“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
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This same pattern happens to many cities – London, New York, San Francisco, Sydney, Vancouver. As soon as there is some sort of scene – theater, weather, restaurants, clubs – it pops up on the jet sets’ radar, then the game is over. some locals make out quite well, others don’t.
next story…
It sounds like Chinese and others are shopping for bargains with the Golden Visas and real estate prices there compared to some other places. The US EB-5, for example, requires spending between $500,000 and $1 million while creating a business in the U.S. and employing at least 10 people. Sounds like a lot of hassle in addition to the money to start the business.
San Francisco real estate prices now seem somewhere in the neighborhood of $1,000 a square foot in many neighborhoods for single family homes. A 967 sq/ft home just sold down the street in our neighborhood for $1.11 million (with about a 3 foot yard on all sides around it including front and back).
I believe housing in the desirable west coast cities in the U.S. (Seattle, San Francisco, LA, San Diego) are all mostly more expensive than $350 per square foot now with maybe an exception of Portland, OR.
When RE agents can convince the foreign investors that Barcelona is a bargain (for housing and visas) compared to other spots in the world that are more expensive, maybe they’ll attract even more of them. It’s too bad so many countries seem to be putting money in their coffers ahead of the needs of the people already living someplace.
I think this has more merit than anything else.
In Spain, you can get a 10 year residence permit (so as long as the EU continues to exist, its also good for entire EU) for you and your immediate dependents for €250,000 in real estate “investment.”
The Spanish real estate market is supported, in large part, by English pensioners. When their pension system goes south (its horribly underfunded, even with asset valuations at all time highs) the Spanish are toast.
There are either mass defaults, or mass printing, or both.
Look at the bright side (as I am in Frankfurt) … all this fiat chasing neoveau riche … when the fiat ceases to exist, the buildings (but perhaps not the concierge) will still be standing.
Locals will love it.
Since when are those god forsaken places considered desirable.
Hey Wolf,
The subtitle says “10 flats in a day”, but the article quoted the executive from Coldwell Banker as “…ten floors in a day”.
That’s a world of difference.
Inevitably, passing messages via tin cans over wire exaggerates and adds fuel to the mania. lol
“Pssst…I’m selling ’em like hotcakes and tulips….10 per day…”
“whaazat? Can you repeat that?….10 floors per day?”
No! Its ….10 ..(inaudible)…per freaking day!”
Oh….got it! I’m telling my friend here its 10 blocks per day. Woohooo!”
Yes… the problem is the Spanish word “piso” – it means both “floor” and “flat” (apartment). DQ and I discussed this, and he thinks the most likely interpretation is in the sense of “flat.” But we don’t know for sure. If you get the WS email updates, it showed “floor.” But I later changed it based on my discussion with DQ.
A lot of buildings in Barcelona don’t even have 10 floors.
Especially in el eixample. I think the most likely interpretarion would be “flat”‘.
I got it, even if nobody else did. You’re hilarious Hiho.
I just now see (Duh!!) that I changed “floor” to “flat” in the subtitle but failed to change it in the actual text. Sometimes I’m a real dingbat.
On second thought: “Sometimes?”
But I think I finally got it straight.
:-]
i think it’s local nomenclature: in san francisco ONLY, i’ve heard “flat” relate to the entire open floor (as opposed to renting a room or apartment) whereas in the UK i hear “flat” as an “apartment.”
Well….
That is the long term consequence of buying cheap goods from china. The money had to go somewhere… now it is coming back to take over our deindustrialized countries. We will be their servants.
China is invading the world one domicile at a time.
James and i were just talking about the brilliance of this. it’s sci fi brilliant and not a shot fired. / yet.
It has to be pointed out, though: the Chinese only do what the domestic kleptocracy allows them to do.
Thanks Wolf.
Alas, the masses often never read the corrective memo, everyone gets excited and remember only the title and sub-titles in bold.
Hiho, don’t worry about the Chinese, they’ll collapse in on themselves soon enough. Too much debt and mal-investments there. It always happens. I’ve lived and worked in Asia and Australasia region most of my life and the story repeats itself every time just with different names.
We used to blame the Japanese in the 80s too and worried that they’ll take over the world and your kids will all be working for and doing 90-degree Arigato bowing to their Japanese bosses. If you’re old enough, you’ll remember that. Look where everyone is now at.
As the saying goes: That too will pass.
I am not old enough so I cannot recall these days. From what I have been reading it seems that the japanese agreed to sabotage their own economy throught banking deregulation and the plaza accords. Much of the same with the so called south east asian dragons… and now china is following the same path and quickly letting its economy be financialized.
Neoliberalism is the recipe for disaster. How many promising countries which were to become the new industrial superpower have fallen prey of real estate and financial bubbles?
