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Investors' big appetite for property and renovation projects in Madrid

  • Engel & Völkers has found that the supply of these real estate assets is insufficient to meet demand, which as a result pushes up their prices

  • Record figures: an eight-storey building in El Viso sold within a month

  • The flipping trend in the capital: investors can obtain returns of up to 20%

There is no stopping the investors' appetite for property and renovation buildings in Madrid. If 2016 was the year of the takeoff for the construction of real estate developments, 2017 will be the year of real estate renovation. The consolidation of the upward trend in the number of permits for residential construction leaves no room for doubt, especially after a positive chain of three consecutive years.

According to data from the Ministry of Development, in the first two months of the year, approved permits for new construction and renovation of residential buildings in Spain was a total of 12,779 units, an increase of 20.3% compared to the same period in 2016. This growth centred in the great Spanish cities, with Barcelona and Madrid leading the way.

"The scarcity of land to build on and the changing needs of those who want to live in the centre of the capital in modern properties and with better services, have made renovation projects a key segment for investors and sellers," says Paloma Pérez Bravo, general director Of Engel & Völkers Madrid.

This situation, together with the high volume of buildings that require extensive renovation, provides the opportunity for investment in such projects. Pérez Bravo estimates that by the end of the year, the one hundred buildings that are currently being marketed in the centre of Madrid "will multiply by two".

The most sought-after 'prime' areas

The American, English and German investors are, along with the wealthy Latin Americans, the most active investors in this type of project in recent months. All of them, although attracted by the gradual recovery of the Spanish real estate market, have focused much of their activity in Madrid. Specifically in new build areas around the city and in the prime quarters of the capital.
Although real estate renovation is growing in double digits, the current supply still does not satisfy the high demand for property in the most sought after areas of Madrid. This in turn pushes up the purchase cost of the asset that requires renovation. It is, in fact, the central part of the city where the most demand for properties that require renovation is concentrated on, mainly in the neighbourhoods of Salamanca, Retiro, Chamberí, Centro and Chamartín.

The customer profile for renovation projects can be divided according to the price range. While the national client leads the property deals that are between 500,000 euros and 1 million euros, the international buyers are led by Mexico, Colombia, Venezuela, France and Switzerland, account for 80% of deals that are completed above one million euros.

The interest is so high in some areas that, in recent months, we can speak of record numbers. Among them, it is possible to highlight a building composed of eight properties in El Viso, whose sale managed to complete within a month.

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Flipping properties as a short-term investment

Another investment option within the spectrum of renovation is flipping. This is carried out by "expert investors and the vast majority of architects, who take advantage of their extensive knowledge of the market to buy properties to renovate before selling them at a good price. The flipping trend has grown a lot in the last two years," explains Óscar Larrea, director of New Builds at Engel & Völkers Madrid.

The key is to take advantage of the scarce supply of high quality renovated properties in a time of strong demand and rising prices. In this way, "high yields can be obtained that can oscillate between 10% and 20% in short periods of time ranging from three to six months depending on the type of renovation," Larrea adds.

The best assets for flipping are properties in sought after areas, up and coming neighbourhoods with low property prices, and repossessions from banks. In recent years, the most sought after properties in Madrid are valued between 2,000-3,500 euros / sqm in the most consolidated and prime areas such as Recoletos, Castellana, Justicia and Almagro. In addition to these areas, there are others that are up and coming such as Guindalera, Fuente del Berro, Malasaña and Lavapiés.

Engel & Völkers offers advice on property sales, renovations and the best locations in order to ensure the maximum return on investment. "The tangibility of this type of product makes it one of the safest," says Larrea.

Engel & Völkers at SIMA

The International Real Estate Exhibition in Madrid (SIMA), which will take place from 25th to 28th May in No. 10, IFEMA trade fair, will be attended by Engel & Völkers this year. From the stand 10E42, the German real estate company will show the professionals and the general public the investment opportunities available in the capital as well as in other Spanish cities, including Valencia, Vigo, Santander, San Sebastián and Hondarribia.

Among other activities planned at this event, the human resources team from the German real estate company will give a conference to explain the advantages of becoming an independent consultant. The presentation will take place tomorrow, May 25th, at 11:30 am in SIMA room. Also, the Expansion department will be available to answer any questions about the franchise system of Engel & Völkers.

Engel & Völkers

Génova, 27 - 5th floor
28004 Madrid
+34 91 277 45 00

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