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Study on rental prices in the Valencian Community
Rental data presents the difficulty for analysis of being offer prices, not closed transactions, as is the case with the registered price of homes. Furthermore, the problem of rentals usually occurs in specific cities and areas within them, so detailed information on local markets is necessary; it has been suggested that data from contract and bond deposit registries could be processed and help detect variations in housing rental prices.
However, the aggregate data show trends that correspond to the fragmented news about rentals, so we include in the table the average evolution of rentals in each of the provinces of the Valencian Community, along with that of average housing prices.
Housing and rental prices in Alicante, Valencia and Castellón
In the twelve years from 2008 to the projection we make for 2019, the average price per square meter in Alicante, Valencia and Castellón, goes from 7.2, 9.0, and 7.1 euros per square meter, to 8.1, 9.9, and 5.8, respectively; which represents increases of 12.5 and 10 percent for Alicante and Valencia, and a decrease of 18 percent for Castellón.
The year 2014 marked the turning point for the falls in rents and prices, although not exactly for the three provinces.
Average housing prices are still below what they reached in 2008, with falls in 2019 of 25, 39 and 29 percent, respectively, for Alicante, Valencia and Castellón, as can be seen in the following graph:
*Source: Fomento, Idealista and Euroval
Castellón is the only municipality where the variation in rental prices has decreased compared to 2008
With these two series of rentals and prices, we can approximate the profitability of rentals, although in a very simplistic way, as it will depend on the price at which the property was acquired and the evolution of the rent, since in a market that is not liquid like that of housing, the price that could be obtained if the property were sold is not an alternative, to give it a continuous value to compare with the rent.
For an apartment of 100 square meters, the gross profitability calculated in this way: average rental income compared to the average price of housing, would give in 2008 a 5, 6.3 and 5.2 percent for Alicante, Valencia and Castellón, respectively. For 2019, these returns would be 7.5, 11.3 and 6 percent, in the same order as above. This fact, which in some cases may be surprising, is due to the double phenomenon of the rise in rental prices, and the still fall in housing prices in relation to 12 years ago.
Evolution of housing and rental prices in the Valencian Community
On the other hand, it is also necessary to take into account the different type of housing that is marketed, new or used, first or second residence, for local or foreign buyers, which are not distinguished in these aggregate data.
However, the trend continues to show a gradual rise in housing prices, and a greater increase in rental prices, which makes it so attractive to build and rehabilitate for rent.
In this graph you can see the comparison of housing and rental prices.
*Source: Fomento, Idealista and Euroval
Housing (green) and rental (blue) prices
The rental price has grown 12% in Alicante in 10 years while housing has fallen 25%
Measures to make rent affordable
In this sense, a study published by the Funcas foundation is very interesting, which questions whether there is a widespread problem of rentals. On the one hand, it points out that the supply of housing is very dispersed, with more than 2.5 million individuals declaring income from the collection of rents, while large holders account for only 5 percent of the market at the moment. As for tourist apartments, it is considered that they have a negative impact on rentals in some specific areas of cities.
The problem of affordability is identified with the need for a greater supply, especially of social housing, since when market prices are paid, the people who have to dedicate at least 40 percent of their income to housing is 43 percent of those who rent - compared to 28 percent in the European Union. Public qualification as housing for rent in perpetuity, compared to the sale of social housing, and dedicating land and resources to this purpose are proposals that are understood to be more effective than rent control and excessive regulation of contracts.
IN SHORT: Some real estate projects in the Valencian Community
Hábitat Inmobiliaria adds one more project to the seven it has in the Valencian Community, with a total of 600 homes and 500 million of investment until 2011, and a projection of 2,000 homes from that year. The new project is a development of 96 homes and 20 offices in Valencia, with an investment of 30 million. In Castellón they acquire 4,800 square meters with 8,800 of buildability, for 88 homes, with an investment of 14 million, which is expected to be marketed within this year 2019. These initiatives show that there is a clear promotional dynamic, which although more paused and with different characteristics to the one that occurred in its day because they are more professionalized promoters and marketers, extends throughout the Community.
In relation to a previous work in which we analyzed the evolution of the average size of the new housing that is being built, the case of Aquila Capital can be cited, which has requested to increase the construction of homes from 1,970 to 2,328 in an acquired plot of 232,000 square meters. As it is not allowed to increase the buildability, it implies that the average size of the housing has to be reduced, adapting, both for reasons of price and need for smaller size, to the current trend of demand in the market.
It is announced that Mercadona will build a logistics center in Alicante to serve the entire province in "online" distribution, which all chains add to their traditional business. It will have an area of 12,000 square meters, and will be operational from 2020, adding to another similar one that it already has in Valencia.
Article prepared by Euroval.