I bet that in the end germany will be the last man standing. They played the long term game… avoiding so far real estate bubbles and the like.
Well whatever, in the end I do not care whether our new patrons are german, chinese or russian. The point is that as spaniard I am screwed.. just as the rest of the locals who are no longer able to afford housing here.
By the way, another example that spain has no dignity whatsoever… exchanging passports for a lump sum of money. We are the bitches of europe.
Cheer up Hiho, the Spanish have always done far greater damage to one another than other people have done to them.
As the hilarious old advertising campaign which was run in England in the 1990’s said:
‘Spain Marks You!’ (the hack translator meant to say (I think): ‘Spain makes an Impression!’ :)
You’ve got plenty of company with unaffordable housing, and passports for nothing. You have to admit though, the neolibs provide plenty of entertainment for the plebs.
i remember the fears of japanese buying big buildings, and they seemed silly and unfounded at the time. even xenophobic. but i was in philadelphia and back then they hated anyone who didn’t have a cop/fireman moustache. it was mostly commercial properties from what i remember.
now you’ve got mass amounts of americans homeless and/or jobless, with our police forces and sheriffs defending and protecting empty homes owned offshore.
there is an underground of homeless growing and spreading even on my own home street. employed people living in vans/RVs are no longer unusual and i’m meeting more and more at the post office or at the gym.
was asked if i lived in a tent city on mission street when someone recognized me at the supermarket after going to the gym. and homeless aren’t tattered anymore, as many have JOBS and paint their nails and brush their teeth.
so he thought i was homeless even though i had fresh lipstick on and i laughed without shame but lots of PRIDE, as ever since i was shocked about the evicted/homeless school teacher escaping her situation at our gym, it’s becoming NORMAL and the most interesting people of san francisco are homeless.
Stop meowing Kitten!
In Jackson Hole Wyoming the elected officials just found a solution to the problem of people working two full time jobs still not being able to afford housing of any kind. They passed a city ordinance allowing people to live in their cars in public parking lots for only $450 per month.
Well, the city is doing their part in making the homeless feel like they are not homeless.
“don’t worry about the Chinese, they’ll collapse in on themselves”
Interesting point. If somebody someday goes bankrupt in China, their Spanish real estate could be hard for a Chinese court to touch. Clutching at straws, maybe, but maybe better than nothing.
Btw, I forgot to add that at $350 psf median is relatively “cheap” compared to many up and coming Asian cities. The usual anchoring bias with human minds.
Once you’ve seen Hong Kong or Beijing central prices, you’ll understand why they think its a bargain in Barcelona. Besides, most newer Beijing property are at 70 years lease on the land, compared to most European practice of giving freehold title; so naturally, the Chinese thinks its gold rush season.
You just have to be patient for the collapse….I’ve been waiting way too long myself.
I personally would never want to live in Barcelona Too touristy and too much petty street crime for my taste On a visit with my nephew from Ulm a few years ago a child stole his camera along with his rucksack from under our table while having lunch in the city center Can happen anywhere I know but that city is infested Two German friends who had retired to that coastal area recently returned to Hamburg after ten years of sunshine
Very hard to read you post. Please use punctuation.
The coast is also heavily overbuilt. You find a nice looking beach, and five rows of houses peek at you. No, thank you.
Go West! Inland, it’s heaven on earth. Mountains, vineyards, lakes, forests. Seriously.
If you can point to some specific areas, let me know.
What will happen to property prices and so called resident visas if Catalonia split from Spain ?
there are great concept coming from china bike sharing companies like ofo are coming to France Germany England and spain.Barcelona is a nice place but they are too many shared appartment it,s complicate to get all the rents and they are all rented to european students from others countries that damage the properties.The best deals are going to be in Paris a lot of the money from London is ging to paris.A lot of chinese people are investing in spain because it,s still cheap and also Canada but Canada the Price are too expensive to buy a property
The EU has laws to force countries accept migrants they don’t want, yet does not have a rules for how to apply for citizenship, or visas. Free market is the rule there. The good crash would clear out these insanities as well as the Barcelona housing market.
I am amazed at the wealth of the Chinese. They are buying up real estate in the U.S. (California, Texas, North Carolina, etc), Canada, Australia, New Zealand, and now Spain. Billions upon billions. They typically on go for the expensive stuff too.
Which banks are on the hook for all the speculation?
Chinese investors accounted for almost half of that demand. “The Chinese showed little interest in Barcelona until two years ago,”
So at least half the RE in Barcelona is all cash. I bet the PRC and PBC know this stuff is happening and are encouraging lending on a grand scale. Increase property taxes on foreign buyers, that should sort them all out.
China is printing Yuan with reckless abandon and going around the world and buying it up for $1,000,000 over asking.
and no one cares
Interesting. A very interesting myth.