Dear friends,
You might have never heard of Professor Cass Sunstein, but that doesn’t mean that he is a nobody. A professor at Harvard Law School, the most cited law professor in the USA, an advisor to Barak Obama between 2009 and 2012, and an author of many books. His latest book called “Sludge”, was published in 2022 and is tackling the issue of bureaucracy. If you were ever caught in a red tape nightmare, where you need to fill in numerous paper or online forms, stand in lines physically, wait forever for approvals etc., this book tells you why this is happening.
What happens a lot of times when we are confronted with this red tape is that we just give up. When you are looking for a job that has many application steps, when you want to get a visa to travel which requires too much personal info, or when you apply for a permit that has too many forms and requires standing in long queues, many times you just hit eject. The book analyses this phenomenon and goes even further; it turns out red tape can be bad for your health, it can increase costs, and limit opportunities for people who are looking to escape poverty. We all have thought about these effects one way or another, but you might ask what’s the link with Spanish Real Estate?
The last few years Real Estate, globally and not just in Spain, has been a victim of increasing red tape. A series of new laws have been introduced to regulate anything from construction material, refurbishing processes, issuing of permits, insulation, energy consumption, rent regulation. You name anything around building, decorating, and refurbishing a property and we can show you some red tape added in the last 20 years. Undoubtedly a lot of this is for our own good. Buildings are now safer, are made with better material, are healthier to live in, and consume less energy. But there is an unintended consequence.
Cost! The cost of buildings, flats, commercial real estate has gone up by a lot. Researchers in the US have demonstrated that nowadays ~40% of the cost of a property can be attributed to regulation. At Artemis Assets we see that every day on the field. It is almost impossible to find a studio in Barcelona for less than 100K euros (in Valencia for less 70K and in Madrid for less than 120K). Even if it’s a tiny studio, it just doesn’t exist. The reason is demand and regulation. It’s just not economic to build a studio in a city centre for less than 100K euros anymore. And even if it was, it would be snapped up by buyers very fast because it is very rare. The same applies for bigger flats too, the cost of regulation alone has pushed up costs and will continue doing so. Even in a stagnant market, the cost of property will still go up because of regulation.
If you can recognize this trend, please get in touch with us to see which properties will benefit in the coming years. Investing in Real Estate is fun, but if you are early you will also profit from the rising property costs and other macroeconomic trends.
Until the next one!
