We analyze the market and profile of the luxury investor in Madrid with the expert Paloma Pérez Bravo, General Manager of Engel & Völkers.
What is the current situation on luxury property prices in Madrid?
Prices in Madrid have risen by 3.6% in 2016 compared to the average 1.6% increase in Spain. The biggest rises have occurred in middle-class districts, which is a very positive sign of a sustainable recovery. Neighbourhoods like Universidad, Delicias, Lista and Ciudad Jardín, have had double-digit price increases.
With job creation, lower fiscal pressure, low inflation, family inheritance, and net wealth driven mainly by property price appreciation as well as interest rates at their historical lows, we expect figures to increase to 4% in 2017. All the districts are already showing positive signs but uneven growth. Although debt repayment weighs even more heavily than new mortgages, the number of borrowers who are households, SMEs and large companies has grown in recent years, albeit far from the figures in 2010. In addition, the Central Bank notes a relaxation of loan approval criteria to households who want to buy homes or use the money for other purposes. Madrid is the seventh most expensive municipality in Spain with Pozuelo being in the sixth position and Majadahonda in the ninth.
What figures do you expect to see in the luxury real estate sector in Spain for the next few years?
The Spanish economy is immersed in a stable recovery. We expect the sector to continue with an upward trend in our country, driven mainly by the growth in residential demand. Permits for new property construction and increased resales show the dynamism of investment in this sector.
The pillars of recovery are showing: companies are in a better financial situation thus they can take advantage of investment and export opportunities. Families have an increasing ability to spend money and buy property thanks to their income from work and borrowing in the last six years; The banking sector is able to feed growth with new loans.
We expect growth to be sustained at around 3% -4% thanks to the greater control mechanisms.The external factor is somewhat uncertain and there are risks to exports based on trade policy decisions adopted by the US and UK governments.
Is there really a recovery in the Russian market as per reports?
The IMF has noted the Russian economic recovery in 2016 and predicts that the country will exit recession this year, with a growth of 1%. It also seems that the ruble currency has strengthened beyond the devaluation that it experienced last year. As far as we are concerned, it is true that Russian demand has returned to the luxury real estate market, but in practice, there are no significant purchases being made at the moment. Another great world power that announces recovery this year will be Brazil.
What is the main profile of a person interested in luxury property? Is it the same as before or are the needs of customers in this sector changing?
The profile of the luxury buyer in Madrid remains largely national middle-aged entrepreneur or large company managers. Their priority is the property’s location when it comes to buying their home as well as the investment profitability gained in the medium and long term.
The preferred regions by the national buyer who is interested in luxury homes in Madrid remain as the districts of Jerónimos, Recoletos, El Viso and Pozuelo de Alarcón. Although we can not talk about changing the profile, we can say that this group is joining the Spanish expatriates who, in the face of international protectionism and family culture, are preparing their return to Spain. Foreigners, mainly Latin Americans and Europeans, namely British, French, German and Swiss also demand luxury housing.
With regard to the Asian market, what are the requests from the Chinese real estate investor and what aspects should we take into account when directing our real estate offer to that target? What does the Asian client demand when it comes to investing outside his/her country?
The Asian investor is a good negotiator. We must keep in mind that they require a lot of financial and property information to gain confidence before closing deals. As a rule, they tend to opt for new build properties with modern designs in the centre of the capital or in the more premium areas around the city. We anticipate that these clients will be important players in new build property offers and renovation projects in the capital. These renovation projects try to adapt the stately buildings from the late eighteenth and early nineteenth centuries to the needs of the current costumer. They include the most advanced home automation systems, parking with electric recharge systems and of course, they have common areas: heated pool, gym, spa, solarium and children’s play area.
Have you created a division on fincas and will they once again be the object of desire for the wealthy?
At Engel & Völkers, we have observed that fincas are now attracting a large number of rich foreigners and for that reason, we thought that it was important to incorporate them into our portfolio of properties. Our company has international coverage so we can offer this exclusive service to our national property owners. The most sought-after fincas in Spain are equestrian estates, hunting estates, farms, cattle farms and recreational farms. The number of sunny days together with the excellent connection network make our country the ideal place for many northern Europeans.
Who are the customers interested in these types of properties and what do they seek?
Customers interested in this type of property can be categorised into two large groups. The first of them is composed mainly of managers and entrepreneurs residing in Madrid, who are looking for a place for the weekends. The second consists of foreign customers, mainly from northern Europe, Russia, South America and China, who wish to invest in wine, cattle and recreational farming in Spain. We can also include in this second group the North Americans who are interested in hunting grounds and Arabs in equestrian and livestock farms.
With regard to the Middle East, what kind of investments do these countries make in Spain and in what figures?
Middle East investors are currently moving from the coast to inland in search of fincas. These are clients who already know the benefits of our country, its culture and gastronomy so now they seek to extend their real estate assets in large-sized properties that let them practice their hobbies. The great fondness for falconry is well known. This an ancestral sport in the desert countries that currently symbolises luxury. Our country is a great supplier of hawks, whose prices can reach 10,000 euros / per female.
Currently in the International Equestrian Federation ranking, we can find several sheikhs and horse owners competing at international level. Without going any further, King Mohamed VI of Morocco owns a horse that competed in the Rio Olympics. Therefore, it’s no wonder that they seek state-of-the-art facilities for their hawks and horses. We can not disclose the figures in advance, but if we are talking about properties, these are between 5 and 20 million euros.
One of the trends that we are beginning to see in Madrid is the price appreciation in new areas of the city. If I were to invest, which area in Madrid would I choose and why?
The areas adjoining the already known premium zones are a perfect option for investment. As an example; Fuente del Berro, Guindalera, Niño Jesús, Arapiles and Nueva España. Likewise, the peripheral areas, where the economic crisis has made the biggest damage, are perfect options for young couples who want to buy their first home or families who need more space. This is because they offer good prices and vast spaces.
Lastly, how is the demand for luxury housing changing based on sustainability or technology concepts?
Both have been fully incorporated into the luxury housing so that the occupant can personalise their home according to their lifestyle and live in a property that’s integrated with the environment. There are many homes that integrate their own systems with auto power supply. This has made it possible to use home automation for parking and electricity recharging. Solar panels are also an additional factor for property selection.
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