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Barcelona: investment in a city tired of tourists

Tourism accounts for more than 14% of Spain’s national GDP and 2.6 million jobs. Barcelona is the country’s economic center and one of the most visited cities in Europe: according to official statistics, more than 9 million tourists come here every year, and their number is constantly growing.

Tourism phobia
How do residents of the city feel, in which four times more guests than themselves? Spanish media publish photos of graffiti on the streets of Barcelona: “tourists, go home” and “tourist, respect or die!”. In the El Pais video report, locals do not hesitate to openly complain: “In our hometown, we feel like outcasts,” one of them complains. Others resort to more radical measures: for example, this summer the youth movement Arran attacked a tourist bus in Barcelona.

Oil is poured on the fire rising prices for housing. Tourists are willing to pay more for rent than the locals, so property owners are not shy about raising prices. Over the past five years, the cost of renting in popular tourist locations has increased by almost 40%.

The situation exacerbates the chaos in the market. According to El Pais, out of 16 thousand apartments that can be rented in Barcelona for the weekend, about 7 thousand are rented illegally through online platforms. The city council of Barcelona fined Airbnb 600 thousand euros for publishing ads for apartments without a tourist license, and the owners of such objects would have to pay a fine of 60 thousand euros. The online platform has deleted more than a thousand offers at the request of the authorities.

Now the city has stopped issuing rental licenses, many of those already issued will not be renewed (mainly in the city center). Since February 2017, Barcelona has banned the construction of new hotels in some areas under the new urbanization plan PEUAT.

What should investors do?
In a period of turbulence, the Barcelona market is beneficial for short-term investment in value-added projects: investors have the opportunity to capitalize on the current price increases. A number of factors indicate that property prices in Barcelona will rise for at least a few more years.

Low mortgage rates
Cheap loans are one of the key reasons for the growth of the local market (and the whole of Spain as a whole). Mortgage rates in the EU are based on the Euribor – the interbank offer rate. Since June 2014, the rate has continuously decreased and in October of the same year for the first time reached a negative value, whereas during the 2008 crisis it exceeded 4%.

Price increase potential
Property prices in Barcelona are still below pre-crisis indicators: according to the Idealista website, prices fell by 37% from a maximum of Q1 2007 (4,732 euros / m²) to a minimum of Q3 2013 (2,957 euros / m²), after which increased by 44% to 4 253 euro / m² by the II quarter of 2017.

Demand above supply
Since 2012, sales of new buildings have been consistently higher than the number of facilities under construction. In 2014, the gap reached a maximum value: the number of transactions exceeded construction volumes by 111%, but already in 2016 the difference was reduced to 1%. Since 2013, both indicators are constantly growing: the number of transactions by 2016 increased by 2.1 times, in construction volumes – by 1.9 times.

According to CBRE, Barcelona needs 7.9 thousand new housing units per year, and less than 2 thousand are being built. There is not enough building land: in the south the city is bounded by the sea, in the north by mountains, from the east and west by built-up villages.

Population growth and expenditure
The past few years, the state of the local population is recovering: from 2013 to 2016, the unemployment rate in Barcelona decreased from 23.7% to 14.4%. Household expenditures here are 14% above the national average.

In this situation, the best strategy for a real estate investor in Barcelona is to buy a residential, office or hotel object in poor condition, make repairs or change its purpose (thereby increasing the value of real estate) and sell the property at a higher price in 1-2 years. If the yield ceiling in the rental business is 5–7% per annum, then redevelopment can earn 12–20% on invested capital minus the costs of the management company and local taxes.

Investment in rental property is still suitable for those who are planning to move to Barcelona or send children to study there. Receiving rental income in a currency in which the investor will bear the costs, he minimizes the effects of inflation risks.

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