Key points about Madrid Property Market
Madrid property prices are in rock bottom; In prime areas: low supply and high demand; Long let term is more secure in prime areas than in other areas; Short let and holiday lets, with good marketing tools can deliver high yields, but request expensive property management; Any yield above 5% is already good at this stage of the market
The purchase and sale of property as an investment for rental purposes is becoming ever more commonplace given the significant returns compared to investing in other types of assets or financial products.
The bullish demand for rental property in Spain as a first home, as opposed to the demand for the purchase of property, has experienced strong growth in recent years. While not at the same heights as countries such as Germany or France, the socioeconomic environment, with a backdrop of high unemployment, the temporary nature of staff recruitment and difficult access to loans for property purchases, is gradually bringing about a shift in attitudes in a Spanish society – traditionally driven by buying property and whose general perception of renting has always been one of “throwing money away”. The recent economic recession that struck Spain in 2008 has given rise to a change in the traditional Spanish property culture, most notably among first-time buyers who have become more swayed by renting as the best option for a home.
This social trend, along with the recent development of the property market, has been warmly received by public authorities, who viewed the rental market as both an ideal outlet to push out accrued stock and facilitate access to housing for young adults. Consequently, an amendment was made to the 24th November 1994 Law on Urban Property Leases through the new 04/2013 Bill, dated 5th June, consisting of much needed measures to both develop the rental housing market and furnish it with more flexibility by shortening contract lengths and making it easier for both parties to terminate agreements. This has also led to the introduction of new measures, through article 250.1.1 of the Law on Civil Procedure Rules, aimed at reducing the length of non-payment eviction proceedings.
According to forecasts issued by international organisms, financial entities and specialist valuation companies, prices in the Spanish property market have now levelled off after 7 successive years in decline. The positive outlook for the economy as a whole, coupled with low interest rates in the Eurozone, points to a significant upward trend in prices on properties sold – albeit moderate for mid and long-term.
Housing prices in early 2013 marked the start of a period of stability, defined by increasingly sharper year-on-year falls as the quarters progressed. Against a drop of 8.3% posted in Q4 2013, the Tinsa IMIE Local Markets index suggests a 4.5% year-on-year fall for Q4 2014.
Chart 1: Sales price evolution in Spain between December 2006 and October 2014(€/m2)
According to Fitch, the ratings agency, housing prices in Barcelona and Madrid are already on the rise, even though moderately: an early sign of a surge in prices from next year.
In the Madrid neighbourhoods of Salamanca and Centro prices have already shown sustained growth – all the more reason to invest currently in the Spanish housing market.
THE RENTAL MARKET IN MADRID
Investing in property for rent is becoming an increasingly attractive business. The surge in the rental market in Spain has led to flats yielding a return of 4.3% in areas such as Madrid. We always consider in Spain that any yield above 5% is good, given that the market is in its rock-bottom.
This is due to the fact that the rental market is holding up a lot firmer than the purchase and sale of properties in the city, aided by both a growth in supply and ongoing difficulties in accessing loans, even though they are beginning to seep through. In turn, many of those interested in buying are now opting to rent – making the “buy for rent” scenario more attractive given that purchase prices for houses are optimized against rental income.
The growth in demand for rentals became more apparent in the second half of 2013, notably in Madrid and Barcelona, and strengthened in 2014, although no reported data is available at this stage.
Madrid district with higher price €/m2
1. Salamanca 3.920
2. Chamartí 3.768
3. Chamberí 3.612
4. Centro 3.289
5. Retiro 3.244
6. Moncloa 3.232
7. Hortaleza 2.826
8. Arganzuela 2.661
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