Real Estate Market Report MR-2018-1S by Amat Immobiliaris

Document prepared by:

GuifrĂŠ Homedes Amat @guifre77

Last 2017 all indicators of the rental market had gown significantly and so we thought that 2018 it would be continued but with a moderate growth. We also forecasted that there would be more offer in the market and that it would work as a balance but we expect that it is more likely to happen in 2019. What is the real situation? This 1st semester of 2018 we have been surprised by some aspects that have been anticipated already for a few months and, as usual, Barcelona city anticipates some of the effects that later on appears in a generalized way in the market. All in all, we have already reached the maximum of rental incomes and the offer begins to normalize.

RENT - Contracts and offers Amat Immobiliaris Data It we take a look to 1st semester data, we have done a 5% less of contracts than in the same term last year 2017. In previous years we have always said that the main reason of signing less contracts was due to the lack of offer. This 2018 we don’t think this way anymore, there are more important reasons such as, for instance, a feeling of reaching the maximum of rental incomes in some areas, which has slowed the market.

THE OFFER HAS BEEN STABLISHED OR INCREASED IN ALL OUR OFFICES

properties bought by investors, or the rental properties left by the buyers who now occupy the new projects. On top of that the downward repositioning of the rental income of some properties is added since they were overvalued according to the market prices of 2017. In Barcelona this analysis is more complex because the market, either rent and resale, is substantively influenced by the foreign demand of touristic rental and short term rental. Due to this situation although being the first market of being recovered after the crisis, the link between delivering brand new projects and the number of freed properties designated to long term rental is not that direct. Towards the end of 2018 and the first quarter of 2019, we have detected that in Barcelona a significant number of properties currently rented in a long term will be free, since their current occupants will occupy new projects delivered in the first crown of the city, but we do not have the certainty that it will be designated as a traditional rent. Apart from the utility and looking at the official statistics of Sant Cugat del Vallès and Barcelona, the percentage of new buildings delivered related to the initial housing census, in Sant Cugat it is 5 times larger than in Barcelona. If we add a much more determined use, the impact on the rental market is much more significant. In Sant Just Desvern and its surroundings has been an offer improvement although it is slightly below in compared to 2017 related to number of contracts. In this filed we do expect significant changes in 2019 since many brand new properties will be delivered during the first semester of next year and some significant projects will be only for rent purpose.

As can be seen in the graphic, we have done lees contracts in our Barcelona and Sant Just Desvern offices whereas in Sant Cugat have been done more. In general, the offer has been stablished or increased in all our offices.

MANY TENANTS LEAVE BEFORE THE CONTRACT EXPIRATION DATE

Another graphic that shows this trend is the following: Comparing in New Contracts, Average Offer, Renewals and Resignations. As can be seen, Renovations continue to grow but resignations have also grown a lot.

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RENT Amat Immobiliaris Data

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In Sant Cugat we already knew that the offer would improve since it was one of the first markets to recover after the crisis and, therefore, since the beginning of this year some important new construction projects that where built two years ago have begun to be delivered. As a result, new properties have emerged on the rental market either new

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One fact that is not taken into a count enough is the large percentage of tenants who leave before the end of their contract. It would seem logical to think that in a market with very high prices and little supply, tenants would fulfill the period established in their contracts. In fact, it is so, and the historical maximum of the last years occurred in 2017, perhaps the year that could mean a peak or the stability of a maximum in Rents, where 54% of the contracts completed were because they had come to an end.

Evolution of income repercussion € /sqt /mont h 16 14 12 10 8

This has been the only year where it has exceeded 50%. Even so, stands out that hardly 50% is exceeded in a so adverse environment of the rental market in terms of Offer and Rent. The analysis that must be done linked to this data is to know if people leave either because they have bought or rented another property, or because their economic situation has changed and they can not pay and go back to their parents’ house.

Following this argument we will see how this 2019 is balanced by what we said before: the emergence of significant new offer regarding the fact that many of these new properties in the market will bebrand new and so the Rent will be in a high range. The following graphic shows the evolution of the Rent repercussion in each of our offices. Let’s see the evolution of this indicators in the next months but we forecast that it will be gradually stabilized.

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Sant Cugat

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Sant Just Desvern

Of course, the Administration must ensure that it is reflected in all means (individuals, real estate portals, agencies, ...), not as it happens with the Energy Efficiency Certificate, which today is full of Traditional Agencies, New Online Platforms, Individuals and RealEestate websites that directly advertise real estate without informing of the EEC or showing “in process” perpetually. The Administration should also make the effort to extend the Rental Price Index to more cities especially those in Metropolitan Areas where the pressure of the rental market is higher and therefore, the Index is more useful

Another factor that we clearly noticed in Barcelona is that Rental prices have already reached the top or are already at a level where the potential growth is very low. We are aware that we are still far away from the prices of large European cities, but their limit is closely related to salaries and these have a limited growth, for now.

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In this report we insist in the need to use the Rental Price Index. It is a good tool that reflects well the rental market. Administrations should agree to encourage its use. A simple way to do so would be being required to show it in any kind of publicity of for rent housing in order to compare the rent required with respect to the Índex and so the future tenant could quickly see if a property is above or not the index.

RENT - Prices and Rental Price Index Amat Immobiliaris Data

On the other hand, in both Sant Just Desvern and its surroundings, and in Sant Cugat del Vallès, we have still seen an upward trend in Rents of our rented properties this first semester of 2018. In Sant Cugat it is more pronounced because we have rented an important project of new housing, which have a rent above the average of resale renting housing.

