REITs Pull Back from Housing Market in Spain as Rental Boom Runs Out of Gas

“Many families, scratching a living on badly-paid zero-security jobs, just cannot pay the sort of rents many landlords, especially the big funds, have been asking for.”

By Nick Corbishley, for WOLF STREET:

By buying up large numbers of rental properties in Spain starting in 2014, publicly traded Real Estate Investment Trusts (REITs) — or Socimis, as they’re called in Spain — played a leading role in the country’s multi-year rental boom. They’ve also helped to lure foreign investors, particularly from Latin America, into Spain’s real estate market. But according to a new report by Armanext, an advisor for the design, structuring and incorporation of REITs in Spain, the nascent market is already beginning to show signs of fatigue.

With just two weeks left to close out the year, Spanish REITs have attracted just €2.8 billion of fresh funds, down 45% from last year’s €5.1 billion. The share of residential properties as a percent of total assets in REITs has plunged from 38% in 2018 to 26% this year, as more money has flowed into commercial real estate, in particular offices and shopping centers, which together now represent 48% of total assets. Other popular assets in REITs include shops (10.4%), hotels (7.3%) and industrial warehouses (7.3%).

The main reason for the shift away from residential property, according to the report, is the Spanish government’s recent reform of Spain’s renting laws, which includes a measure that extends the minimum duration of rental contracts from three years to five years for private landlords and to seven years if the landlord is a company. “The rental reform has affected everyone who invests in property,” said the president of ArmanexT, Antonio Fernández.

For institutional landlords like Blackstone and the different property funds it owns, the reform also makes it more difficult to evict the existing tenants of newly acquired properties as quickly as possible in order to jack up rental prices for the incoming tenants.

The stated goal of the government’s rental reforms was to temper the blistering rate at which rents were rising in the country. In the hottest markets, such as Barcelona, Madrid, Palma de Mallorca and Malaga, rents are now higher than they were even at the dizzying peak of Spain’s madcap real estate boom, having risen by 50% or more since 2013 while salaries have all but stagnated, squeezing tenants while providing juicy returns for landlords.

In 2018, rental apartment buildings were the best asset class in Spain, providing landlords with an average gross accumulated profit of 4%, according to data published by the Bank of Spain. This year it has fallen slightly to 3.8%. But that’s still almost nine times more than the amount an investor could have earned on a ten-year Spanish bond, whose yield currently languishes at 0.43%. It’s also many times more than the risible interest available on bank deposits, if any.

Since 2013, a grand total of 91 REITs have been incorporated in Spain. This year alone, 22 had their initial public offerings. Four of the 91 were delisted in the last year, leaving 87. Most of the funds are listed on Madrid’s Alternative Stock Exchange (MAB) and seven are quoted on Amsterdam’s Euronext index. Between them, the REITs hold assets worth €20.4 billion — around 4% of Spain’s rental housing stock. Their combined market cap, at around €12 billion, is much lower than the combined value of their assets — a reflection of their high debt leverage. According to the report, the average leverage ratio in the sector is 35%.

Of 87 REITs or Socimis, 44 are owned by foreigner investors, including wealthy Latin Americans looking to “diversify” their exposure away from their local economies. They are also lured by the fiscal benefits offered by Socimis. Those fiscal benefits include exemption from corporate taxation. Although Socimis’ unit-holders have to pay some tax on the dividends they receive, it’s at a much lower rate than the standard corporate tax rate. Plus, Socimis pay far less in property taxes than private landlords.

These foreign-owned Socimis currently own just over €10 billion of real estate assets in Spain. But even foreign investors have begun to pare back their spending this year, having invested just €1.3 billion, compared to €1.8 billion last year, which will turn 2019 into the worst year for foreign-owned Socimis since records began in 2015.

There’s also the fear swirling around the possible formation early next year of a so-called “Frankenstein” coalition of leftist, regional and separatist Catalan and Basque forces that could sharply hike Socimis’ tax burden. In an absolute worse-case scenario, it could ban them altogether. “We expect 2020 to be marked by… political instability, especially if [the left-wing party] Podemos is given the Housing Ministry,” said Fernandez.

