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Rental Costs Fell in Second Quarter

Rental Costs Fell in Second Quarter
Rental Costs Fell in Second Quarter

Cost of renting in Spain fell slightly in Q2

The price of rental housing in Spain experienced a quarterly decrease of -0.2% in June, the first drop in rental prices after six years of increases. However, the year-on-year price has risen by 9.1% to put the average cost per square metre per month at €10.82.

The price of rental housing in the second quarter shows that prices have remained almost unchanged compared to those registered in March 2020. However, on a year-on-year basis, the price of rental housing still increased by 9% and Although at the end of last year it seemed that rental prices were beginning to moderate, in the first six months of 2020 we are detecting year-on-year increases close to 10%. This is because there is currently a high demand for rental housing and the existing supply is not coping. As long as supply and demand are not more balanced we will continue registering increases in cost of rental property,” explains Anaïs López, Director of Communication at Fotocasa.

Renting in Autonomous Communities

76% of the autonomous communities presented positive quarterly data in June 2020. Murcia region with an increase of 7.4% showed the biggest increase in the period. They are followed by the communities of La Rioja (5.8%), Asturias (5.4%), Castilla y León (3.3%), Cantabria (2.9%), Castilla-La Mancha (2.8% ), Aragon (2.8%), Galicia (2.2%), Valencian Community (1%), Basque Country (0.8%), Madrid (0.7%), Navarra (0.5%) and Andalusia (0.1%). On the other hand, the Canary Islands (-3.9%), the Balearic Islands (-3.3%), Catalonia (-3.2%) and Extremadura (-0.9%), recorded decreases in rental costs in June.

As for the price ranking by communities, Madrid, which occupies the first place, is the only one that exceeds the barrier of 15.00 euros per square metre, specifically, the average there is 15.30 euros per square meter per month. They are followed by the communities of Catalonia (€14.63 p/m² per month), the Basque Country (€13.21 p/m² per month), the Balearic Islands (€12.55 p/m² per month), Navarra (€9.88 p/m²) per month), Canary Islands (€9.61 p/m² per month), Cantabria (€8.84 p/m² per month), Andalusia (€8.71 p/m² per month), Valencian Community (€8.67 p/m² per month), Aragon (€8.45 p/m² per month), Asturias (€7.66 p/m² per month), Region of Murcia (€7.27 p/m² per month), Castilla y León (€7.25 p/m² per month), Galicia (€7.09 p/m² per month), La Rioja (€6.80 p/m² per month), Castilla-La Mancha (€5.86 p/m² per month) and Extremadura (€5.27 p/m² per month).

Costs by Province

Data from Fotocasa also reveals that in the second quarter of 2020 the quarterly rental costs increased in 72% of the provinces of Spain, while, in the same period of 2019, it rose in 79%.

In June, only the province of Lugo saw an increase above 10%, while, of the 13 localized drops, only two exceeded -5%. The following ten provinces showed the highest quarterly increase: Lugo (10.8%), Jaén (8.1%), Toledo (7.9%), Murcia (7.4%), Cuenca (7%), Palencia (6.6%), Cáceres (5.9%), La Rioja (5.8%), Huelva (5.5%) and Asturias (5.4%).

On the other hand, the provinces with rental price falls are: Santa Cruz de Tenerife (-5.6%), Albacete (-5%), the Balearic Islands (-3.3%), Barcelona (-2.9%), Ourense ( -2.7%), Malaga (-2.3%), Girona (-2.3%), Badajoz (-2.2%), Las Palmas (-2.2%), Guadalajara (-2.2 %), Araba – Álava (-1.8%), Salamanca (-1%), Alicante (-0.9%).

In terms of rental housing prices by province, Barcelona, Madrid and Gipuzkoa are the only ones to exceed €15.00 p/m² per month. Barcelona stands at €15.80 p/m² per month, Madrid at €15.30 p/m² per month and Gipuzkoa at €15.22 p/m².

Following those provinces are Bizkaia with €12.70 p/m² per month, the Balearic Islands with €12.55 p/m² per month, Malaga with €10.09 p/m² per month, Araba – Álava with €9.97 p/m² per month and Las Palmas with €9.90 p/m² per month, among others.

The cheapest provinces for rental housing are Cáceres with €5.06 p/m² per month, Ciudad Real €5.26 p/m² per month, Badajoz €5.39 p/m² per month, Ourense €5.41 p/m² per month , Jaén €5.49 p/m², Zamora €5.56 p/m² per month, León €5.75 p/m² per month, Ávila €5.89 p/m² per month, Cuenca with €5.99 p/m² per month.

 

Housing Prices Up in Second Quarter

Spanish property prices up in Q2
Spanish property prices up in Q2

Q2 Saw Housing Prices increase 1.6% in Spain

The price of housing in Spain didn’t go down as expected in the second quarter despite the corona virus lockdown. In fact, prices increased by 1.6% when compared to the previous quarter.

Year-on-year the average price went down by 1.9%, but this was nothing like the change that some experts were predicting during the national health crisis. The average price of property per square metre now stands at 1,874 euros. This is the first Q2 annual fall for the last three years following an increase of 1.8% in 2017, 3% in 2018 and 0.5% in 2019.

At the moment, homeowner with property on the market are not lowering prices due to the coronavirus and the offer prices are being maintained. In fact, in the second quarter, which was covered 100% by the pandemic and national lockdown, prices have not fallen, but rather increased slightly by +1.6% compared to the first quarter of the year. It is possible that during the second half the year we will begin to see somewhat more pronounced year-on-year decreases, although we do not expect large drops in the price of second-hand housing either,” explains Anaïs López, Communications director at Fotocasa.

Price by Autonomous Community

Regarding prices in the Autonomous Communities, the highest quarterly increase was seen in Navarra with prices rising 3.1%. They are followed by Castilla-La Mancha (2.1%), Catalonia (1.9%), Asturias (1.7%), Galicia (1.7%), Murcia (1.6%), the Basque Country (1.3%), Aragon (0.9%), Andalusia (0.7%), Valencian Community (0.5%), La Rioja (0.4%), Extremadura (0.3%), the Balearic Islands (0.2%) and Castilla y León (0.1%).

However, average house prices in Madrid (-1.6%), Cantabria (-0.4%), and the Canary Islands (0.2%), are lower in June than three months ago (March 2020).

As for the price ranking by communities, Madrid, which occupies the first place, is the only one that surpasses the barrier of 3,000 euros, specifically, an average square metre of second-hand housing costs 3,050 euros. They are followed by the communities of the Basque Country (2,839 euros/m²), the Balearic Islands (2,764 euros/m²) and Catalonia (2,470 euros/m²).

On the other hand, housing prices per square meter in 13 autonomous communities do not exceed 2,000 euros and are: the Canary Islands (1,774 euros/m²), Navarra (1,722 euros/m²), Cantabria (1,717 euros/m²), Andalusia (1,651 euros/m²), Asturias (1,581 euros/m²), Aragon (1,575 euros/m²), Galicia (1,575 euros/m²), Castilla y León (1,439 euros/m²), La Rioja (1,418 euros/m²), Valencia (1,417 euros/m²), Region of Murcia (1,168 euros/m²), Castilla-La Mancha (1,139 euros/m²) and Extremadura (1,115 euros/m²).

Housing Prices Up in 31 Provinces

In the second quarter of 2020 the price of housing increased in 31 of the 50 provinces of Spain. Quarterly increases range from 5.9% in Palencia to 0.03% in Valladolid. However, the province with the steepest decline is Huesca, which has seen its average prices drop -4.1% in June compared to March 2020. It is followed by Santa Cruz de Tenerife (-2.9%), Madrid (-1.6%), Córdoba (-1.4%) and Lleida (-1%).

As for the price ranking by provinces, Gipuzkoa and Madrid are the only ones that surpass the barrier of 3,000 euros, specifically Gipuzkoa has an average price per square metre of 3,054 euros, while in Madrid the average is 3,050 euros.

Only five provinces have an average property price between 2,000 and 3,000 euros/m²: Barcelona with 2,990 euros/m², Bizkaia with 2,829 euros/m², the Balearic Islands 2,764 euros/m², Araba – Álava with 2,384 euros/m² and Malaga with 2,269 euros/m². Only two provinces have prices below 1,000 euros per square metre. They are Toledo and Ciudad Real with 985 euros/m² and 991 euros/m², each.

 

Andalucia Most Profitable For Rental Property

Rental property in Cadiz is the most profitable
Rental property in Cadiz is the most profitable

Cadiz: most profitable for rental property

The profitability of putting your property in the rental market in coastal areas of Spain has been increasing year after year. Look for example at Cadiz, in Andalucia, where the profitability has risen to 7.5%, 0.6 points above the national average (6.9%).

Housing continues to give very high returns close to 7% on average. This high profitability is explained by the fact that the prices of second-hand housing have started to experience decreases in prices for a few months at a national level of around -2%, while in the case of rentals, prices are still far from falling. In fact, in recent months rental prices have been registering year-on-year increases of around 10%, which explains the high profitability that the rental market currently offers.” explains Anaïs López, Director of Communication at Fotocasa.

Of the five most profitable cities for rental property in 2020, three of them have a history of uninterrupted profitability in the last ten years. It should be noted that Andalucia has a solid track record of profitability, which has led to a continued increases from 4.5% in June 2010 to 7.5% in June 2020. Specifically, the last six years have been key for the municipality of Cadiz since from 2015 to 2017 it was the second most profitable city, but since 2018 has been on the top spot.

The Top 5

Along with Andalucia, the Murcian municipality of Cartagena (6.8%), the Canary Island of Puerto de la Cruz (6.5), the Valencian city of Torrevieja (6.3%) and the northern Cantabrian city of Castro-Urdiales (6.2%), are ranked as the five coastal municipalities that generate the most profitability in the country.

Cartagena shows very positive data on the evolution of profitability from 2010 (4.7%) to 2020 (6.8%). However, the well-known city of Torrevieja, which until four years ago (2017) was the most profitable city (6.8%), now in 2020 occupies the fourth place with 6.3% profitability.

As for the most profitable districts of Andalucia to invest in the purchase of a home and then rent it, Casco Antiguo stands out with a 7.4% return. It should be noted that this district has for five consecutive years been the most profitable in Spain (from 2016 to 2020). Closely followed by the La Reconquista – El Rosario district with a profitability in June 2020 of 7.4%.

The least profitable municipalities

Cities with profitability of less than 5%, such as Donostia – San Sebastián (3.6%), Sitges (4.3%), Barcelona capital (4.6%), Fuengirola (4.6%), Estepona (4.8%), Marbella (4.8%), Cádiz capital (4.9%) or Palma de Mallorca (4.9%) are the ones that offer the least profitability, well below the Spanish average, which is 6.9%. This is not so much to do with the areas being unpopular as more that the properties in those areas have a higher purchase price to begin with.

Marbella, for example, is a hugely popular town for property rentals but the demand for property in the area puts prices well above the national average. The same can be said about Barcelona which has some of the highest property prices per square metre in the whole of Spain.

 

Post-Covid Property Interest Remains Stable

Property buyers at similar levels post-covid
Property buyers at similar levels post-corona virus

Property buyers at similar levels post-covid

Post-corona housing demand appears to remain at similar levels to those seen before the national health crisis. 13% are seeking a rental property, while another 13% are looking to buy a home.

Of course, the COVID-19 crisis altered everyone’s plans, including in the real estate market. However, the recorded demand has not fallen as much as was predicted in either the rental market or the sales market.

Before the pandemic, 14% of adults between 18 and 65 years of age were looking for a home to rent. This percentage has fallen only one point to 13%, according to a report from fotocasa. In the sales market the decrease is greater but within reasonable parameters: two percentage points, falling from 15% pre-crisis, to 13% now.

Despite the fact that demand has remained almost the same as before the crisis, the people who are looking now are not the same group as before. 8% of those looking to rent pre-crisis and 7% looking to buy say they have cancelled or postponed their search. However, 7% of individuals have now entered the search for a rental with a new 5% looking to buy.

Those who abandoned the search for housing during the pandemic did so, basically, due to economic and personal uncertainty. At the other extreme, new residential needs and the search for opportunities in the market are encouraging those who were not looking for a new home before the pandemic. These two groups balance each other and make housing demand almost stable after the pandemic which is good news for the real estate sector,” explained Anaïs López, Director of Communication at Fotocasa.

Who is looking now?

The pre-pandemic home shoppers are similar to those we are seeing now: 38 years old on average for pre-corona virus claimants versus 40 years for those seeking a home now. Regarding the employment situation of those who want access to housing, the percentage of those who currently work has increased slightly (62% post-pandemic compared to 59% before the crisis) and that of the unemployed has decreased (25% now compared to 28% before).

