Investment Funds Are Still Cautious About Buying Land

10 May 2016 – Idealista

International funds are still finding good investment opportunities in Spain, above all assets owned by Sareb and the banks. Their main objectives include achieving double-digit returns in the office, retail and residential markets. Meanwhile, they are still hesitant about throwing themselves whole-heartedly into the purchase of residential land and construction of homes, although they regard those an investments that have a future.

The economic crisis and subsequent decline of the real estate sector attracted opportunistic funds in search of opportunities in Spain. Now it is completely normal to find these, and other types of funds, in the real estate sector. “The funds were looking for the best investment opportunities with the highest, fastest returns”, said Pedro Abellá, Director of the Real Estate team at HIG Capital, during a forum about investment in the real estate market organised as part of SIMA, which ran from 5-8 May.

“The Spanish real state market is more mature and the investors that are arriving now are coming to add value to the assets through their management. They are no longer in such a hurry to divest, but they are still convinced by the high returns”, said Abellá.

The general decrease in prices in the sector during the crisis created investment opportunities for these funds, which included not only opportunistic funds, but also more established players. Over the years, and with the sector well on its way towards normalisation, experts are continuing to see investment opportunities, above when it comes to assets owned by Sareb and the banks.

The commitment to invest in real estate assets is currently concentrated in the office, retail and even residential home segments; land for development is also on the list, but the experts urge caution. “Property development requires another type of investment and generates other kinds of returns for investors. Not all of the funds are willing to bear the risk of property development”, said Gregg Gilbert, Director for Spain at Benson Elliot Capital Management.

“We are accustomed to other types of investments, where profits are obtained quickly. We should be aware of the fact that we will find returns from property developments. But it is still too early for those returns to be very great”, he said.

The funds are committed to providing experience and capital to renew the assets that they are acquiring, above all offices and hotels, where some investment opportunities still exist. “The stock of offices and hotels in Spain is vast, but it has become somewhat out-dated. It is time to review the supply, in the absence of assets at reasonable prices offering the returns being sought”, said Gilbert.

Those funds that do decide to invest in land should not hesitate to join forces with property developers and construction companies to build homes, but according to experts in the real estate sectors, they are focusing on buildable land in the best locations, which ends up being a small investment for the market as a whole. “There is still a lot of land that needs to be developed, but it is not buildable and it will take some time for it to become urban land. But that all depends on the laws applied by each administration”, said Mario Verdyguer, Director of Investments at Solvia.

Original story: Idealista (by David Marrero)

Translation: Carmel Drake