The real estate industry has been warning for more than two years: “Housing developments are no longer being carried out in Barcelona”. But this break has also reached the investment market, which the fund, family offices and other companies that have acquired entire properties to reform and bring back to the rental market. Municipal regulations, such as the obligation to allocate 30% of every development to social housing, or regional regulations, such as the index regulating rental prices, have put an end to this appetite, which has shifted notably to Madrid, which is showing as a result an increase in prices. Market tension continues to be felt in the Spanish capital, where buying an entire property is 15% cheaper than buying house-to-house. In Barcelona, on the other hand, the lack of investor interest and difficulties in making operations profitable have meant that this difference is 32%, based on 550 buildings for sale in both cities, according to a report by consultancy 3 Capital.
When it comes to the real estate market, Barcelona and Madrid live back to back. The first concerns regulations that restrict the possibilities of generating income from new rental offers, to which are added higher taxes on certain taxes: transfers of ownership or documented legal acts. And there is another spatial factor: limited by the sea and a dense conurbation, it has hardly any room to grow. Madrid, on the other hand, is at the other end of the spectrum: properties to promote, comparatively cheap taxation and the capital effect for some investors who look to real estate as a haven for their money. The rise in irregular squatting is even playing against Barcelona.
“The conclusion is clear: Barcelona has a lot of products that are not being sold and due to the decline of large operations, it has seen prices of average buildings go down. The regulatory uncertainty is doing a lot of damage,” says Tomás Marc García Permanyer, Partner and CEO of 3 Capital. The average starting price of a building for sale in Barcelona is 3,202 euros per square meter, with a maximum of 4,700 euros in the Les Corts area and a minimum of 1,715 euros in Navas. In Madrid, this average price is €4,282 (34% more), although it ranges from €7,180 in Recoletos to at least €2,105 in Simancas.
García Permanyer assures that the 32% discount Barcelona suffers due to market prices could get worse once the property is sold. The negotiation usually ends with a discount of between 10 and 15% if the seller does not withdraw from the market due to reduced profitability. In Madrid, on the other hand, the strong presence of potential investors means that the discounts resulting from the negotiations do not exceed 8%. “Barcelona’s Eixample used to be very popular – explains García Permanyer – but the fear generated has reduced his interest.”
One of the questions is whether there will be a change of direction in the regulations affecting the real estate sector, in particular with the juridification of the two Catalan trouble spots. The obligation to reserve 30% of the area for social housing in each promotion of more than 600 square meters is being challenged by the promoters and the law capping the rental rate set by the Generalitat has been left in limbo by the will of the Constitutional Court consider some of his articles illegal.
This “legal uncertainty”, according to the economist José García Montalvo, professor at the University of Pompeu Fabra, “forces potential investors to demand higher profitability” for their projects. In the end, it is a situation that would be tantamount to an increase in the risk premium: “The more you risk, the more you want to get out of it”. According to 3 Capital, considering the sample of buildings, the average profitability of apartment rentals in Barcelona would be 6.1%, while in Madrid it is 4.7%.
“The 30 percent measure is here to stay,” says Xavier Vilajoana, president of the Association of Promoters of Catalonia (APCE), who believes it will be extended to other communities in its sphere of influence. The promoters trust that this measure, promoted by the Mayor of Barcelona, Ada Colau, will develop with an important nuance: that the threshold of having to reserve 30% of the area will increase from the current 600 meters to 2,500 square meters. Vilajoana is skeptical about the effectiveness of lowering rents. “There is no effect. In Madrid they have fallen by 9% and here by 3%, but they are rising again because the pressure on the rental market is very high.” According to Generalitat data, the average rental price taking into account deposits in Barcelona has increased by 4% over the past year .91% down, but this negative development, which made itself felt a year earlier, undoubtedly rises above a market that has also been hit by the economic impact of Covid.
The president of the promoters, as defended by other consulted experts, points out that in the face of uncertainty, many people who have rented their homes choose to get rid of the investment and sell it directly. “The market is getting smaller,” says Vilajoana, who interprets this as further pressure on the city. Antonio de la Fuente, director of corporate finance at consulting firm Colliers, calls the 30 percent rule a “paradigm case” of the damage that can be caused by a rule, which he believes in this case is a ban on promotions. “Imagine you want to renovate a building on Passeig de Gràcia [la zona más cara de Barcelona]; Reserving shelters doesn’t make sense and investors have many other investment alternatives around the world,” he stresses.
Meanwhile, traditional Catalan promoters, who used to focus on Barcelona due to their knowledge of the market, are looking elsewhere and Madrid is a key new location for them. La Llave de Oro and Núñez i Navarro are two of the brands that have moved to the capital due to the lack of expectations in Barcelona. Others use the surrounding cities to launch promotions. “Barcelona has ceased to be business friendly and there is no Spanish investor who wants to come,” says Jaume Enric Hugas, Co-CEO of Conren Tramway.
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