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Political Uncertainty Deters Real Estate Investment

31 May 2016 – Expansión

The political uncertainty in Spain is hanging over the real estate sector, which, despite continuing to be active, is not shining with the same splendour that it did in 2015. Specifically, real estate investment during the first quarter of the year exceeded €2,100 million, which represents a 25% decrease with respect to 2015, according to data from CBRE.

The segment most affected by this slowdown was offices, where investment declined by 70% during the first three months of the year, to €180 million. Meanwhile, investment in retail amounted to around €770 million, almost 45% less. By contrast, investment in the logistics sector amounted to €200 million, compared with €80 million in the same period a year earlier. In other sectors – residential and hotels – investment amounted to more than €1,000 million, compared with €885 million during Q1 2015.

Pedro Lacambra, manager at Ibercaja Gestión, explained that the Spanish real estate market is showing signs of a slowdown, which is accentuated in certain business segments, such as offices. The expert said that Socimis account for 40% of all investment in offices, and that they are having to raise new funds to grow and invest in assets. Moreover, he said that the office business requires greater demand for space from existing companies, as well as the appearance of new companies and multinationals arriving in Spain. For Lacambra, the current panorama of political uncertainty does not encourage any of these scenarios.

Meanwhile, Daniel Pingarrón, market strategist at IG, considers that the political uncertainty is weighing down more on the Socimis and real estate companies than on players in other sectors. “ The stock exchanges and financial markets are more globalised and depend a lot less on politics and local factors. By contrast, the real estate sector is more sensitive, as we have seen with Operación Chamartín and Operación Campamento”.

In this sense, the analyst thinks that some investors are waiting for the uncertainty surrounding the formation of the future Government to be resolved before entering Spain.

Taxation of the Socimis

The analyst at Selfbank, Victoria Torres, explains that the political uncertainty that currently exists in Spain is one of the factors that is significantly affecting the real estate sector, which is very sensitive to the legislation in force. “There is a fear that a change in Government could increase the tax charges for Socimis. For that reason, we are not seeing any massive sales, but rather defensive moves to reduce positions until after the General Election”, explains Torres.

Torres thinks that these companies are helping to boost a depressed sector thanks to the tax benefits that they enjoy, amongst other reasons. Socimis pay Corporation Tax at a special rate of 0%, receive a 95% rebate on Stamp Duty (AJD) and Property Transfer Tax (ITP) on capital gains, and do not retain the dividends distributed to their shareholders, which include both individuals and corporations.

For Torres, the new concerns over the sector come at a key moment for the firms, especially Hispania, which is preparing a €231 million capital increase. (…).

Gonzalo Sánchez, analyst at Gesconsult, shares the same view. For him a more or less similar Government would benefit these companies. “Behind the Socimis are overseas investors, who want to have their money where they can see it and to avoid the chance of any nasty surprises”, he added. (…).

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake