Now is a good moment to invest in Spanish real estate
Article written by Mónica Sentieri
The new build-to-rent trend in Spain reflects the current trend on the Spanish real estate market to construct with the aim to rent the constructed property rather than to sell it. Mónica Sentieri, director of proptech ElWorking, analyses why this type of real estate product now makes more sense than ever and could be interesting for foreign investors looking to buy property in Spain as a safe investment.
This new reality is far from what was common in Spain, where real estate developments were almost entirely for sale, with its last peak in the last decade in first part of the 2000s. Let's see what the reasons are that nowadays provoke a significant part of the real estate product in Spain to be oriented towards rent:
1. New generations that prefer renting compared to buying
At present, the target public that seeks housing to become independent has another way of thinking and understanding life. The economic reasons for the difficult access to financing are the first stumbling block for many of them to discard the acquisition of a home, but there are other social factors, such as the need to feel free or have geographic mobility, which favour the option of rent over purchase.
The Spanish society has changed. Today when the young people finish their studies they no longer plan their life thinking about getting married and buying a house. They rather have an expectation of a long road ahead, often adverse to closed commitments of long-term mortgages.
2. Increase in rental income in recent years
When demand increases and supply remains stable, price increases are the direct consequence of this distortion in any market for goods or services. During the last ten years, hardly any new residential products (housing) have been built in Spain, neither for sale nor for rent, because the economic crisis caused an enormous brake on real estate developments and also on urban developments during the last decade.
The increase in the price of rented housing is concentrated in the main cities of Spain, with Madrid and Barcelona having the greatest shortage of product at the moment. The reality is evident; people want to live in cities and there is currently a clear product deficiency in these environments.
3. Fiscal measures that favour the product intended for leasing
In recent years, the Spanish Hacienda has adopted various tax measures to encourage rental housing. On one hand, we find reductions of 85% in the tax rate for those companies that have more than 8 homes for rent. On the other hand, there is also an attractive special tax regime for companies dedicated to the leasing of urban real estate, known as SOCIMI, whose tax rate is 0%, with sole taxation at the headquarters of the shareholder when dividends are distributed.
In general, if there is greater demand for a product, prices are rising, and there is a favourable tax regime, this immediately translates into greater potential return on the investment. This new build-to-rent trend in Spain has become more attractive due to recent developments, even for foreign private owners who are looking for investment opportunities in Spain.
Spain has historically had a poor rental market, very atomised and unprofessional, both in housing and other tertiary uses. This new investment trend, which is supported by the reasons outlined above, may be a turning point for improving this scenario. An income sector, i.e. rental, organised, volume, and professional, will undoubtedly help to respond to the current and future needs demanded by Spanish society today, and will also lead to an improvement in the product and service used for leasing.
Mónica is currently the director of proptech www.elworking.com, a portal for searching for Workspaces. With a degree in Economics and a master's degree from IE, she has developed her professional career in companies such as PwC, Broseta Abogados or CBRE.