And there are indications that the rental market appears to be topping out. In some prime areas of Barcelona, where the national rental boom got going five years ago, rents are already beginning to fall. “The prices hit the roof last year,” a Barcelona-based real estate agent called Toni tells me. “Many families, scratching a living on badly-paid zero-security jobs, just cannot pay the sort of rents many landlords, especially the big funds, have been asking for.”

At the national level, rents are on track to rise this year by just 1% to 2%, according to the real estate agency Fotocasa, down from annual rises of around 10% just two years ago. If rents continue to “stabilize” and the returns available to the Socimis continue to fall while regulatory and fiscal pressures rise, investors may begin to look elsewhere for opportunities. If that were to happen, Spain’s property market could lose one of the main props supporting property prices. By Nick Corbishley, for WOLF STREET.

Another “run on the fund.” More investors can’t get their money out but contemplate big losses. Read…  Another UK Mutual Fund Leaves Investors Twisting in the Wind

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  61 comments for “REITs Pull Back from Housing Market in Spain as Rental Boom Runs Out of Gas

  1. Frederick says:

    The rent is too damn high party was right all along

  2. Trinacria says:

    One has to wonder what these things will look like when someday it’s “low tide”.

  3. Deanna Johnston Clark says:

    If you own a house, however humble, do not borrow on it. Keep the door open for relatives. Right now, resolve to enjoy the sunrise and the birds…take Sunday walks…and take a deep breath.
    Waste not…

  4. Rowen says:

    I can’t imagine the death toll from the financialized scarcity of necessities of life.

    • William Smith says:

      Eventually, not in our lifetime, governments are going to have to mandate price caps on the necessities of life, as well as other regulatory measures designed to force financial speculation back to the stock market where it belongs. However, given human history, this probably won’t happen without violent revolution. The history of the Weimar Republic is an excellent lesson in what happens when you try to screw the average citizen for too long. In fact we are already seeing the rise of the “ultra right” in many countries. History always repeats: but usually after the lessons of the past generations are forgotten by the current generation.

      • nhz says:

        Yes, there are too many similarities accumulating in Europe, just in time for the 100th anniversary of the Weimar Republic.

        I’m not advocating for the “far-right” (this usually means nothing more than that they someone doesn’t stick to MSM/government gospel) but some of it makes a lot of sense. The middle class is getting screwed, the many parasites at the bottom of society are continuing their (relatively) good lives like nothing happened and EU elites are partying like it’s 1999. Politicians know that most people are too comfortable to revolt, and when the misery really hits they hope to have made revolt impossible with total control, both mind control through the media and educational institutions, widespread electronic surveillance (thank you FANG companies) and heavily armed policy / military for “anti-terrorist” operations.

        • Ragbp says:

          Chinese govt is Working over time to make sure that “control” angle is covered.

  5. Just Some Random Guy says:

    AirBNB is a significant factor in rent prices going up, IMO. I was just on the old continent for a few weeks and stayed at airbnbs almost exclusively. One building in Paris where I stayed was owned by 1 guy who was short term renting the entire place, 5 apartments. Great for me as a traveler, who for the price of a hotel room can stay have an entire apartment. Sucks for people looking to rent something long term who have much less supply available.

    And this applies everywhere, not just the Parises and New Yorks of the world. I’ve stayed at AirBNBs in small towns, big cities, mid sized cities, beach towns, ski resorts, you name it. It’s a worldwide phenomenon that seems to be under reported.

    • andy says:

      What about bed bugs? Do you burn your clothes and luggage upon returning home?

    • Willy Winky says:

      I really don’t get this airbnb thing.

      I’ve used it twice, and both times it was a disaster both times

      It’s hard enough for hotels to get it right – so what are the odds of someone who is not a professional hotelier getting it right?

      I read recently that people are reluctant to post negative reviews about hosts because they fear that other hosts will see their reviews, think they are too picky, and will not rent to them.

      End of the day who needs an entire apartment?

      Especially when there is no service whatsoever.

