RE Sector: Are The Mistakes Of The Past Being Repeated?

3 June 2015 – Expansión

Overseas investors are exerting significant buy-side pressure, which is driving up property prices; the experts hope that rental prices will increase accordingly, otherwise another bubble will begin to grow, they fear.

The mass entry of foreign capital into Spain’s real estate market after six years of absolute drought has led to significant changes in the sector, but some (experts) fear that the mistakes of the past may be repeated. At a meeting of experts from the real estate sector, organised by Expansión and KPMG, the speakers agreed that the (economic) cycle has now changed, but they warned against the speed of the price increases in certain segments and the indebtedness of some transactions.

CBRE’s CEO in Spain said that “two years ago, we could not have dreamed of such a rapid recovery”. He added: “From the outside, the investment sector validates that Spain will do its homework and that rental prices will recover, however these rents must increase, since they are the lifeblood of the sector; if not, we will be inflating a new bubble”.

The director of the Masters in RE Consultancy at the University of Barcelona, Gonzalo Bernardos, is more pessimistic. “We are witnessing a new cycle of growth that is going to result in further price rises in Spain; whether that is harmful or not will depend on the financial institution, but I personally have serious doubts as to whether the banks have learned anything”, he said.


By contrast, the partner responsible for Real Estate at KPMG in Spain, Javier López Torres said that “banks are reviewing transactions with tremendous care, they are not managing land any more”. And he confirmed that “in a residential building, for example, the loan to value ratio must not exceed 50%”.

The CEO of Hi Partners, Alejandro Hernández-Puértolas also thinks that “the analysis that banks are currently performing with respect to hotel assets goes beyond their mere value, it is completely different from a few years ago”. He said that “increasingly, there are more sophisticated investors in this segment: it will be an important year for investment by private equity firms, Socimis and private individuals”.

Rebound effect

All of the speakers agreed that there has been a rebound effect in Spain after the investment drought. However, the co-founder of Elix, Jaime Lacasa, is concerned about the debt that is accompanying the investment operations. He thinks that “the banks’ models are too short-termist” and…he considers that many people are practically being forced to invest their money.

The CEO of Colonial, Pere Viñolas, also thinks that “the mistakes of the past will be repeated in the future: significant errors may already be happening in some deals in Spain”, he said. In Madrid, for example, “players are investing in office buildings on the outskirts, at very dubious prices. In general, in the prime areas, property values are now just 30% below the peaks reached in 2007 and the recovery in terms of rental income has not even started yet”.



Martínez-Laguna wanted to point out that the property (ownership) business should be distinguished from the property development business…Lacaso affirmed that in the development sector “the riskiest financing is to developers; if we solve that, then financing to end buyers is not risky”. He also called for “regulation of the development sector..”.

Bernardos thinks that “Spain will be fashionable for a few more years” and also that “the Catalan independence process will crush the office market in Barcelona”.

Original story: Expansión (by Marisa Anglés)

Translation by: Carmel Drake