The Spanish residential market is walking slowly but surely towards a new organization. It remains to be seen if it will be more modern, functional and sustainable, but it will certainly be more European. The latest trend in the housing market is to build to rent, the so-called build-to-rent (BTR). It is not a new trend, but it is gaining more and more strength and there are few developers left in Spain that have not allied with a large fund to build homes that they do not intend to sell, but rent. With this trend, Spain is on the way to transferring a practice controlled by individuals to large companies and bringing its number of tenants closer to countries like France or Germany.
This trend, which has been in European markets for years, is relatively new in Spain, which has traditionally had a residential market owned by owners rather than tenants, and with privately owned apartments for rent. During this year, the increase in the cost and tightening of financing, the rise in purchase prices and the more widespread trend of paying for use have positioned rental housing as one of the most dynamic assets in real estate.
The Euribor, the main indicator for calculating mortgages, closed 2022 above 3%, the highest level since 2008. The rise in the reading driven by the rise in interest rates from the European Central Bank (ECB) has been meteorological, since, a year ago, the Euribor stood at -0.502%. In addition, analysts point out that rates will continue to rise and with them the Euribor, which makes buying a home less attractive, at least during 2023.
Beyond the current trends, the change also wants to give way to a new demographic pyramid and the lack of housing in the large Spanish cities. In total, the Spanish real estate market will need 1.2 million new homes for rent by 2030, according to calculations by the British consultancy Savills. The same company estimates that, currently, Spain has 4.2 million homes for rent, although 95% are in the hands of individuals, so the consultant anticipates a long way to go until professionalization.
For now, Spain is above the means of owners of the European Union. In the 27 as a whole, 70% of the population owns the apartment in which they live, while the remaining 30% is rented. In contrast, in Spain, 24.2% of the population rents, while the remaining 75.8% owns it. Despite not being very far from the European average, the country is below the figures of other neighboring countries such as France, where rent is 35.3%, and Germany, the only country in the group where tenants are more than owners and reach 50.5%, according to the latest data published by Eurostat.
The trend has a great boost from the public administration. Of the 102,560 homes proposed, 51.7% were carried out by private investors and 48.2% have some type of public initiative, according to figures from the consultancy specialized in big data and data science Atlas Real Estate. The Vive Madrid Plan (with a total goal of 25,000 affordable rental homes), the Habitatge Metròpolis Barcelona project (4,500 units) and the National Affordable Housing Plan (100,000 long-term homes) are the main public housing drivers.
From the private side, the main developers of new rental housing in Spain are Avalon (3,800 units), Greystar (2,500), Patrizia (1,750) or DWS (1,170). Madrid and Barcelona attract the main investor appetite and concentrate 47% and 11.5% of the assets, respectively. One of the investors that is betting the most on build-to-rent in Spain is Azora, the manager of Concha Osácar and Fernando Gumuzio, which has partnered with developers and investors such as Aedas Homes or GIC, the Singapore sovereign wealth fund, to promote projects for more than 700 million euros during the last year and a half. The American fund Ares AM, Franklin Templeton, AEW or Vivenio have also entered the market.
However, the main owner of rental housing in Spain continues to be the financial entity CaixaBank, with 25,000 units; followed by Testa Residencial, Socimi of the US investment fund Blackstone, with 20,000 apartments, and Sareb, with 14,800 units. Blackstone, which has the most socimis in the Spanish market, 700 more homes that they sold to the French insurer Axa.
Waiting for the Housing Law
However, investment funds are also finding pitfalls in what seemed like a blue ocean. The Spanish Government has been working for months on a Housing Law that the members of the Executive have not been able to carry out. The regulatory project came out of the Council of Ministers in February 2022, but got stuck in Congress due to the amendments presented. The Executive ensures that the new regulation will be approved before the end of the legislature, but the details of matters such as that it is considered a large holder or the retroactive nature of the prohibition to disqualify Officially Protected Housing (VPO) are in the air.
One of the measures that are firm is the extension of the limit of 2% in updating the residential until the end of 2023. experienced by the Competitiveness Guarantee Index (IGC). In addition, it rules that, in the event that the landlord is a large holder, the agreement to be reached between owner and tenant may not entail an increase greater than the annual variation of the IGC.
While waiting to find out the business rules, international funds continue to invest so as not to be left without a piece of the pie. In the first nine months of 2022, investment in residential to rent in Spain was 2,135 million euros, 12% more than in the same period of the previous year, and represents 30% of the total investment dedicated to the sector residential, according to data from the consultancy Cbre.