rooms for students, which allows them to achieve a higher return. According to him, the 2% limit is “great news” for the current tenant in the short term, but “horrific” for those who have to change their home. “Price controls have been introduced in many European cities and have always failed,” says Bernardos.
According to him, the formula for reducing rents is a combination of tax incentives for owners (government agencies pay property taxes, IBI, community of owners, etc. as long as the owner maintains the property at a modest cost) and incentives for large owners so that the social rent yields at least 5%. “Many vacant properties would enter the rental market and as soon as the supply increases, the price falls,” the expert explains.
As a result of this situation, housing has lost its attractiveness as an investment alternative. Bernardos assures that “now is not the time” and recommends watching the market in case “a bargain” starts to appear when an owner needs to sell quickly, though he doesn’t expect it to happen within six months. “A price increase of this magnitude will undoubtedly depress prices, but we will have to wait until it becomes profitable again to invest in housing,” he explains.
During the year 2022, the Spanish housing market has overcome fears of the challenges ahead with record sales. However, the outlook is beginning to change and housing as an investment is losing attractiveness in the opinion of experts. “We are entering the adjustment phase and we have an estimate of a price decline of 2% for next year,” Bankinter analysts said. In addition, housing is generally used as an asset to offset other risks incurred in the portfolio, such as investing in the stock market. But now that fixed income is back on the managers’ radar, investors will demand higher returns from this asset class to bet on it.
One form of residential property investing that has become popular in recent years is reforming second-hand properties and selling them well above their original price. A study by Casavo shows that renovating a property in Madrid can increase the price by up to 30%. Of course, Mariano Sanz, general secretary of the employers’ association in construction (CNC), explains to this newspaper that housing reform and rehabilitation is an activity in which prices will fall little this year because materials continue to set ceilings.
In addition, Sanz recalls that this sub-sector is “at the center” of the recovery plan, with 3,420 million European funds allocated to residential rehabilitation, but that this budget “does not fully reach the real economy because they are not transferred from communities to businesses. ” All this will affect prices, the number of projects and the number of new jobs in the sector, he warns.
On January 1, Canada banned the purchase of real estate from foreigners in the country. With this, Justin Trudeau’s government is trying to halt the price escalation that is taking place, with an average increase of 44% over the past two years. Vancouver and Toronto are the hardest hit cities.
The provision, which is valid for two years, does not affect permanent residents in the country or foreign students, work permit holders and asylum seekers.
The ban will be implemented through fines, which will amount to 7,000 euros, both for foreigners who buy a house and for those who help carry out the transaction. In addition, according to the standard, the superior court of the county where the property is located “may issue an order and enforce the sale of the property in the manner and under the conditions laid down.”
The initiative, which was approved in the Canadian Parliament last June, is similar to the one enacted in New Zealand in August 2018 with the same goal.
“Living should not only be property. It is meant to be lived in: a place where families can put down roots, make memories and build a life together. With this law, we are ensuring that housing is owned by Canadians for the benefit of all people living in Canada,” said Ahmed Hussen, Canada’s federal minister for Housing, Diversity and Inclusion, in a statement.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
