Madrid: Spain’s love affair with home ownership is starting to fade.
Having witnessed the meltdown in the country’s property market at the height of the European financial crisis, more young Spaniards are turning their backs on their parents’ dream of owning a home. The emerging trend is leading Merlin Properties Socimi SA to bet it can overtake Goldman Sachs Group Inc and Blackstone Group LP in the rental market.
Spain’s biggest real estate investment trust is planning to almost double the units it has for rent by the end of the year, CEO Ismael Clemente said. “Young Spaniards today don’t have a culture of ownership — they no longer see renting as a bad thing,” he said.
The real estate crash and resultant bank bailout spurred many millennials to question the received wisdom that a Spaniard’s house is not just a home but also a haven for savings. The crisis sent unemployment soaring, stripping away the economic certainties of a safe job and income and the relentless rise in property prices that had underpinned the country’s passion for home ownership.
“The concept of owning a home in Spain was almost religious, but that’s changed for an entire generation of young people who have seen people losing their homes, prices dropping and losing access to credit,” said Fernando Encinar, co-founder and head of research at Idealista SA, which operates an online platform to buy and rent homes. “That has made renting a more attractive option, especially in big cities such as Madrid and Barcelona.”
Spain’s adoption of the euro in 2002 drove down long-term interest rates to power a surge in mortgage lending that jumped more than fourfold from 2000 to its 2010 apex. The top of its property boom saw Spain building more houses than Germany, France and the UK combined, and house prices soared in tandem with the credit explosion.
Compared to EU average
After rising 71 per cent between 2003 and 2008, when home prices peaked, they then plunged 31 per cent before starting a slow recovery in late 2014. The number of homes listed for rent has risen from 9 per cent of the total number of available homes in big cities in 2000 to as much as 25 per cent in 2015, according to Idealista.
The proportion of Spaniards renting a home has risen to 22 per cent from 19 per cent in 2007, according to data from Eurostat, the European Union’s statistics office. That compares with a European Union average of 30 per cent.
Even so, home ownership continues to dominate with 78 per cent of Spaniards describing themselves as owners. That’s slightly down from 81 per cent in 2007 but above the EU average of about 70 per cent.
For Guillermo Garcia, a 26-year-old restaurant entrepreneur, the decision to rent instead of buying a three-bedroom apartment in central Madrid was a no-brainer. “Owning a house is not a sign of success,” he said. “I don’t have to live like my parents did. I don’t want to sign away my life like that.”
For Merlin, the rising popularity of rentals represents a business opportunity. “Until now, there has been no professional landlord in Spain and the quality of the rental sector has been very poor,” Clemente said.
As part of Merlin’s business combination with Metrovacesa SA announced in June, the two will also merge their portfolios of rental apartments. Merlin and the former shareholders of Metrovacesa will combine the properties and add more apartments to create a landlord with 10,000 rented homes, dwarfing the 6,000 units owned by Blackstone in Madrid and the close to 5,000 homes owned by Goldman Sachs.
Clemente, who wants to list or sell its residential unit — Testa Residencial — within three years, sees the switch to renting as part of a wider generational change that’s also underway in his own home.
“My children don’t have a culture of ownership,” he said. “They rent their mobile handsets from Telefonica, they listen to music on Spotify and they simply no longer see renting as a bad thing.”
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