      Airbnb only makes sense if you have an entire family traveling with you – it will be cheaper than renting multiple hotel rooms. Otherwise a tripadvisor reviewed hotel room is going to be 99% of all airbnb apartments

      Did I mention that in many cities airbnb rentals are actually illegal.

      • Wolf Richter says:

        Willy Winky,

        I’ve used temporary apartments long before there was Airbnb. There is nothing new about this. When I needed to stay somewhere for more than a week, I got an apartment. It has a kitchen, and you have some room to move, a real table, etc. I started using them in the early 1990s in Paris mostly (they had agencies that did that), but also to go skiing in the US, and later in Tokyo and other cities. Airbnb is just an app that made this easier and therefor more popular for both the owner and the traveler.

      • Just Some Random Guy says:

        Sayng it’s just an app is like saying Amazon is just a website where you can buy things.

        • Wolf Richter says:

          Just Some Random Guy,

          Well, no. Part of Amazon is a logistics giant, with warehouses (fulfillment centers) all over the world, with planes, trucks, etc. It has over a dozen fulfillment centers in the Bay Area alone. It also has complex relationships with transportation companies and suppliers, so that you get the product from the manufacturer in India delivered to your house in no time.

          Amazon is also the biggest player in the cloud (AWS) and has a large number of big data centers around the world; Netflix and others use AWS to host their content.

          Amazon, via its acquisition of Whole Foods, has a large footprint in brick-and-mortar grocery stores.

          And there are other things that Amazon does.

          Airbnb has none of that.

          Amazon had 650,000 employees in 2018. Airbnb had about 12,000.

          Ha, and I just looked it up because I vaguely remembered something about it: Airbnb hosts its app on the AWS cloud:

    • nhz says:

      AirBNB is killing the rental market in my city and many other parts of Europe, and probably killing a large chunk of the official hotel sector as well. A very small group profits hugely, and a very large group suffers the bad consequences like surging rents, all kinds of naughty tourist behavior (what often would not happen in official hotels) and destroyed social fabric. Plus is encourages widespread tax evasion.

      While some bigger EU cities are finally asking for stronger regulation, my government is doing everything they can to the benefit of Airbnb and some similar platforms – because their rich friends are the ones who profit and they don’t care about the problems this is causing for ordinary citizens.

  6. Just Some Random Guy says:

    “a measure that extends the minimum duration of rental contracts from three years to five years for private landlords and to seven years if the landlord is a company.”

    So a renter I’d need to commit to 5 or 7 years in one property? That’s nuts. One of the few benefits of renting is the ability to move often without penalty. This pretty much kills that benefit.

    • Wolf Richter says:

      I don’t think so. I haven’t looked at the specific lease documents, so I don’t know, but what I remember from our rental contract in Belgium is that it likely means that the landlord cannot raise the rent during that contract period, but that the tenant can get out of the lease after a certain period (this might be after one year) and under a list of certain conditions (moving to another city, job issues, etc.). The assumption is that rents rise, and that landlords can fill the apartment with a tenant next year that will pay a higher rent.

    • nhz says:

      What is common in Europe is that under the contract rents can only rise with CPI or some related statistic (i.e. much slower than they rise in a bubble for new contracts) and that the renter has a certain minimum obligation of e.g. 1 year rent and after than can cancel within 3 months or so. Some countries also have very strict provisions against evicting tenants even if they don’t pay the rent or trash the home, or claw-back rules when renters appeal the contract price and the rent is considered too high by some government committee.

      But things can change. Netherlands for a long time had punishing rental contracts for landlords, with the result that most landlords were large housing corporations and pension funds, plus some smaller crooks operating at the edge of the law (like sending a hit squad when the renter doesn’t want to leave or pay more).

      The current situation is almost the opposite. Many big foreign parties have started investing in Dutch housing – often old homes sold by social housing corporations – because it is now so easy to offer 1- or 2-year (or even shorter) contracts and after that automatically terminate contract and jack up the rent. Many new rental contracts are of this “temporary” kind that originated after the 2009 housing crisis, as a means to offer homeowners a possibility to rent out their old home when they had already bought a new one; nobody cared about rights for renters and this has become a permanent situation now.