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In front of the increase of the Resignations this year 2018, our analysis is that most of them are due to families that bought and delivered their property. And, secondly, renters that go back to their family houses due to the impossibility to face the rent.

IN BARCELONA RENTAL PRICES HAVE ALREADY REACHED THE TOP

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Real Rent trend vs Rental índex

Real trend Real

Trend medium index Trend higher index Index lower Index average Top index

In the following graphic it could be seen the tendency of this year 2018 which is that the Real Rent is below the Superior Index and closer to the main Index. In 90% of the cases where the Real Rent is above the Superior index, it is new real estate that we have rented.

SALE - Global results and offer Dades d’Amat Immobiliaris In general the sales market is active. This first semester we have sold more than in the same period of the previous year for the third consecutive year. We have grown in number of Operations (12%) and in Volume (2%). As we had anticipated, growth has been more moderate than in previous years. In our case we believe that the difference in growth between Operations and Volume has three main explanations. On one hand, every time we market in areas further away from what was our most natural market; the average marketing price is lower and, on the other hand, in the city of

Barcelona, where the average price is considerably higher, we have not yet noticed a clear recovery of foreign demand, which is what in our case it was investing in real estate of superior price. And, finally, that local demand is very clear about the absolute price limit it can reach, and it is less than what we were used to. In terms of offer we continue with the trend of 2017. We could say that the new works are quite normalized in the Metropolitan Area of Barcelona, although the city itself is very different from its surroundings. And Resale properties are in a medium-low level of offer, perhaps a little better than in 2017, but still very fragmented in many agencies and individuals.

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SALE – Resale prices Amat Immobiliaris Data In the following graphic appears the evolution of impact of resale sales of our offices for each semester. In Barcelona the trend is slightly upwards. With respect to the same period of the previous year, the average impact has been 5% higher, and in relation to the whole 2017, 6%. In the around of the € 400,000 absolute average price is where there is more market activity and where real estate is sold more quickly. In Barcelona city there may be variations due to the properties since the commercialized properties are quite different and in very different areas from each other. In other Amat Immobiliaris offices, the commercialized properties are much more consistent from one quarter to another.

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semester rather weak, but the second semester has been recovering. In terms of impact, this first semester has been, on average, 16% higher than the same period of the previous year and in all 2017. One of the most active markets of Sant Cugat, which is not reflected in these data and of which we are specialists, is the market of plots for family housing construction. It is really difficult to establish an average price and make a comparison since each location and the characteristics of the plot influence the price. But one thing we do have clear, this 2018 has been a leap forward in the marketing of this type of product. In Sant Just Desvern and outskirts the trend is upwards, more moderately than in Sant Cugat, but upwards. The average impact of the first semester of 2018 with respect to 2017, has grown by 3%. Probably, it has been the most consistent and active market in all the areas where we work during this first semester of 2018, both in Resale Properties and in New Construction.

In Sant Cugat del Vallès the trend is clearly upwards. In Sant Cugat this 2018 is been hard to start being the first

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Impact evolution average

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NEW CONSTRUCTION Amat Immobiliaris Data By 2018, the cycles of the first important projects that began after the crisis are beginning to break down. This is an important fact because is needed to turn the wheel to start other projects.

It should be noted that the deliveries carried out this 2018 have been successful and almost all buyers have been able to complete purchases, which indicates job stability and access to financing. It should be pointed out that, at the moment, the projects delivered still have a significant percentage of buyers with a significant level of savings and that the need for financing is lower than what was usual in the real estate sector.

Delivery of keys of the promotion Dalt La Vila (Badalona)

In general, the market is still active, although there are some places where is more difficult to sell a specific property. The main axes of this semester in the New Construction would be the following: The radius where projects start in relation to the city of Barcelona continues to be expanded. Betting for areas with more demand but further away from the city is increasing.

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In areas close to Barcelona and well connected to the city, where new construction has been commercialized in an important way more than two years ago, construction projects have continuity and continue to function.

The buyer profile comes from rent and continues to predominate. This is a first access to housing with an average of 40 years old and mostly local. In Barcelona city we started to market some new projects in the city outskirts in a moderated prices where the main buyer is local, contrary to what happens in other neighbourhoods and city projects. The average repercussions have remained stable or have grown by 3% in the first semester of 2018 compared to 2017 within the same project, a much more moderate behaviour than the previous year. More moderate sales rhythms. From 8-10 flats per month in 2017, to 5-7 flats per month this 2018, on average.

The rest of the year we wait a similar rhythm that is more restrained than last 2 years but even though high.

AMAT LUXURY Amat Immobiliaris Data In general, the Alt standing market is the most stable. The last bad quarter we had in Barcelona in 2017 has not yet fully recovered, at least we have not found a continuity. There are moments when everything seems to speed again, but after a while it loosens once again. In areas such as Sant just Desvern, its surroundings and Sant Cugat del Vallés, the number of operations made has been stable in comparison with 2017. Basically, it is a in need of reform family housing sales market. As we already said, Sant Cugat del Vallés is one of the most attractive plot markets. In this case buyers build their own house instead of reform an existing one. In this case, the location of the plot is a key factor. The Alt Standing rental market is still active, the number of operations have been similar, but in this segment we notice a rent increase compared to last year. As we said before, Barcelona city doesn’t has not just started, the continuity of the foreign investor has not just been consolidated and the buildings of more central neighborhoods are mainly intended for this public. The price factor is being one of the great barriers for the local buyer.

In summary, the real estate market is in good health, but special care must be taken by all its stakeholders to ensure that good health continues!