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Alfons Hidalgo and Ishaan Nath stand on opposite sides of Barcelona’s real estate finish line.
After a six-month search, Hidalgo has just completed the purchase of a €1.9m four-bedroom duplex penthouse in the city’s central Dreta de l’Eixample neighbourhood, while Nath is still in the early stages of looking for a €4m-€6m house to move his family to from Delhi.
What unites the two is Barcelona’s tight luxury market, recently reawakened in the exit from Covid lockdowns but understocked with housing to meet the demand of wealthy buyers — mostly foreigners — looking for the open space of the Mediterranean city.
“Since people started travelling in April, May, we have had record amounts of sales. It’s gone crazy,” says Francisco Nathurmal, partner at estate agency Bcn Advisors, which represented Hidalgo in his purchase. “Now, the problem is we don’t have the stock that we need, especially on the luxury end around €2m-€3m.”
In Barcelona’s case, however, the limiting factor is not only a pandemic-era housing market in which supply and demand have not returned to equilibrium, but also a series of measures taken by city government to make Barcelona more affordable to locals overwhelmed by tourism. Those measures, instead, may have stunted overall development.
The poster child of that tension is a refurbished tower of high-end flats set to be completed in early 2022 on the intersection of Avinguda Diagonal and Passeig de Gràcia, Barcelona’s equivalent of New York’s 5th Avenue and 57th St.
Capped with Spain’s most expensive apartment, a 650 sq m duplex with Mediterranean views, the tower spent years in development purgatory. Once home to the Barcelona offices of Deutsche Bank, the multinational Cuatrecasas law firm and the city’s German consulate, it was originally expected to become an international-branded luxury hotel.
A local fund, KKH Property Investors bought the tower for €90m in 2014. It then fell into legal limbo for years after Barcelona’s city government flipped from business-friendly regionalists — who had suggested that KKH might consider demolishing the current building and constructing a larger tower for the hotel — to a government led by anti-eviction activist Ada Colau, which in 2015 put a moratorium on new hotel licences that, in early 2017, became a ban on new hotels in the city centre.
“So we changed direction, to be realistic, to Plan B: to convert the building into residential with commercial,” says KKH chair Josep Maria Farré.
Now, the 34 apartments in the tower are about to be finished and sold as Mandarin Oriental Residences, a sign of the expansion of branded luxury developments, common in the US and Middle East, into Europe — and into a city eager for investment but ambivalent about becoming a retreat for the wealthy.
Barcelona’s fraught relationship with hotels and luxury real estate often geared towards foreigners came to the fore in the aftermath of the financial crisis of 2007-08, when a collapse in prices brought a flood of overseas tourists and buyers and priced many locals out of the market.
Mayor Colau was swept into office in 2015 and re-elected four years later in part as a reaction against that flood. In addition to the hotel moratorium her government also passed a regulation in late 2018 to require all developments of more than 600 sq m to set aside 30 per cent of their units for social housing.
Her relationship with developers, already difficult after the hotel moratorium — Emin Capital, which owned the city’s Gherkin-like Agbar Tower, threatened to turn off the tower’s colourful night light show in protest — grew even worse.
The number of applications for construction of housing over 600 sq m fell from 234 in the two months before the 30 per cent rule was passed in December 2018 — as developers aimed to win licenses before the new measure took effect — to 64 in the seven following months, according to Spanish newspaper El País. (Developers specifically objected to the low threshold of 600 sq m, which meant even smaller projects would have to set aside apartments.)
“That underlines why Barcelona has been in a standstill from a development perspective. With all these projects she stopped, it was going to be this amazing city with high-end clients coming in,” says Nathurmal.
Barcelona’s luxury real estate market didn’t come to a complete halt, however. The number of property sales over €1m went from 233 in 2020 to 146 in the first half of 2021, says Pablo Romaní Fournier of Savills (Savills is the sales agent for the Mandarin development).
But the 30 per cent rule had a distortive effect, says Germán Fernández, managing director of Colliers in Barcelona: the market was flooded by new luxury housing licensed right before the measure took effect — Fernández says that in an area he refers to as the “golden square”, developers built 83 new apartments with prices over €1m, leading to price cuts — but since then new supply has come to a halt.
A spokesman for the Barcelona city government says that more than 100 affordable units have been built or are in process because of the 30 per cent rule, but that 500 others were lost because of the delay between announcing the measure and its date it went into effect.