  7. Erle says:

    “Plus, Socimis pay far less in property taxes than private landlords.”
    Why is that the case?

  8. Old-school says:

    Leverage on works when the tides rising.

    Shelter is mankind’s oldest problem. Why the heck can’t we get better solutions than housing always going up faster than peoples incomes?

    • Unamused says:

      “Why the heck can’t we get better solutions than housing always going up faster than peoples incomes?”

      Because TPTB know what’s coming. They’re just grabbing while the grabbing is good before the music stops. Hence the stock buybacks, the unserviceable debts all around, and so forth. You’re not in The Club, so you haven’t been notified. And if you don’t have a few million stashed away in safe locations you’re already too late.

      Seriously. I would not kid you about such a thing.

    • medial axis says:

      AIUI, all wealth comes from land and labour. So if you own the land you have those that don’t by the short and curlies . Land value tax goes a long way to fixing that. Unfortunately the land owners have great influence on the government. How do we break that circle? Looks like it may be breaking itself?

      • Old-school says:

        There are still some places in the US that undeveloped land is nearly free. It takes a hearty person to homestead it, but if you are young and ambitious it’s an option.

        • medial axis says:

          Yes, and that’s understandable – low demand low price. Once people move in and build on it the value of all land there rises. That rise in value comes from the community there, not from anything the own/occupier does on their own. It’s unearned wealth. The idea of LVT is occupiers should pay a levy proportional to the land’s (unimproved) value. That levy goes to the community to build roads or whatever. But we don’t do that, we tax improvements! That is we tax buildings and other improvements done to the land (or buildings on it). That’s plain bonkers. All that does is discourage people from improving the land! Why bother improving your property if you’ll be paying more tax for doing so and, here in the UK, the builders who do the work will charge you 20% vat on top of their bill which they’ll hand over to the state (not even to the local authority)!

        • Lisa_Hooker says:

          Unfortunately I don’t own my land. Yes, I pay a monthly note to a bank. But in truth I rent my land from the local Township twice a year. If I don’t pay the Township will take it. So I guess they are the entity that really “owns” it.

    • sierra7 says:

      It’s the “rabbit chasing the lure” around the track. That is the destiny of humanity………some rabbits make it and too many don’t. Survival of the fittest melded to the money system. I don’t like it but that is what we live within. I wish we could come up with something better. Otherwise we will just all end up killing each other.

  9. Cobalt Programmer says:

    Today, rent is based on money. I imagine a prehistoric world when caves are rented. Only a few big Apes own most of the caves. All other family apes (mom, dad, two kids and a small wolf) will be renting apes. The rent will be meat, fruits, water or labor depending on the times. Now, there are only two options. Pay the asking rent or the landlord have to reduce the rent. Instead of reducing rent and letting more people in, landlords will declare bankruptcy. Then, a big rich person or LLC will buy all the tall buildings at a cheaper price. Even they will keep the property and pay taxes rather than renting the building at a lower price. I heard that sometimes ago, natives in Spain revolted against the tourists because, AirBnB rentals were profitable and rental availability for citizens very difficult.

    • nhz says:

      Why rent out the property or even reduce asking rent if it automatically appreciates by 10% or so every year, thanks to the ECB? AirBNB is just the cherry on the cake, rent out for a few months in tourist season for huge untaxed benefits and leave it empty for the rest of the year.

      In my city there is a serious lack of rental housing that has been hugely amplified by AirBNB and other speculative activity over the last 5 years. There are many rental apartments in inner city with ridiculous asking prices (like 200% of the average income for a small apartment), many of them probably stay empty forever. They are all angling for a renter who desperately needs a home e.g. because of a new (temporary) job in the area, and for whom the employer will pay the (extra) rent. Many apartments and even complete big homes stay empty for years without even advertising for renters. If enough speculators do this is helps to drive up purchase prices and rents even further. This will probably continue until the next housing crash (last one in my country was in 1981, everything else was papered over because keeping the housing bubble alive and kicking is number 1 priority for Dutch government).

