A third of homes in main Spanish cities owned by buy-to-let landlords

The Buy-to-let market is booming in Spain with as many as one in three homes in the country’s main cities now owned by buy-to-let landlords, according to Tecnocasa.

The estate agency group report that the housing markets in big Spanish cities like Barcelona, Madrid, and Valencia are now dominated by buy-to-let investors, many of which have capitalised on the housing crash that wiped up to 75% off the value of homes in Spain following the global credit crisis in 2008.

But Despite improving market conditions, Spanish property prices remain significantly below pre-crash levels, with the average price of a home in the country still around 40% below the previous market high in 2007.

However, the markets have recovered well in the main cities like Barcelona, Valencia and Madrid thanks to strong demand, fuelled largely by buy-to-let investors looking to take advantage of high tenant demand.

Based on property sales handled by Tecnocasa, Barcelona is the most popular city among buy-to-let investors, with 40% of sales made to landlords, followed by Valencia with 37%, and Madrid with 33%. This compares with a national average of 26%, according to a recent article in the financial daily Expansión.

According to Spanish Property Insight, citing recent research by the Spanish property portal Idealista, rental returns have increased to an average of 6.1% gross - based on asking prices, not transaction prices - up from 5.5% a year ago.

The provincial capital of Lleida, in Catalonia, offers the best yields with 7.7%, followed by Palma de Mallorca in the Balearics (6.7%), Las Palmas de Gran Canaria (6.5%), and Alicante, home to the Costa Blanca (6.5%). Barcelona and Madrid both yield 5.5% based on asking prices.

“Assuming rental asking prices are higher than actual prices, and that sales closing prices are lower but the all in costs are around the same once Spain’s high transaction costs are taken into account, then rental yields in Barcelona and Madrid would work out between 4% and 5% gross, and maybe 2% to 3% net,” said Mark Stucklin at Spanish Property Insight.

That would not be a particularly attractive yield in ordinary times, but Stucklin points out that “these are not ordinary times”.

He added: “Local investors get a pittance on their savings in the banks, whilst fixed income and funds are all looking unattractive for one reason or another.

“Given that Spanish property prices now look like they are on a recovery path, it’s not surprising that local investors are focusing on buy-to-let in the main cities, even if yields are nothing special.”