The Mandarin Residences, licensed before the 30 per cent rule, were built in the midst of this conflict. Designed by Barcelona-based architect Carlos Ferrater, the project split the former Deutsche Bank tower in two, creating a lower-slung office and event space, occupied by Seat, the Volkswagen Group’s Spanish brand, with a rooftop park and pool connected by a bridge to the sixth-floor club level in the taller residential tower.
The main 20-storey tower, built in 1961 and remodelled with the white and muted gold facade and clean straight lines characteristic of Mandarin developments, holds 34 apartments starting with 100 sq m one-bedrooms, with prices that range from €2.3m to more than €20m — possibly twice that amount for the 650 sq m duplex penthouse. According to Farré, several apartments have already sold at more than €30,000 per sq m of gross internal area, a record for Spain but far below comparative properties in other international hubs.
“We are selling at a premium in respect to the best apartments of Barcelona but at a big discount to the equivalent units in London, Monte Carlo or New York,” Farré says.
The units, which receive 24-hour in-house Mandarin concierge services, are slated to be ready for move-in by March, and have already seen a number of sales on the first 10 floors, which have been open for presale, Farré says. Spurred by space in one of the few branded residences in Spain — the Four Seasons residences opened in Madrid last year — half of the interested buyers are Spanish, he adds, with the rest split largely between Germans, English, Russians and Americans.
“There are infinite luxury projects in London. If you miss one, another will come tomorrow. But here there is only this project,” Farré says, referring to the top end of the branded residence market.
Not all buyers and sellers in the high-end market object to the aims, or even all the tactics, of Barcelona’s city administration, however, and the city’s advantages have pushed many to look past them.
Ishaan Nath, who heads the European operations of his family’s industrial company Kadimi, which makes steel wire products for the automotive and aerospace industries, studied for his MBA in Barcelona and sees it as “the best city in the world. Great weather, great lifestyle, friendly people, nice culture.”
“It’s a super-underrated international city,” says Nath, 35. “Underrated not from a tourism point of view but from a living point of view. The kind of value in Barcelona isn’t available in other international cities like New York, Paris, London.”
For his part, Nathurmal says that before the Colau administration and the Catalan separatist movement, which hit its high point with a 2017 independence referendum, “we were seeing prices go up so quickly that, I mean, I was happy but every day I would question myself — this doesn’t make sense, even high-end locals won’t be able to live here.”
“The one positive thing is that it slowed down,” he says. “The local market can still live in the city.”
But many are not convinced. “Barcelona is special because I was born here. But it’s getting downgraded,” says Hidalgo, who recently sold the biotech company he co-founded, Infinitec Activos, to the German chemicals company Evonik. “Bigger cities have declined in the past and I can’t accept that that will happen in my city. I think we need other types of people in city hall.”
American developer Lane Auten moved to Barcelona a decade ago and began developing buildings in Barcelona, but soon moved to towns outside the city limits and, in more recent years, to Portugal and Poland.
“After a while you say, ‘I’ll live here and work somewhere else,’” says Auten, founder of ARC Properties. “It’s nice to go and directly speak to people who make decisions and they don’t blame you for anything.”
KKH’s Farré puts the situation simply when asked about future plans in Barcelona, his company’s home. “In Barcelona we don’t have other investments now,” he says. “The changing legislation does not make it easy to make new investments.”
Taxes and fees vary depending on whether a property is a new-build or not and whether it is over or under €1m, but on average buyers can expect to spend about 12.5 per cent of the property price.
Buyers from outside the EU can apply for Spanish residency for themselves and their spouse and dependants via a Golden Visa in property deals of €500,000 and above. All overseas buyers need to register for an NIE — a foreigner’s ID number — at an immigration office.
About 15 per cent of homebuyers in the city of Barcelona come from outside Spain.
What you can buy for . . .
A three-bedroom, two-bathroom Modernist apartment in the Dreta de l’Eixample. The property has been renovated with original features preserved, such as the mouldings in its high ceilings. It is in a listed building that dates from 1910 and has a lift and concierge. Available through Sotheby’s International Realty.
A six-bedroom penthouse in Sant Gervasi-Galvany, a quiet neighbourhood near Turó Park. Spread across two floors, the apartment has 720 sq m of living space including an office/library and home cinema. There is also a 155 sq m terrace. For sale with Lucas Fox/Savills.
A five-bedroom, five-bathroom apartment on Passeig de Gràcia. The building was once the headquarters of La Caixa bank, and outdoor space consists of a 252 sq m marble-floored terrace complete with fountain. On the market with Engel & Völkers.