      • Old-school says:

        I think in the USA that most would say that Warren Buffet is about the most rational investor there his.

        Owning 70 plus companies in total he has a view into total economy. That he is sitting on $125 billion dollars tells you central bank policy has inflated all assets to far. He can place money all over the world.

  10. MC01 says:

    There’s one thing I don’t understand.

    Take a town like Soria in Castilla-Leon. According to the ayuntamento (city government) website population peaked in 2011 at 40,280 but has since declined to 38,004. In short she lost about 5% of her population in seven years and the trend seems to be accelerating.
    Yet while the town herself has a steadily increasing number of empty buildings there’s a nice ring of construction cranes all around the town, building more residential real estate. Who is going to buy this stuff? These are all of the usual “fake luxury” type, small semi-detached houses sold for eye-watering prices (one sign said “starting from €500,000”). OK, real estate prices in Spain are in a parallel universe but who thought this was a great investment? As Deep Throat said “follow the money”… but the money trail here leads nowhere. This is not San Francisco, Zurich or even Bilbao.

    You cannot talk to most people in Spain about construction or real estate because you won’t get clear answers and some folks will even get angry if you carelessly comment about the “precios insensatos”. It’s like some sort of mad State religion or very strong collective delusion that already took the country to the brink once and will do it again, and I hope this time the shock will be strong enough to snap people out of it.

    Those much maligned younger generations (30 and younger) seem to be the only sane people around, partly because they have seen their parents and families get burned once and partly because they see how far even a good wage (by Spanish standards) will get you courtesy of their parents’ obsession to get rich through real estate speculation.

    The country is ripe for another big burst and hopefully this time there will be no bailout (all fiscal and monetary arrows have already been expended) and people will learn their lesson.

    • nhz says:

      I have friends and family in Castilla y Leon and noticed the same thing, starting already 15 years ago when Spain had started pouring (ECB) money into their enormous RE bubble.

      Many of the homes in these new “suburbs” seem to be purchased by relatively young families (maybe a bit older than 30? people stay at home longer there out of necessity) on extremely cheap interest-only mortgages, thanks to the ECB. Ten years ago after the Financial Crisis many people had mortgages at Euribor + 0.75% or so, which means they pay something like 100-200 euros per month for a complete home (homes that would cost at least 10x as much to rent in other parts of Europe). I don’t know if such mortgages are still common but for sure the owners are not paying a realistic rate. Of course, some of the young people are not playing the game because they can’t – there is massive youth unemployment and without a job even such a cheap mortgage is probably not an option.

      What happens down the line when these mortgages have to be renewed or homes sold while rates are higher is everyone’s guess but this is a similar problem in much or Europe. If rates ever go back to normal values like 4-6%, these homes will be worth a fraction of the current valuations. There is almost zero chance that incomes will catch up with rising rates. And that’s why rates in Europe will never be allowed to get back to normal …

      We see much of the same here in Netherlands where according to the latest statistics only 2% of newly build homes are affordable for households with median income, yet they are building this stuff (very average home with very small garden, 500K or up) everywhere. And investor properties are even worse, the average “second home” is now 30x the local median wage. Most of these homes are empty 95% of the year and they contribute nothing to the local economy. Some small villages near the coast have huge housing problems, unaffordable rents etc. for the locals but last year there was frantic building activity all for expensive “second” homes and investor apartments.

      Ripe for a big bust, but I’m sure authorities and especially the ECB will fight it tooth and nail.

      • MC01 says:

        Present mortgage rates in Southern Europe, if you are prime lending material (easier than it sounds), are in the 1.8-2% + Euribor 12 range. Presently Euribor 12 stands at an absolutely idiotic -0.27% so rates are effectively below official inflation rates. 100% no money down mortgages are back in Greece, Italy and Spain… no, actually in the latter 110% mortgages are back.
        I don’t know what these people are sniffing but glue and paint stripper won’t do such a number on your brain.

