Dear friends,
It’s been exactly a year since the start of the war in Ukraine so it’s a good moment to assess the impact that it has had on the lives of ordinary citizens. Let’s assume that our readers do not hold any Russian Rubles or Ukrainian Hryvnia or any stocks in Russian or Ukrainian companies. In that case, most likely the biggest impact to your wallet is through the price oil and gas. Russia is one of the biggest producers of energy, so unsurprisingly when the EU and the USA imposed sanctions on Russian energy the prices skyrocketed.
The short-term reaction of consumers was easy to see. They cut down on their use of energy, which means use their car less and favour public transport, lower their thermostats in houses and offices, and use their air-conditioning units less frequently. The long-term reactions take more time though and are less easy to spot. For example, we expect more installations of heat pumps, improvements in insulation, and a switch to double-glazing windows.
This coincides with long-term European Union sustainability targets. Several years ago the EU had identified that Real Estate is one of the biggest producers of CO2 emissions. There have been proposals and measures to identify energy-saving renovations and impose them by law. The events last year have accelerated the need for these improvements. The latest proposals at EU-level mean that houses will not be allowed to be rented out unless their energy efficiency is improved. France went even further, implementing laws that forbid any rent increases for below-grade houses since 2021 and a complete ban from renting from 2025 onwards. It is estimated that this legislation will put ~5 million residences out of the market!
But why should investors care? This is where things get interesting for Spanish Real Estate. In Spain, ~84% of residences that have an energy certificate are at the bottom half of energy efficiency. The majority have minimal insulation, no heating, and single-glaze windows; it feels they have as many gaps as Swiss cheese.
This presents a major opportunity. Investors can buy one of these Swiss cheese properties, refurbish it, increase their energy efficiency, and put it back in the rental market. Not only are they guaranteed to secure a rental premium immediately compared to other properties, but in the next couple of years they will see a lot of competition eliminated by the new legislation. It gets even better, as some of the improvements can be subsidized and are also eligible for full tax deduction. A true win-win!
If you can see this opportunity as clearly as we do, reach out to Artemis Assets. We will find you a Swiss cheese property on the cheap and will help you transform it in a high-yield rental asset.
Until the next one!
