Investors pull out of Barcelona's housing market

BarcelonaBuying a home and renting it out is more profitable than having the money in the bank with negative interest rate. But the number of housing investors in Spain has fallen during the first half of this year, especially in the city of Barcelona, according to the latest study of the housing market of the Universitat Pompeu Fabra and the company Tecnocasa, coordinated by Professor of Economics at the UPF José García Montalvo.

The study finds that during the first half of 2017, in Spain, 27.2% of home buyers did it as an investment. The first half of this year this number stood at 20.6%. And in Barcelona, a city that traditionally attracted these investors - they accounted for 40% in 2016 - only 16% of sales and purchases in the first half of the year were for investment, placing it at the bottom of the list of large Spanish cities: in Madrid, 27.7%; in Seville, 27.4%; in Zaragoza, 26.8%; in Valencia, 23.8%; and in Malaga, 19.2%.

A decline that occurs more significantly in Barcelona, where despite a fall of 9.9% of the rental price, the profitability is still important, 5.8%; not far from Madrid, where profitability stands at 6.2%, but the proportion of investment operations was more than 10 points higher than in the Catalan capital.

Another report, in this case of the UB with Forcadell real estate, puts the decline in rental prices also around 10%. This study, made by Professor Gonzalo Bernardos, attributes the decline in investment to prudence. "A priori - indicates this report - the crisis allowed to buy magnificent assets at discounted prices", but "investors disappeared from the market". The cause lies in the lack of trust and uncertainty about the pandemic situation. "The final diagnosis is that the potential gains did not compensate for the risks", he concludes.

Professor García Montalvo indicates that these differences between Barcelona and Madrid do not seem to be due to profitability, but "investors are not as interested in Barcelona as they are of Madrid". For this professor, it is too early to know whether this phenomenon is due to the decree of rent control in Catalonia or is a consequence of the pandemic. "It is impossible to know if rent control has any effect, it is difficult to know what is happening", concluded this expert.

Lázaro Cubero, director of analysis at Tecnocasa, believes that there may be a loss of interest from investors "due to an issue of insecurity and confidence". In this sense, García Montalvo has highlighted that the information on rent control or on occupations is "gradually getting into people's minds", taking into account that a large part of the investors are not the large real estate funds, but small private investors who prefer to buy a flat and rent it rather than deposit their money in the bank.

The study presented on Tuesday shows that the real estate market has returned, after a 2020 marked by the pandemic, to the situation in which it was in 2019. A "mature market" situation, according to Lázaro Cubero, where the number of purchase and sale transactions and prices had already moderated its growth compared to previous years, despite remaining at high levels.

According to the report, the price of housing in Spain has fallen in the first half of the year by 1.43% compared to the first half of last year. But there are many differences, because while it still rises in cities like Mostoles, Seville, Valencia or Zaragoza, in other cities it falls more than the average: Barcelona (-1.53%), Madrid (-1.54%), l'Hospitalet de Llobregat (-3.17%), Alcorcón (-4.37%), Malaga (-5.58%) and Cordoba (-6.27%).

The number of sale and purchase transactions has increased by 20% in Spain as a whole, but the growth has been lower in large capitals. For example, the increase in Barcelona was of 12.77%, in Valencia of 9.03% and in Madrid, 8.45%.

Punishing the self-employed

The report highlights that, as in many other aspects, the pandemic has also punished the self-employed in real estate. The data prove it. In 2017 one in five home buyers (20.4%) were self-employed. The mortgage data reinforces this thesis: a maximum of 84% of loans have been granted to buyers who have a permanent employment contract.

The report highlights the prudence of banks when granting mortgages. In addition to this important volume to employees with permanent contract, there are other indicators, such as the ratio of installment over income, which before the bursting of the bubble stood at 68% in 2014, when the recovery began was 40%, and the first half of this year stood at 32%. The number of years of mortgage duration also continues to fall, and now stands at 28.

Low rates have also changed the mortgage model and the fixed rate continues to gain points. If in 2015 73% of mortgages were variable rate, 10 fixed rate and 17% were mixed, in 2019 the situation changed and now the variable rate are only 15%, the mixed 5%, and fixed rates already reach 80%. In this change in trend, the narrowing of the gap between the interest rate on fixed rates (1.7%) and variable rates (1.5%) plays an important role.