        Joking aside all these Southern European countries are trapped in a vicious circle fueled by the need to maintain bloated construction and real estate sectors, but simply lack the buyers to do so. They have exhausted all avenues of growth bar the dumbest asset price inflation, meaning pricing stuff sky high out of a whim and giving REIT’s and developers enough fiscal incentives to stick to those book valuations no matter what.

        This is creating all sorts of distortions that are good for GDP goosing but are absolutely unsustainable without a big helping hand from the financial sector and especially very favorable taxation.
        One of these days I should take a break from aircraft, clean the iPhone memory and go snap pictures of some of the shopping malls Italy is building just as Amazon is (deservedly) slaughtering them.

        • nhz says:

          I guess it makes perfect sense because almost no one that made financially stupid decisions or took on too much debt (bankers, politicians, companies, consumers) has suffered the consequences after 2008 and all the damage has been transferred by politics to those who often did NOT participate in the madness, like savers and taxpayers in general (for the EU often in other countries). Talk about bad incentives … socialism for the speculators.

          When I talk to people here most of them assume the party will never end, but when you keep asking they seem assured that they will be bailed out because “everybody is doing it”. Plus in Europe especially you have the legions who feel they are totally “entitled” to living beyond their means whatever the consequences for others.

        • char says:

          Building a mall now is catching a chainsaw that is running.


          A lot of real-estate developers/owners have gone tits up in Holland or experienced a very significant haircut moving from Quote to has money but definitely not Quote

        • MC01 says:

          Tell that to Unibail-Rodamco-Westfield.

          If the Westfield Milan maxi-mall stays on track it will open in 2021, four years late. So far it has cost €1.5 billion and it’s projected when all is said and done it will have cost about €2 billion, without counting all the infrastructures Westfield promised to help build as a sweetener of sort.
          Unibail-Rodamco bonds coming due in 2021 pay a coupon (not yield) of 0.125%. These are people still living in 1999: “Amazon? Isn’t that a website selling books to nerds?”. “Internet? Isn’t that for geeks or something?”.

          All malls opened in the last decade or so have lost money since day one and they keep on losing money… there’s a very good reason why wealth management, private pension and family funds regularly underperform even the dumbest stock market index funds: this stuff is stuffed everywhere. I have learned this the hard way.

        • nhz says:

          mostly agree about developers (the ones who do actual work like planning, and not just the finance part), I wasn’t really thinking of them as to me they are more the people who profited from the bubble and not the ones who organized it (like the banks and big speculators).
          It is sad as we need them, just like people working in the building industry and architects who left in droves after the crisis, which is now contributing to the price increases. Unfortunately I also know some examples of big developers that should have gone out of business because they fail to listen to the market, but were bailed out in some way :(

        • fajensen says:

          Joking aside all these Southern European countries are trapped in a vicious circle fueled by the need to maintain bloated construction and real estate sectors,

          Not only Southern European countries –

          I’d say Sweden is pretty done for already; They should have raised interest rates 5-6 years ago, they didn’t dare, and by now the Krona has depreciated more than 30% and the dominant economic activity is pouring concrete over more nature and bloating the already obscene accounts of SKANSKA and PEAB!

          A normal apartment in Stockholm can cost more than 10x the average wage of the prospective buyers.

          We have the spectacle of Pensioners buying 17 million SEK apartments because they can borrow at less than 1%.

          One cannot touch any kind of economic activity here and not find fraud and corruption – Swedbank is only what they admit!

          This all totally sustainable … :p

          I am leaving, hoping to be able to sell my home and go back to Denmark before this thing finally blows up, because it will be a doozy! The 1990’s Greece will end up looking like a pretty well-run country in comparison.

      • char says:

        Second homes are build in poor areas like Zeeland were there is not that much demand for first homes. Zeeland is also the area of Holland were you have sea marina’s and nice beaches. People who can afford seafaring sailboats can afford expensive second homes.

        According to kadaster the average price of a sold house in Zeeland was 250.929 in 2019Q3 and yes that is a lot more than the year before (222.857). Official minimum wage is something like 10k a year but those people rent (30% of people rent IIRC) so 30x median wage would be a very nice home.

