The residential sector is preparing for a difficult year. The health crisis has led to an almost total halt in home buying and selling operations and work on new projects is currently at a standstill.
But the problem is not only in this period of economic lethargy; the real concern of the sector is the scenario it will face once mobility restrictions are lifted. In that future, which is uncertain at the moment, the only one that seems to have a little more light is the rental market. This is what the experts say, and they point out that this segment will come out of this crisis stronger.
“In a context of uncertainty and increasing unemployment at very significant levels, investment decisions in the groups most affected by this crisis should be delayed in time, and therefore renting is the best alternative to this type of decision,” explains Mikel Echavarren, CEO of Colliers International Spain, who also assures that “what we are seeing in surveys with investment funds, renting is one of the sectors that comes out stronger from this situation of uncertainty occupying a greater percentage of the investment portfolios of these funds.
The strength of renting during a period of economic recession was more than demonstrated during the previous crisis. “The rental market is going to be even more prominent. We already experienced this in the 2008 crisis”, explains David Botin, General Director of Áurea Homes. “At that time there was a drop in employment and wages and a huge reduction in purchasing power. That added up to a tremendous over-supply of housing for sale that placed the country with a stock of more than 2 million houses. In just a few years, rent went from 14% of the market to 21%, and this growth was supported by the stock held by individuals, financial institutions and Sareb. Now the economic factors are repeating themselves, but the problem is that there is no supply, so we will have to produce it,” the manager says.
A little over two years ago, the large institutional funds indicated Spain on their investment map as an interesting destination in which to set up large portfolios of rental housing, as they have done in other European countries such as Germany, where the market is much more professional. However, what they found when they landed in Spain was a lot of scattered product and few complete buildings for rent, so the formula that has been imposed has been that of build to rent. Thus, in alliance with local developers, investors can close larger deals when buying houses en bloc.
Barriers to rent
“The need for rental housing in Spain, especially social and affordable housing, was already great before this situation. The crisis is going to accelerate this need even more in the short term, because there are going to be Spaniards who are not going to be able or are going to take longer to access financing to buy”. According to the director, “the rental stock in Spain has a deficit of more than 2.35 million houses if we compare it with the European average”, but in addition, Spain “has a very unbalanced structure, with an atomized stock of free housing financed mainly with private savings – 97% of the stock against 65% of the EU-, which leaves us with a totally insufficient stock of social and protected affordable housing that represents 3% of the total, against 35% of the EU average”.
That is why “it is necessary to quickly generate protected and free building land, to speed up the urban planning and licensing procedures, and to make rules that are balanced, safe and stable. With this stable long-term framework, institutional collective savings will come to finance the construction of social and affordable housing that is needed in Spain,” says Rodriguez.
Until now, one of the barriers to the growth of rental projects was the margin that they reported to the developers. Thus, it was difficult for them to close certain operations when they saw that they could achieve a higher return by allocating the product to unit sales. However, now “developers will be much more open to this type of product in a context of reduced demand for individual home purchases,” explains Echavarren.
The general director of Áurea Homes, which is currently promoting 600 apartments for third parties and analyzing floors in its portfolio that add up to another 800 units, believes that “there should be a rapprochement between seller and buyer and the adjustment will have to come from both parties. But chances are there will be a little more interest from both sides to get the operations crossed. Botín explains that during these weeks “the interest of investors has not ceased. We have been approached by various funds and investors,” he says.
In the same vein, Echavarren notes that “investors in rental housing projects are going to be very active and have not stopped making projects. However, they will analyse their investment opportunities under more conservative criteria in terms of occupation and income, while maintaining the same levels of profitability requirements. All this should affect the prices of these operations with slight reductions”.
Botín points out that the problem for these types of projects to come out ahead, many times, is not only the price. “In addition to the cost, the location and type of product must also fit in, as the rent moves around a lot in one and two rooms”. Thus, he believes that “the administration will have to be flexible so that we can accommodate the housing to the needs of rental customers.
Rodriguez stresses that “to solve the problem of renting in Spain there are no quick fixes”, so “now more than ever, we must urgently get to work on a long-term housing plan, with a broad political and sectoral consensus, which will resolve in a real way and not on paper, the financing and construction of the housing that Spaniards need and will need”.
Source: El Economista 17 april 2020: https://www.eleconomista.es/empresas-finanzas/noticias/10464529/04/20/El-alquiler-saldra-reforzado-de-la-crisis-los-fondos-redoblan-su-apuesta.html