According to data from the Forcadell 1S 2017 Residential Market Report, the supply of developable land to build residential new promotions in the catalan catalan capital is being exhausted. Due to this situation, promoters are focused in boosting new developments in municipalities around the first crown, in areas neighbouring the city of Barcelona.
While the new construction development market evolves expanding geographically around the catalan capital, residental purchase-sell market is experiencing an excellent moment driven by replacement buyer demand. The rent market, on the other hand, has been challenged for a long time by a dearth of supply.
RENTAL HOUSING MARKET
DEMAND
The rental residential market continues to register a rising level of demand, thus making the task of finding the desired home ever more complicated, due to the housing shortage or/and the level of the rent prices. It is noteworthy to point out more and more homes with incomes over €3.000/month are turning over to buying a home since they find it now possible switch their status into homeowners. Along the same lines, and just as FORCADELL noted in previous reports, when analyzing the rental market part of the demand, there are part of those properties that have been transferred to the sales market, due precisely to the preference towards sale of certain owners. The large majority of demand for rental housing are people searching for a home during a specific time. Young couples with or without children, people who transfer to the city to work or to study, or foreigners staying for a limited time. Cultural and economic motivations are among the main reasons to rent a home.
SUPPLY
The current stock of rental housing is scarce, in addition to the fact that the prices are high. By contrast, high standing product is available, since they function under different parameters. There is a great imbalance in the residential market between supply and demand. Improvement of the employment market has given the opportunity for many young people to leave their parents’ home, though it must be taken into account that according to the LAU 2013 (Spanish Law that regulates rental contracts of apartments, flats, and commercial premises) the extension of rental contracts lasts 3 years, therefore involves high rotation and low stability.
Prices for rental contracts in Barcelona have increased in all districts with respect to prices 2S 2016.The average price of the square meter is positioned around €15,21/month, sustaining the tendency registered the previous year, which was €15/sqm/month. The forecast is that rents will continue on this upward trend at least until the end of the year. According to districts, there has been a 15% y/y increase in €/sqm /price in Sants-Montjuic in 90 sqm homes and a 10, 6% increase in Sarrià Sant Gervasi in 120 sqm homes. In the Ciutat Vella district, this increase has been of 21% y/y, due to the significant interest this area has registered in recent years. Yields stand around 4%, therefore it is an interesting product for homeowners and investors who are opting for this this sort of investment.
SALE HOUSING MARKET
DEMAND
Replacement buyer demand grows and continues as the main drive of the buyer market. The optimal conditions offered by the financial entities (fixed rate, 30 years term) are encouraging more people into buying a home in Barcelona. The mortgage rate for buying a home, in some cases, can be more affordable and even cheaper than renting an apartment or flat of similar characteristics. According to the INE (Office for National Statistics), despite the number of mortgages registered in the Land Registries has seen a 11, 4 % y/y increase, the average ticket loans of these mortgages has increased 5,4% at an annual rate, reaching €112.834 (June 2017).
SUPPLY
Housing supply distribution in Barcelona maintains the same percentage share as the figures registered in 2016.As seen in the distribution of available supply chart, Eixample is the district that has the highest level of available supply, followed by Sarrià-Sant Gervasi, Sant Marti and Ciutat Vella, which represent more than 60% of the total product as a whole. The catalan capital is still suffering from lack of developable land to build in order to answer to the growing buying demand. On the other hand, it is worth highlighting the fact that full building restoration is an upward trend and is anticipated it will have a very important role in the current residential construction sector. The reactivation of this sector is moving forward progressively, according to a concept where the growth rhythm of large urban centers is faster than that of neighbouring municipalities.
PRICES
The growing buyer demand in Barcelona, national as well as international, has resulted in a 15% year-on-year steady price increase. For instance, the average price in Barcelona for a 90 sqm home had a cost of €2.700/sqm 1S 2016, and it has now increased 15, 6%, currently reaching a figure of €3.123/month. According to districts and in year-on-year terms, price in €/sqm Ciutat Vella has increased 20%, while in the Gracia district it has been of 18%, and in the Eixample the rise was of 17%.Forcadell experts estimate the growth forecast of sale prices in Barcelona City to stand at approximately around 5% and 10%. The steady improvement of the labour market, together with economic growth and good financial conditions, in addition to the attractiveness of housing as an interesting product to invest are leading to a notable rise in demand and, consequently, sale prices.
NEW CONSTRUCTION DEVELPMENT MARKET
MARKET CONTEXT
The new construction market in Barcelona has continued its upward evolution along the 1S following the positive trend of 2016.The obvious lack of developable land to build implies the market is starting to expand towards the municipalities of the 1st ring, neighbouring the catalan capital. In the 2nd ring, in locations like Sant Cugat or Tiana, promotors are starting to develop new projects which offer affordable prices and therefore are sold quickly. In the 3rd ring, municipalities like Llinars or Parets del Vallés will not be seeing new developments since there is still plenty of new construction product left to sell. Pre-letting sales are still in high demand for the advantages they offer, and this type of demand stems mainly from families who already have a home and are opting for a replacement, from foreigners attracted to Barcelona and, also, though not frequently, brand new homes.
SUPPLY
According to Forcadell, new construction developments supply is increasingly scarce, and the only land reserves in the city are found in the 22@ and Poble Nou districts. In 22@, plans for new developments will be possible through the zoning of land for new homes that were originally destined for offices and hotels, or developing new land in Poble Nou. In the Magoria zone, where plenty of residential projects started, have all been sold been entirely. Full building restoration is a very important part linked to new construction and is currently only involved in 3% of the end product. FORCADELL experts consider the ideal figure should be in the 10% -15% estimate to renovate the housing stock and at the same time meet the demographic needs.
PRICES
Prices for new construction in Barcelona have increased around 3% and 6% 1S 2017 in the different districts, standing at an average of €5.245/sqm. The lack of product is leading to a steady price increase in all the zones. For instance, Sants-Montjuic registered the highest biannual increases, around 6%, whilst Sarrià-Sant Gervasi has higher prices though it had a lower increase for a six month period (3%).On the other hand, in the municipalities neighbouring the catalan capital with an active production of new construction developments, Sant Cugat del Vallés, with an average of €3.795/sqm has highest prices after Barcelona. Next in price range is Sitges, with an average price of €3.593/sqm, according to data from the previous Forcadell Residential Market Report.
FORECAST
The rate of stock absorption in Barcelona is exerting upward pressure on prices, which is anticipated to continue in 2018.FORCADELL estimates the increase in price of new construction around 5% and the production of housing construction to grow around 10% to 15% due to the current positive sentiment of promoters. FORCADELL already forecasted an increase in new construction in the previous Residential Market Report. The economic and demographic evolution of the country anticipates production should range around 150.000 new homes built every year in Spain. A significant part of buyers will be investors due to attractive yields offered by rents.
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