        • nhz says:

          There is a severe housing shortage in Zeeland, partly due to the flood of migrants that all get free homes here and make sure younger locals with low income are on the waiting list for social housing rentals for many more years. Outside social housing there are very few rentals and what is available is usually extremely expensive, undoubtly influenced by the Airbnb craze.
          Almost nothing is build for ordinary citizens, newly build homes are generally 400-500K and up which is totally unaffordable over here, most of it is for investors and commuters that work far away. Although I don’t have official statistics, my guess is that the amount of second homes that were built over the last few years (average sales price last year > 700K and climbing) is a lot higher than the amount of first homes, at least in the areas closer to the coast where most of the people live. It is perfectly clear where the priorities are. Basically Zeeland (like a few other remote corners) is the garbage heap for the elites in the big cities.

        • char says:

          For those that don’t know where Zeeland is. It is the southern part of the Rhine-Meuse-Schelde delta. North of it is the biggest port of Europe, Rotterdam, and south the second biggest port of Europe, Antwerp. Problem is that Zeeland is made of strips of land going east-west so it takes time to drive to Rotterdam or Antwerp. And that land is also relative expensive as it is great farm land so it does not the most logical place to start a new business. It also has a sever lack of further education so a lot of young people leave the area to not return. The government does have plans to support the area like moving the marines there (they don’t want to move because there is no work for their spouses) or placing asylum seekers there (History shows that they will be gone three years after finding work, possible under the table while getting welfare) or the tourist industry. Zeeland does have the advantage that it is one of the nicest places to be within a 5 hour drive with its old towns, best Dutch weather and sandy beaches. This explains the market for new second homes and the lack of it for first homes.

          ps You are probably right about more second house than first in the last years. Second home market is mostly rich Germans while first homes are locals. The last ten years was a period were very few houses were build in the whole of the Netherlands Partly government policy to support house prices but also because woning corporaties did not have the money for it and other parties saw no profit in it.

    • Xabier says:

      Property wealth is just the last tattered thread of delusional prosperity to which average Spaniards now cling – everything else has more or less gone for them, so it’s understandable.

      An Italian friend says the same about provincial Northern Italy: trying to buy a nice apartment for his elderly parents he was amazed by the ludicrous valuations and the absurd reasoning behind them. Ended up with a great rental deal in the end.

      • MC01 says:

        You are kicking an open door, as the saying goes. Italy is about in the same position as Spain, maybe worse as Spain at least has good infrastructures instead of crumbling bridges and the food is much better and cheaper to boot.

        I have inherited a property in Northern Italy: theoretically it’s worth a gorillion (my made-up name for all insanely high valuation) but so far nobody wants it. Next month I’ll call the realtor and lower the asking price again, and again in Q2 if the situation remains the same: I know he’ll protest but I am dead tired of the place and I just want to get rid of it.

        • fajensen says:

          Maybe you should just keep it as a backup shelter to escape to? Northern Italy has a survivable climate and one could live there for not too much money.

        • MC01 says:

          The only “shelter” you will find in that wasteland is for crooks of all hues. And you can find them in spades in every corner of the world. ;-)

      • FP says:

        The whole thing is partly kept by parent’s wealth, helping their children starting off. But that is more and more kept by a bankrupted and ponzi pension system, plus the insane asset valuations. Textbook example of a vicious circle. Most people, clearly the ones in power, don’t want to break it, but odds are the longer it goes, the harder it will hit, and all ponzies pop eventually

    • petete says:

      Borrowing against assets could be one explanation.
      Money laundering another, linked to the first.

  11. Faifo says:

    Ireland is in a similar precarious situation. Foreign (and domestic) REITS have caused rents to sky-rocket in recent years. House prices have risen sharply as well causing an affordability problem for potential buyers caught in a rental trap. Ireland suffered greatly when the last property bubble burst. Déjà vu…

    • nhz says:

      That’s sad as they were on of the few countries in Europe where there was lots of real damage for many small players (speculators) after 2008, and from what I remember initially there was some real policy change. I guess it shows how effective government and industry brainwashing is nowadays.

