Is it a good time to invest in housing?

Are we in a context in which it is worth investing in housing? The Spanish real estate market is stronger than in the previous crisis despite the global risks and macroeconomic indicators: wars, inflation, interest rates…

The number of real estate transactions of free second-hand homes was 416,201 up to the third quarter at national level, according to provisional data from the Ministry of Transport, Mobility and Urban Agenda, 13% lower than the same period last year, which recorded more than 600,000 sales and purchases, a particularly high level.

Precisely, the impact of the successive interest rate rises by the European Central Bank, added to the inflation that directly affects household income and the price of housing, which remains positive, are factors that are favouring the rental market. In this sense, the price of renting has a growing trend in our country and represented 22.8% of the total number of households in large cities (INE tenancy regime data from 2021).

Rental profitability

The profitability of renting a home stands at 7% according to data from the Bank of Spain for the third quarter of 2023, well above what would be implied by investing in 10-year government bonds, household deposits and NPISHs and much less fluctuating than the stock market (IBEX-35). Therefore, investing in housing remains a safe value in a context of uncertainty.

Buying a property to rent in major cities such as Malaga, Bilbao, Barcelona and Seville can provide yields of 5.2% to 5.9% while Madrid, Pamplona or Vigo are between 4.7% and 4.9%. Below, we find Palma with one of the lowest yields, 4.5% according to Housfy data, mainly due to high purchase prices.

Large cities are characterised by being stable markets and despite the average yields, it is possible to find neighbourhoods with higher yields. In general, higher yields tend to entail greater risk when investing in housing, in this sense, it is advisable to carry out a detailed expert analysis of the area and even the type of property you are looking to invest in.

How to invest in housing: What type of housing is most profitable to buy to rent?

Flats tend to be the most sought-after type of apartment for rent. By capital city, in Madrid and Barcelona, Bilbao, Malaga and Palma the flats with the highest probability of finding a tenant are those with two bedrooms, while in Pamplona three-bedroom flats receive the most requests on Idealista.

On the other hand, recently refurbished properties are also very attractive as they generate more interest among prospective tenants as they are ready to move into. In addition, it should be borne in mind that newly refurbished homes are more energy efficient, which means savings for tenants. According to PwC and ULI’s European Real Estate Trends 2024 report, 90% of investors believe that sustainability will have the biggest impact on the real estate market in the next twenty years.

Therefore, refurbishing the house before renting it out benefits the owner, as it can have a direct impact on a higher rent and maximise profitability when investing in housing. In this context, furnished houses are also a plus when it comes to offering them.

Finding investment opportunities is easier with expert advice. Whatever your profile, at Homes by gestilar there is a team of professionals who offer you fully personalised attention, locating the most suitable investment options in each case, according to different risk and profitability parameters.