Bubbles and curiosities about housing: Madrid is not that expensive

“Bubbles are like dreams, they inspire until they disappear.” (Anonymous).

The following map, produced by Visual Capitalist and based on data from the Real Estate Bubble Index (Index of bubbles in the real estate sector) of UBSserves as a real estate bubble early warning systemevaluating 25 global cities and ranking them according to their risk.

Europe is home to a number of cities that are at extreme bubble risk, with Frankfurt topping the list this year. The financial center of Germany has seen real home prices increase by 10% per year on average since 2016, the highest rate of any city assessed.

The rest of the cities that are clearly overvalued are (in this order): Toronto, Hong Kong, Munich, Zurich, Vancouver, Stockholm, Paris and Amsterdam. Fortunately, Madrid is reasonably priced:

The rents and house prices in the EU have continued their steady increase in the second quarter of 2021, rising 1.3% and 7.3% respectively compared to the second quarter of 2020.

In this graph of Eurostat, we can verify that, since 2010, rents have increased by 16% and housing by 34%. The largest increases in house prices were recorded in Estonia (+133%) and Luxembourg (+111%). The biggest decreases, in Greece (-28%) and Italy (-13%):

Do you prefer to live in an apartment, in a townhouse or in a chalet? Spain is the second country in Europe where more people live in flats:

In this table of The World Orderit is seen that Spain is above the EU average in terms of the proportion of people living in owned homesonly a quarter of Spaniards live for rent:

And that quarter of Spaniards who pay a monthly rent are in turn the quarters in Europe that suffer the most to meet this cost, since they allocate 37% of their income to it:

The Global Index of Major Cities (Q3 2021) of Knight Frank tracks the movement of residential prices in 46 cities around the world:

Miami it was the city with the highest annual growth rate in the year to September (+26.4%).

– The average annual price growth in the 46 cities analyzed was 9.5%.

– 15% of cities recorded price drops.

– There are 16 cities with double-digit price increases.

Madrid saw its prices rise 2%.

People like to buy real estate (not my case), but the hassle of reforms, maintenance, tenants, etc. the costs are joined when entering and when leaving.

Nothing else to buy an average of 7% is lost in expenses. When selling there is double taxation, because at municipal surplus value is added to the payment of personal income tax. It is true that, with the municipal capital gains reform, it is no longer paid if there are losses, but, even so, the cost of the municipal capital gains represents a reduction in the tax base of personal income tax and not a deduction in the fee, so that the problem is not resolved completely.

Our mindset is save almost exclusively on real estate: In Spain, we invest around 80% of our assets in housing compared to approximately 50% spent by Americans, who invest the other half in financial assets (investment funds, shares, bonds, etc.).

Our financial assets are deposits at 0%. And that the world stock market (I’m not talking about the Ibex 35), despite its greater volatility, always gives much more profitability in the long term than housing (as much as we don’t want to see it).


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