“You could sell ten flats in a day” to Chinese investors on real estate excursions.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
A few blocks from where I live in the solidly middle class (but gentrifying) Eixample Dreta district of Barcelona, a newly renovated modernist building is about to be inaugurated. Outside the building is a huge billboard displaying some of the lavish charms offered by the refurbished apartments inside, including Jacuzzis, spacious roof terraces, a swimming pool, and an elegantly attired concierge. The images are headed with cheesy aspirational slogans like “Art, Prestige, Life” and “A Dream to Live In.”
Not a single word of the ad is in Catalan or Spanish, the two official local languages. Everything is in English.
These properties are not meant for local people — that’s not where the money is. The money is in the international market, whose insatiable demand for real estate in this increasingly popular global city has propelled property prices to bubblicious levels.
In the last 12 months in Barcelona, the median home price (half are higher and half are lower) has soared 21.7%, to €3,094 per square meter (ca. $350 per square foot), with double-digit increases across all of the city’s districts, according to data compiled by the property appraiser Tinsa. The biggest movements were seen in the city’s old town, which is ground zero for the city’s tourist industry. There the median price has skyrocketed 35%.
In Spain as a whole, the median home price rose just 2.7%. In a few other prime markets such as Madrid, Alicante or Tarragona, prices rose by around 10%, while in eight of Spain’s 17 autonomous communities — the Basque Country, La Rioja, Murcia, Castilla y León, Castilla-La Mancha, Cantabria, Extremadura and the Balearic Islands — median prices actually decreased.
Predictably, soaring prices in Barcelona are having a domino effect across the wider Catalan region as families are forced to seek housing in other nearby municipalities. The median house price in the province of Barcelona increased by 11.9% over the last year; across Catalonia, prices increased 11.3%.
This trend is happening at the same time as the cost of renting in Barcelona has reached historic highs. Since 2013, rents have surged over 50%! One of the main reasons for this is that real estate owners and developers are refocusing their attention on meeting the much more profitable needs of short-term visitors. And short-term property speculators, domestic and foreign, are piling in, too.
It’s simple math. According to a British real estate platform, Nested, renting a property on Airbnb can be as much as 256% more profitable than a traditional lease. The potential returns in Barcelona’s tourist accommodation rental market are so lucrative that even organized criminal gangs from Russia are getting in on the action.
Another important source of international demand for Barcelona-based real estate are overseas investors looking to cash in on the Spanish State’s dirt cheap offer to turn purchased local property into multiyear visas. Since 2013, the Rajoy government has offered non-EU citizens a so-called “Golden Visa” that includes qualified Spanish residency and unrestricted EU travel if they invest at least €500,000 in property in Spain.
During the first year of the scheme, only 500 or so investors applied, providing around €700 million in funds, reports El País. In 2015 the government eased the conditions, allowing spouses, children and elderly relatives to be included on visas, as well as extending the period of residency from two to five years. Since then, the total investment has surged, with 60% coming from Chinese and Russian millionaires, which in April this year reached €2.2 billion.
In 2016 in Barcelona alone, non-EU investors chasing down this type of visa purchased 893 apartments. Chinese investors accounted for almost half of that demand. “The Chinese showed little interest in Barcelona until two years ago,” explains François Carriere, president in Spain of luxury real estate firm Coldwell Banker. “They began to arrive with friends and family, on real estate excursions, ready to buy all kinds of property, in particular newly built lodgings. You could sell ten flats in a day.”
They buy up places without ever intending to move to Barcelona, with most of the properties being put up for rent as soon as they’re purchased. The name of the game is not property speculation; it’s getting hold of the residency permit, which opens the door to other European markets. It’s also about getting the money away from the grasp of Chinese authorities.
Whether the goal is speculation or not, the result is the same: soaring prices, which in turn beget more international speculation.
As the interest of Chinese investors has grown, the number of professional intermediaries has multiplied. In just a few years, at least half a dozen real estate companies specializing in attracting Asian investors have popped up in Barcelona. “Chinese fortunes are more interested in the United States, Canada or Australia,” says Chuanyi Lin, director of the consultancy Nar Group. “But the requirements there for qualifying for a residence permit are usually much tougher, including much larger funds.”
In Barcelona, the local government has tried everything it can to dampen international demand, from fining sharing platforms like Airbnb for featuring unlisted tourist apartments on their platforms to sanctioning local banks for refusing to sell or rent out unoccupied bank-owned properties, but each time Spanish national courts have annulled the legislation. In the meantime, demand for Spain’s Golden Visas continues to surge — along with home prices, though the wages of locals barely budge. By Don Quijones.
Organized criminals from Russia are subletting apartments to tourists, as locals struggle with soaring rents. Read… Airbnb Just Made Itself Even More Unpopular in Barcelona