Renovations and refurbishments will play a leading role in the housing market

Excerpt from EjePrime, J. García.

Revitalize the market. The ongoing aging of the housing stock in Spain is spurring renovation and rehabilitation activities, thus contributing to the release of a significant number of residential properties into the market, whether for rent or sale, to help alleviate the demand pressure on the limited supply for both leasing and sales.

New construction is quite limited: only a little over 65,000 operations were carried out in all of 2024, compared to 650,000 second-hand transactions, according to figures from the Ministry of Housing and Urban Agenda. Due to the market's inability to generate new housing, this activity closely tied to construction will gain traction in the coming years.

According to experts consulted by EjePrime, this activity will contribute to the market for sale (or to a lesser extent for rent) by introducing new units that until now remained closed due to their poor condition or were in a situation unsuitable for exploitation.

Between 60% and 70% of buildings within Madrid's M-30 have an unfavorable ITE

According to Gonzalo Roca, Senior Associate Acquisitions at UrbanFlip, a company dedicated to house flipping of homes and buildings in Madrid's prime areas, “between 60% and 70% of buildings within the M-30 have an unfavorable Building Technical Inspection (ITE), especially in what could be considered the most traditional areas.” This fact highlights the potential of this business.

From his experience, he points out that while the cost of a home renovation largely depends on both the area where the property is located and the quality of materials used, the average price ranges between 1,200 and 1,300 euros per square meter. However, if it is a property located in a prime area, the budget will range between 2,000 and 3,000 euros per square meter.

A renovation, aside from the cost to the owner, is an opportunity to increase the property's value, whether to sell the asset or make it more attractive for rent. This appreciation in the sale price ranges from 20% to 25%, after deducting the cost of the renovation performed.

The housing market faces the 'Damocles' sword of energy efficiency, another pending issue for a significant number of homes. If until now it was only necessary to have an energy certificate to sell or rent a residence, the European directive will tighten this measure.

83% of the housing stock has an insufficient energy efficiency certificate

From 2030 onward, it will be required that homes have a minimum certification of E (on a scale from A to G, with A being the most efficient), which will encourage renovations aimed at improving insulation and installing more efficient and sustainable systems to achieve this rating, as noted by the association representing the distribution of building and rehabilitation materials (Andimac).

The issue is severe, as according to Sebastián Molinero, Andimac's general secretary, 83% of the housing stock has an insufficient energy efficiency certificate to comply with the directive. This association highlights that this year, about 535,000 homes will turn over 18 years old, making them candidates for renovation.

The community requirement will not stop there, as the European directive aims for the housing market to become energy-efficient, stipulating that by 2033, the label must be reduced to at least level D to operate in the real estate market. Reducing this rating to C, B, or A is harder to achieve due to its significant economic cost, aside from the structural issues that need resolving, according to other industry experts.

Andimac foresees a 7.5% increase in building rehabilitation permits this year, an activity supported by European Funds which, however, have not been enough to boost this market, risking the loss of these funds by 2026.

Subsidies should be provided to homeowner associations for building rehabilitation

For Gonzalo Bernardos, Associate Professor of Economics at the University of Barcelona, the missing European Next Generation Funds are behind the reforms and building rehabilitations. “With the excuse of reducing energy consumption, it could allow and enable homes in bad condition, or even closed, to return to the market in good condition,” he notes.

He advocates for subsidies to be provided to homeowner associations for building rehabilitation. In the case of housing renovation, “the administration should cover the renewal costs to make the property viable for the market,” he adds.

This model, explained to EjePrime, is based on the notion that “the cost incurred by the administration is recuperated through the rents it charges. Once the full cost of the renovation is recouped, the owner would start collecting the rents, with the obligation to allocate the property for rent for fifteen years.” After this period, the owner could choose to continue renting or put the asset up for sale.

The lack of skilled labor is another challenge facing this sector. Similar to construction (where the bursting of the real estate bubble forced a vast number of workers into other fields), the same issue affects professionals needed for renovations and rehabilitations.

Comprehensive building and neighborhood rehabilitation is also a social commitment

The search for carpenters, electricians, and plumbers is becoming complicated, making it difficult to find the necessary professionals in the market, and those available charge very high prices.

From the perspective of Grupo Eureka, a company specializing in comprehensive building and neighborhood rehabilitation, urban regeneration and rehabilitation are not just technical issues but a social commitment that defines the future of cities: “buildings age without adequate maintenance, creating accessibility issues, energy deficiencies, and a progressive deterioration of the environment.”

From their standpoint, the solution to these problems lies in creating coordinated rehabilitation plans, aligning owners, public administrations, private entities, and specialized companies. Therefore, they demand that “administrations must facilitate access to subsidies and financing, while the private sector must assume its role as a driver of change.”