Rents will continue to fall, experts say

Oversupply and the economic situation, as well as the profile of those who tend to opt for leased housing are factors that continue to push down the prices of properties. The good news is that earning potential may go up. 

The economic situation is doing no favors for the rental market. Recently, there have been two reports published on how activity was in 2009. According to Fotocasa.es statistics, rents fell 4.8 percent on average last year, to 8.55 Euro per square meter per month. It has been falling for an accumulated 22 consecutive months.

Since May 2007 highs reached 10.12 Euro per square meter per month, already a decline of 15.6 percent. At the end of 2009, only Madrid has seen growth in the price of rental housing in Spain: at the end of 2009 there was a rise of 0.8 percent and an average price of 11.06 Euro per square meter and month. By provinces, rents have fallen in 43 of the 48 analyzed by the study. The greatest decrease taking place in Huesca, with a fall of 18.7 percent. It went down to the level of 92 percent of the 153 municipalities studied by Fotocasa.es. Among the provincial capitals, the greatest decrease corresponded to Zaragoza, where in the past year, rents dropped by 13.7 percent. 

The report by Idealista.com gives similar figures. In its view, the price of rental housing in Spain ended last year with declines of between six and ten percent in major markets. While in some cases, prices experienced double-digit annual declines in Castellón de la Plana, Zaragoza, Barcelona and Valencia. In particular, prices fell 14.2 percent in Castellón and just over 11 percent in the other three capitals. 

Why does the INE say that it is going up?

So how do we interpret that, according to INE, rents have increased by 1.8 percent last year? "The data obtained by the INE may lead to confusion, since the measurement is done through updated prices of people who are already paying leases, and which tend to refer to the IPC, rather than providing data from the current housing prices, those which at present are in the market, "says Fernando Encinar, chief of Idealista.com studies. This expert has found that, in the present situation, if someone wants to rent out an apartment, their aim comes down by between ten and fifteen percent. 

But not only is the price of rental housing lowering, but so is the price of housing for sale to a lesser extent. So the upside of all this dynamic is that the profitability of rent increases. A year ago, Madrid was at the bottom of the forty most important countries in which profitability of rental housing is concerned, with 3.7 percent. Only Italy offered lower returns. A year later, the rental profitability in Spain has risen one tenth to 3.8 percent. With this, the tenth increase has allowed it to climb five spots in the ranking and to even overtake New York and London. In both the U.S. and England selling prices have risen more than rents. 

However, the profitability of rent in Spain is still far from that of Berlin, where it is more than 5 percent, or Brussels, where it is 6 percent. The same occurs in the main capitals of Eastern Europe. 

The rise in profitability by a tenth is only good news for the owners. According to Forcadell analysts, the context will continue playing against rising prices. There is currently a large volume of oversupply that has contributed to the developers: as Aguirre Newman estimates, between 10 and 15 percent of the promotions that are marketed as offering rental with a purchase option. This level of oversupply has caused, according to Forcadell, for owners to no longer set prices. Manuel Gandaria, Pisos.com director of studies has found many homes that, in principle, were intended for the sales market and have now been rented. Therefore, he believes that rents will continue to fall moderately in the first half of 2010. Forcadell analysts agree: consider it very likely that the price adjustment of rent will continue for few more quarters and it will smooth out, to find some stabilization in the second half of this year.