  12. Old-school says:

    I have never been much of an expert on real estate investing. I own one REIT right now and try to understand the accounting numbers. It seems like the tax code is biased toward real estate in the easy money age. What is logical about being able to depreciate an appreciating asset in the tax code. Seems like the depreciation in the tax code is the only way that a lot of real estate pencils out as an investment.

    • nhz says:

      Yes, taxes are often an important factor; in my country as well. All housing is heavily subsidized over here, primarily with the most generous income tax deductions in the world (most benefit for rich homeowners), only rentals in the “free market” have zero subsidies.

      Last week I heard something that surprised me: many of our Millennials cannot afford to rent (too expensive if you don’t qualify for social housing, and the social housing waiting list for natives is usually 10-20 years …) or to buy (only on two incomes you have a remote chance as a youngster, but often only in remote corners of the country).

      But everyone knows that in Netherlands owning a home is the sure road to richness so they try to get on the housing ladder. Saving won’t work, because home prices have been going up FAR faster than people can even save for a small downpayment (even worse with ZIRP/NIRP). But there is a solution: if you can’t buy or rent a home, you can “invest” in a Dutch REIT that buys homes, corners the market and rents the properties out to others, offering a 5-6% ROI. So many youngers stay at home with mom and pop and “invest” in housing REITS, hoping to get on the housing ladder this way. I’m sure the people behind the REIT are the only ones with a sure profit, but I admit it is clever how they play the market.

      • Old-school says:

        We have similar distortions in US. I have invested before in PETS stock. One of the few US companies with zero debt and a lot of cash on the books. New IPO CHWY is direct competitor. Highly leveraged with debt, loses money every year but gobbles up market share because money losing companies can access the debt market. If rates stay low long enough they will probably put PETS out of business before CHWY ever makes a dime.

        • nhz says:

          Yes, I’m hearing similar stories from friends with small retail companies that use just their own money or “conservative” financing and have been battling much larger competitors that loose money every year and sometimes keep growing their turnover thanks to the destructive ECB policies. Some of them are getting desperate now that it looks like the ECB is going to double down on their extremely stupid, criminal policies. Only zombie companies (or those with the right political contacts) are allowed to exist in Europe :(

  13. michael earussi says:

    Capitalism isn’t about people, it’s about money. Squeeze them until they bleed is the mantra.

    Seriously though, the necessities of life should be beyond speculation. Speculation on Commercial real estate is fine but on personal housing it should be prohibited.

    • Xabier says:

      Property has been the subject of speculative investment since Europe started to grow again after the Dark Ages.

      In itself it is no crime: might as well say ‘How dare you ask me to pay for that cheese and beer, when I need them to live!’

      But the enabling mechanisms we see today are distorting markets in grotesque ways and are now a social evil and potentially destabilising politically.

  14. Just Some Random Guy says:

    Moral of the story and all the comments… should have bought real estate 10 years ago when it was dirt cheap. Those who did killed it, those who didn’t will likely never be able to afford it.

    • nhz says:

      In much of Europe even ten years ago RE was already extremely expensive (like 4-10x the valuation of the early nineties). A whole generation has seen nothing but overvalued homes and probably as a result thinks this is “normal” and will continue forever.

      I have a friend who is very good at investing. He owned a home in the eighties, purchased during our the last (1981) Dutch housing bust at 60% discount from asking price. He sold the home at a small loss ten years later just before the current bubble started, rented for a few years and then didn’t dare to buy again for many years because homes were way too expensive. In hindsight that was his worst investment decision ever ;(

      • Xabier says:

        In the UK, ‘dirt-cheap’ was exactly 20 years ago. A ship that left long ago…..

    • MC01 says:

      The moral here is if you are going to have a bubble you’d better allow me to wet my beak a little. ;-)

    • Richard says:

      Sounds a lot like victim blaming. I was still in college during the 2008 bust – is it my fault that I missed the boat? Perhaps we just have a terrible system in desperate need of reform.

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