The rich return to real estate

It is not only the vulture funds invested in assets of Sareb or the Spanish multimillionaires listed in Forbes like Amancio Ortega (place number 3) or like Juan Miguel Vilar Mir (831) that have turned once again to the Spanish real estate. After more than five years ignoring real estate, the country’s owners of great wealth have ordered their asset managers to start searching for attractive properties in order to rebuild their real estate portfolios.

“Since a few months ago, less than a year, our clients are showing interest in buying real estate assets. These are Spanish and foreign owners of great wealth that consider that now is a good moment to enter in this sector after the prices have been corrected during the last years. There is a lot of interest but there are not yet agreements reached in a massive way” explains Santiago Churruca, who is the General Director of the entity of the private bank for great assets Banco Alcalá.

Only two years ago, the owner of great wealth were only occasionally interested in assets of Paseo de Gracia (Barcelona) or of Paseo de la Castellana (Madrid), but the last six months the sense has changed in the market and now they also look for office buildings, or even some more complex assets, like great surfaces before the long-expected improvement in consumerism. There are also some who are investing in farm houses for their personal enjoyment now that the prices are attractive. However, the great owners of wealth continue ignoring high-risk assets, such as the floor and the big industrial premises.

“One year and a half ago, the family offices of the owners of great wealth were not considering this type of investments but now they take important orders to start building real estate portfolios in Spain” Iñigo Susaeta points out, who is the partner and general director of Arcano Wealth Advisors, as well as advisor to owners of great wealth and he believes that “the real estate sector has touched bottom and a tide of investments will be produced towards real estate”

“Every  ´family office´ will go on with its own strategy and the wide range of its investments in this sector is very heterogeneous. But there is optimism for the future that a year ago did not exist because there was a certain concern about the country´s economic development and how that would affect the real estate sector “Jaime Pascual-Sánchez admitted in the Chief Executive Officer of Aguirre Newman.

The optimism with which the great investors are managing things in the sector is opposed to the pessimism of the average buyer who having in mind the consequences of the unemployment and the devaluation of salaries could not find the right moment to consider the purchase of a property.

In this context, the problem always being there since the second half of 2013 is that the investments of the Spanish and foreign owners of great wealth in the real estate are bringing about “divergence of expectations” that could stop the adjustment already in process as  José García Montalvo states who is professor of Economics at Universitat Pompeu Fabra. This means that the sellers who could have adjusted even more the prices now they seem reluctant to do so before the interest of these investors- as reflected through the Media.“The prices have not yet reached at where they should” he warns and calculates that “there is a 15% left, more or less”.

In other markets where the real estate bubble exploded, such as the American or the Irish one, the house prices are again on the rise. In particular, in USA the price are rising again around a 13% and in the rescued Ireland do so a 6%”. But the prices in USA and Ireland fell much more than they did in Spain” García Montalvo points out and for whom is too soon to speak about recovery in the sector. He sums up by telling that this is an illusion.

While the president of the Asociación Empresarial de Gestión (Aegi)  Rafael Rodríguez points out  signs of improvement in very concrete zones of Spain, like Barcelona or the Mediterranean coast, thanks to foreigners –especially Chinese and Russians – whose investments in our country attracted by the good weather and the low prices, kept growing throughout the whole 2013. This is a drop in a whole ocean which is Spain.

The data support his theory. In the third semester for example, the importance of the foreigner house buyer reached at 15,6% of the total, according to the data of the National Institute for Statistics and practically also its magnitude of the first trimester (8,6%). But the sector could not be completely overcome In November 2013, last month with data, the house buying and selling fell to 15,9% , compared to the year before, counting 21.847 transactions, reaching the second lowest number of all records, initiated in 2007.

The credit boom

For Rodriguez, 2012 is not going to be a year of recovery for the real estate sector but either an exercise particularly bad. “Rather a year of transition” he concretes. And the chairman believes in that the horizon will get better in 2015, thanks to the banking credit boom. Without credit there is no hope. But now loans start being announced in TV and are offering “for the first time” since the boom explosion “interesting products” as José Luis Ruiz Bartolomé points out, a specialist in real estate valuations and writer of the book Adiós, Ladrillo, adios.

“The studies service of the big banks (BBVA, Sabadell) went further by saying that this year will be new credit. It does not seem that it will be something impending, considering the low number in loans, but it is possible that inter-annual growths can be achieved during the second half of the year” as he underlines. This growth will be supported by the change of perception about Spain.

The turning point is that the country´s owners of wealth want to take the opportunity to make decisions and to make the best out of the real estate recovery. Traditionally, these Spanish owners have occupied a good place in the investment portfolios with real estate assets and it does not seem that after this crisis that they are willing to go out of business that is profitable for years.

“In Spain, the real estate portfolios were of a greater importance that in the Middle Europe. It would be a wishful thinking that in the future this percentage could be adjusted and more rational so that such high exposure in a cyclical sector could damage again their wealth. It is too soon to foretell it because we are before the return to the real estate” the partner director of Arcano stated.

This appetite to invest in real estate is encouraging the asset managers to think up financial products in accordance with the demand. “In addition to the assets´ sale, we are going to offer the possibility to invest indirectly through real estate funds following the ´private equity´ model and allowing to participate in projects with a minimum investment of 150.000 Euros and profits from 10 to 20%” the general director of Banco Alcalá assures.

Other firms such Aguirre Newman launched funds of funds for their investments outside the country. “The average high level clients found difficulties in investing outside Spain and made a lot of wrong decisions. In order to avoid that, these personalized products offer the possibility to invest with diversification and the service of a local consultant” explains Pascual-Sanchiz.

Meanwhile, the Sociedades Cotizadas Anónimas de Inversión en el Mercado Inmobiliario (Socimis) that have just appeared in Spain are presented as another alternative that might be very successful in the future.