One of Spain’s leading consumer organisations warns that rental yields are not interesting in many parts of Spain at current house price levels.
Private investors looking at Spanish property need to aim for rental yields of at least 5 per cent to compensate for the costs of buying, renting, the risk of non-payment, and damages, argues a new report from the Organisation of Consumers and Users (OCU) – one of Spain’s leading consumer organisations.
“To obtain returns at this level, a detailed study of 300 areas in the main provincial capitals in Spain shows us that you would need to buy at least 30 per cent below the current average prices,” the report explains.
The OCU urge investors to be realistic about the costs and risks of investing in property, which are higher than fixed income investments. Real estate “has risks, high costs for purchase, taxes and management, and little liquidity,” the OCU point out.
The organisation recommends not spending more than four times net household income on a property, pointing out that in 2014, Spaniards spent 6.3 times gross income buying a home, according to figures from the Bank of Spain.
BANK BARGAIN MYTH
Another myth the OCU debunks is the idea that banks offer the best property prices. “Despite what many people think, just because a bank owns a property doesn’t mean it’s well priced,” says the report. “There are properties owned by private sellers that are just as cheap and above all, in better condition”.
A study by the OCU of 54 property offers from banks, agents and private sellers found that bank-owned properties with slightly cheaper but needed more refurbishment: Half the bank-owned properties visited by OCU needed work done on them.
They also found that mortgages for bank-owned properties were no better than mortgages on the open market. The best rate they found (0.9 per cent above Euribor) was tied to an over-priced property.
The OCU argue that Spanish house prices need to fall further to reach the level of Spaniards’ real purchasing power. They recommend caution before buying, and shopping around for the best deals, looking at all the market, not just bank repossessions. They claim that discounts of up to 30 per cent off asking prices can be had by negotiating hard.
Thoughts on “Consumer Association Gloomy About Property Investment Returns”
John ward says:
The article from the OCU saying you need to buy 30% below current market value to receive a more realistic 5% rental return.
How does that square with the Spanish Tax authorities chasing people for extra tax because they have bought below market value?
Mark Stücklin says:
John, it doesn’t really square. Spain is a land of contradictions. However, what I call the “Bargain tax” is only a problem is some municipalities, not everywhere. You can read more about it here: http://www.spanishpropertyinsight.com/2015/05/08/la-complementaria-or-bargain-hunter-tax/ and here http://www.spanishpropertyinsight.com/tag/bargain-hunter-tax/
The tax is not because they have bought below market value. Market value is where demand meets supply. You are thinking about the ‘valor cadastral’. The catastral value is the value set by the local town hall on a property and is used for calculating property taxes. Nothing to do with the value of the property. If you buy under the valor castral you pay a tax based on the difference.