The new phenomenon of BUILD TO RENT
The boom in demand for rental housing, together with the high rate of return provided by the rental business, has given rise to one of the trends in the real estate market in 2020: “build to rent”. Developers, investment funds and public administrations have joined this trend, which is very present in Europe, and which promises interesting opportunities based on the professionalisation of renting and the creation of a more attractive offer.
Although in Spain there has traditionally been a preference for home ownership over renting, since the real estate crisis of 2008 the demand for renting has increased, and continues to do so despite the upward trend in prices in recent years.
In addition to a certain change in mentality, job instability and the scarcity of savings have made it impossible in many cases to buy a home, and in any case have delayed the age at which people can buy a home in their own right.
Despite this growing interest in renting, the supply, with around 95% of properties for rent owned by private individuals, had not been professionalised until now; and the vast majority, according to specialists, do not meet the needs and expectations of tenants.
The acquisition in recent years by international investment funds of buildings intended entirely for rental has opened the door to a sector, the construction of rental properties, already widespread in Europe, in which investors have seen a business opportunity in the face of the stagnation of housing sales figures in recent times.
High profitability and low risk
Data from pisos.com reveal that, for an average home with a price of 189,200 euros and a monthly rental income of 988 euros, 11,856 euros were obtained gross per year, which yielded a rental profitability in the third quarter of 2020 of 6.26%. Experts already consider a gross yield of more than 5% to be optimal.
In any case, a net yield of between 3.5% and 4% represents a good investment opportunity for investment funds and property developers, who have set their sights on areas of Spain with a good climate and good air connections, such as the Mediterranean coast (Balearic Islands, Malaga and Barcelona, among others).
Faced with the current low attractiveness of fixed income and equities, investors have turned their attention to the “build to rent” market. In addition to an interesting profitability that offers business opportunities with a view to the long term, there is also the low risk involved in this type of operation, as the high turnover of the properties guarantees a stable occupancy rate.
Rental yields stood at 6.26% in the third quarter of the year, according to pisos.com.
The interest in the rental market in Spain over the last five years from foreign investment funds such as Blackstone and Cerberus has been joined by property developers such as Metrovacesa and Aedas Homes, with projects in different parts of Spain.
More comfortable homes and with more services
Until now, the rental market in Spain has been characterised by small, unprofessionalised private initiatives, or by being the alternative chosen by property developers when they were unable to sell their properties. Build to rent” is a new concept both in the design of the homes and in the associated services offered.
These are homes that seek comfort and design to arouse the interest of all types of tenants. The “build to rent” properties are in some cases reduced in size, but are complemented with larger and more complete communal areas – with swimming pool, gym, storage rooms, terraces… – to which other types of services are also added, such as laundry or 24-hour security.
With this professionalised offer, investors and developers are seeking to retain tenants and reduce the number of unoccupied properties, with the aim of increasing profitability.