The option of buying a home as an investment to put it up for rent continues to be strong, despite the fact that the advance in inflation is undermining real returns. The rental yield shows figures above 5%enviable for a conservative investor who does not receive anything for his deposits –and who will not be able to aspire to that figure even if rates rise– or who has suffered heavy losses this year on his fixed-income investments.
Investing in bonds can begin to give more joy from now on, once the impact of rate hikes on prices has bottomed out and higher coupon payments remain for the future. But on the way, the rental profitability emerges as an even more interesting alternative to the fixed rentwith the prospect of prices that are going to continue to rise in the face of insufficient supply and access to home purchase that is going to harden with the increase in rates.
“Rental profitability continues to be a profitable option, higher than 5% added in the Spanish market,” says Samuel Población, director of residential and land at the consulting firm CBRE. Population estimates that rental prices will rise by around 10% this year, a rise that will fully impact those looking for a new home and that those who live for rent and have to review the contract do get rid of, thanks to the cap established by the Government of a 2% rise and extended until 31 December december.
But the purchase as an investment for rent is only particularly attractive if the property is acquired at a low price, not in areas where the price per square meter is already very high. What happened in Palma de Mallorca, where the cost of housing has skyrocketed in recent years, is a clear example. The annual rent return in the last ten years is 9% and is reduced to 4.5% in the last year, according to data from Fotocasa. The more expensive the purchase price, the less profitable the rent will be for the landlord.
The city of Almería offers the reverse process to that of Palma de Mallorca. In the last ten years, the annual return on rent is barely 3.9%but in the last year, with the rise in housing prices, the 6.9%. The data from Fotocasa show that the cities where renting is more profitable, with rates higher than 7% in the last year, they are Lleida and Murcia, where the rent profitability in the last decade remains in the 4.5% and 4%respectively.
In the cheapest areas of Madrid, such as Vallecas, the yield now exceeds 6%
The differences in rental profitability are also clearly seen in the comparison by district of the city of Madrid. “In the most prime areas, rental returns drop to levels of 3% but they go up to the environment of the 6% in secondary areas”, points out Samuel Población. According to updated data from Tinsa at the end of the first semester, rental profitability in the Madrid district of Puente de Vallecas is 6.3%. There, the purchase price per square meter is one of the cheapest in the city, at 1,961 euros, just ahead of the 1,885 euros per square meter in the Villaverde district.
On the other hand, in the district of the Salamanca district, where the square meter is paid at 5,321 euros, the profitability of the rent falls by 3.9%. In the Central district of Madrid, with a cost of 4,571 euros per square metre, rental profitability remains at 4.2%. In Barcelona, where the price of rent is higher in a more generalized way, the differences by district are less pronounced.
Beyond the public protection measures against rising rental prices, this market suffers from a structural problem that predicts more price increases. “The housing stock for rent is from 25% and the demand will go up 27.3% in the next three years. The planned offer is insufficient, it will be necessary to encourage the individual to rent”, affirms Population.
Paradigm shift in the residential market
The demand for housing as an investment is increasing its presence in the Spanish residential real estate market. “In an environment of scarcity of supply, this demand is currently strong and therefore it is one of the elements that drives prices up,” explains Consuelo Villanueva, director of institutions and large accounts at Sociedad de Tasación. This investor buyer profile has increased its activity by 5% in April and March of this year compared to 2021 and is gaining weight compared to the traditional profile, that of households that buy a house for their own use.