Logically, a health crisis of this size disrupts the plans and economic forecasts of many social strata. The most exposed (young people, lower socioeconomic levels, unemployed) are those who have the most difficulties in accessing the housing market, a situation that has been reported in successive reports since 2017 and which has become more pronounced during the pandemic. Given the uncertainty, they are abandoning the search to a greater extent. On the contrary, those who, due to age, job stability and socioeconomic situation are in a somewhat more comfortable position, may now consider looking for housing (for rent or purchase) and therefore gain prominence in the post-pandemic claimant profile. Or, there may also be professionals who have worked from home without reducing their income, and who have decided to change the home for another (also for rent or purchase) with one more room to set up an office.

What do buyers want?

The confinement has sparked a new interest for property buyers that have outdoor spaces; balconies, terraces, patios, gardens, etc. Data on how buyers’ motivations before and after the health crisis have changed confirms this.

If asked to provide a single reason why they are looking for a home now, the fundamental question for one in four claimants (24% pre-corona, 26% post-corona) is the price of the house. The second place is occupied by the aforementioned outdoor spaces, which before the pandemic was the main reason for searching for 11% of the applicants and which is now for 17% of them; a significant increase of six percentage points.

The change in the situation of cohabiting (living alone or with a partner) has lost importance as the main reason: from 22% in pre-covid demand to 15% in subsequent demand.

 

New Buyers Could Save Property Market

Property viewings have changed lately
Property viewings have changed lately

Property viewings have changed lately

The latest property sales data released by the INE for April 2020, shows a decrease of 39.2%, more than double the 18.6% fall we saw in March.

This is of course due to the state of alarm introduced across Spain in March to control the coronavirus and the figures do not come as a surprise. For those few sales that still went ahead, the property registrars and notaries attended the work by email or telephone. Due to the lockdown many operations which were already underway had to stop and those that were not yet underway were postponed until normal activity resumes.

Anaïs López, Director of Communications at Fotocasa, said it is expected that the data for April shows a greater drop than in the previous month following the confinement.

There were still 25,042 sales operations closed during April, the lowest April figure since 2014. “Many of the operations registered in the month of April had been started previously and priority was given to the most urgent ones in order to close the transactions. In this sense, it is possible that many operations that have been paralyzed during the month of April, due to the state of alarm, will resume once things return to normal, so the data for the coming months may reflect these operations that have been postponed along with the new sales that are closed,” said López.

This is causing some experts to suggest the recovery of the sector may not take as long as was previously thought. With many sales waiting to resume added to any new sales which occur could mean sales figures for June and July are somewhat similar to last year. “The interest that there is currently for housing is very high and the figures that we obtained from the portal indicate that the Spanish have a great intention of looking for new housing in the coming months. We are going to see demand for housing from people who were looking at property before lockdown as well as those that are now looking as a result of lockdown. Many people realised their homes were not suited to them having been locked inside for the best part of two months,” added López.

Crisis on the Horizon?

However, other experts are suggesting the Spanish real estate market, estimated to be worth some $6 trillion, is heading for another crisis, according to economists consulted by Bloomberg. Although it is too early to estimate the full consequences of the COVID-19 situation, there is data suggesting the road to recovery could be long and difficult.

It has been suggested that the lockdown could cause the national GDP to fall by up to 11.1%, and of course the real estate market is closely associated with the GDP. If the economy suffers, so too does the property market.

Experts consulted by Bloomberg say that no factor is as important to the price of housing as job growth and the economic outlook. According to the Bank of Spain, GDP could drop as much as 15% this year in the worst case scenario, while the unemployment rate, which was already 14% before the pandemic, could increase to between 18.1% and 23.6%.

Infections Vs House Prices

The data points to a correlation between levels of COVID-19 infection and declining house prices. Navarra and Castilla y León, two of the regions with the highest rates of infection, have shown some of the biggest drops in house prices in May, compared to the previous year, according to data collected by Bloomberg from the Ministry of Health, the INE and idealista.

Specifically, in Navarra, house prices fell by 2.4% year-on-year, while the percentage of infected people in Navarre was 0.81%. In Castilla y León the price of houses has decreased by 1.7% year-on-year, while the percentage of infected persons has been 0.8%. In the case of Madrid, the price has decreased by 1.4% year-on-year and the percentage of the infected population has been 1.04%.

In contrast, the Autonomous Communities with fewer cases of infection per 100,000 inhabitants – Andalusia, the Balearic Islands and Murcia – have seen house prices rise between 3.8% and 6% in May.

Still, there are some indications that the collapse of the property market will not be as severe as in the previous crisis.