FT: Spain’s Construction Sector Rises From The Ashes

28 September 2017 – Financial Times

When Juan Velayos left his job at the accountancy firm PwC to become chief executive of Spanish housebuilder Neinor Homes two years ago, some people thought he was crazy.

Construction companies in Spain once built more residential homes every year than the rest of western Europe combined, fuelled by cheap debt. But a 35% slump in prices after the 2007 financial crisis left much of the sector bankrupt.

Spain still has half a million new unsold homes, many in surreal empty cities that have become monuments to a speculative property bubble that brought down the country’s banking sector and the wider economy.

“The markets at the time were sceptical about the opportunity [in Spanish house building],” says Mr Velayos. “They were sceptical about the momentum for residential. They were surprised we were buying land so aggressively.”

But Neinor, created by US private equity group Lone Star in 2014, has become a success story, one of the country’s first residential homebuilders able to rise out of the ashes of the ruined sector and build again.

Six months ago Neinor Homes became the first to float on the Madrid stock exchange, with Lone Star selling 60% of the company, which was valued at €1.3bn. Its share price has risen by 13% since then.

“We knew there was an opportunity because the Spanish economy was growing again and for nearly a decade there had been practically no new residential homes built,” says Mr Velayos.

Neinor served as a catalyst for the whole sector, with others entering the market. Companies such as Aedas, Vía Célere, Aelca and Metrovacesa are also building, giving the sector depth for investors.

“Residential construction activity in Spain is finally back,” says Adolfo Ramirez-Escudero, chief executive of the Spanish arm of real estate service firm CBRE. “The demand is there and companies are building again.”

Many of these companies are also now considering initial public offerings. Two people with knowledge of the deal say that Aedas is considering a listing this year. Aedas declined to comment.

This comes as the wider Spanish property market seems to have turned a corner. House prices fell by 35.2% from 2007 to 2015, according to property site Idealista, but are up by 3% this year and rose by 2% last year.

Analysts say this is set to continue as Spain’s economy continues to grow at about 3% a year — one of the strongest in the eurozone.

“The scarcity of new housing in some places and the impulse of demand, supported by employment growth, point to new price increases,” says Jorge Sicilia, the chief economist of BBVA, the Spanish banking group.

Investment into Spain’s property market has come in stages, starting with international funds run by Goldman Sachs, Cerberus Capital Management and Blackstone, which bought bad loans and apartment portfolios as early as 2013.

This was followed by the creation of real estate investment trusts — known in Spain as Socimi — which shortly afterwards started looking at the commercial property and rental markets.

Four big Spanish Socimis — Axiare, Merlin Properties, Hispania and Lar España — are already up and running. Combined profits for the four groups in the first quarter of 2017 were up 50% from the same period last year.

But the return of the residential building sector on top of commercial suggests that the market is maturing and returning to normal after a decade of crisis that saw big players such as Reyal Urbis and Martinsa Fadesa file for bankruptcy.

“In commercial and residential property, everyone has the same thesis,” says Fernando Ramirez, head of investor relations at Merlin. “Spain is recovering and property is still cheap.”

The return of Spanish construction is good for the wider Spanish economy, particularly job creation. The construction sector once employed more than 2.5m people, compared with just 1m after the crash.

A rise in house prices is also positive for the banking sector, which has benefited from the influx of institutional money that has pushed up the prices of their portfolios of distressed property assets and provided a market to sell.

However, the story is not all positive.

Spain’s biggest listed construction groups such as ACS or Ferrovial are unlikely to benefit from higher property prices, as they are focused on large infrastructure projects, which are still in short supply as the government holds back on spending.

The recovery is also concentrated in big cities such as Madrid, Barcelona and Valencia, as well as the tourist hotspots such as Málaga and the Balearic Islands. In much of more rural Spain, the recovery has not happened.

This is partly due to the overhang of half a million unsold new houses in parts of Spain. “In Madrid and Barcelona, there is nowhere near enough houses and demand is outstripping supply,” says Fernando Encinar, the chief executive of Idealista.

“If you drive 40km from Madrid through to Valdeluz there are still thousands of empty properties and that market is a long way from recovering,” he says.

Mr Velayos adds that while the market is coming back, the country is a long way from the pre-financial crisis boom — adding that the frothy exuberance of those years is unlikely to return.

In effect, the market is developing on a different model from before the financial crisis, with building financed by equity rather than debt. “The days where the builder and the buyer were both 100% debt financed are long gone,” he says.

Original story: Financial Times

Another RE Bubble? S&P Forecast House Price Rises Until 2020

3 August 2017 – Cinco Días

After years of crisis, the Spanish real estate market is now growing again year after year. That is according to analysis prepared by Standard & Poor’s, which estimates that house prices will rise by 4% in 2017 and by 4.5% in 2018, with respect to the previous year.

The report also forecasts a reduction in inflation. Currently, prices are rising at 1.5% p.a. but that figure is expected to decrease to 1.3% in 2018. Moreover, economic growth in Spain is expected to lead to a reduction in unemployment, down to 15.7%. And that percentage is forecast to fall to 13.6% by 2020.

Despite the positive outlook, the risk measurement entity warns of the risk that Brexit, the United Kingdom’s exit from the European Union, could have, given that currently, Brits account for 19% of foreign house buyers in Spain.

House sales are growing to both domestic and international buyers. In 2016, the total volume of transactions rose by 13.7% to reach 404,000 homes sold in Spain. During the 12 months to April 2017, 416,000 homes were sold, up by 11.8%.

Sales to foreigners grew by 13.8% in 2016. In total, 53,500 of the 404,000 homes purchased were transferred into foreign hands. The main buyers were British, who accounted for 19% of purchases by foreigners; followed by the French (8.05%) and Germans (7.69%). Moreover, the report points out that the so-called golden visas, which grant residence permits to those foreigners who invest more than €500,000 in real estate, excluding taxes, have led to an increase in acquisitions by Russian and Asian citizens.

Standard & Poor’s also expects that the European market will continue to grow. The ratings agency forecasts that house prices will rise in many of the neighbouring countries, such as Germany, where they are expected to increase by 6% next year. Nevertheless, in the main countries that the buyers in Spain come from, in other words, the United Kingdom and France, prices are expected to decrease by 1% or remain stable, respectively.

This growth in sales has meant that house prices have not slowed down. According to the real estate appraisal company Tinsa, house prices rose by 3% during the second quarter of 2017 compared to June last year. Currently, according to the same firm, the average price of homes per square metre in June 2017 amounted to €1,245/m2, well below the peaks of 2007 (€2,047.69/m2).

Sources at Standard & Poor’s expect that the Spanish economy will continue to grow in 2017, by 3% for the third consecutive year. The creation of 2 million jobs since 2013 and the increase in exports are the main drivers of confidence that the firm is using to justify the rise in house prices, although it also warns of the need that Spain has to reduce its deficit, which is one of the highest in the Eurozone.

Ultimately, economic growth will be reflected in real estate growth over the next three years. The slow reduction in the stock of housing accumulated during the years of the bubble and the slow, albeit inexorable, rise in interest rates (the first rise is expected to happen in 2019) will limit the rise in house prices. Standard & Poor’s also questions the effect of Brexit on the real estate market.

Original story: Cinco Días (by Fernando Cardona and Eduardo García)

Translation: Carmel Drake

Aina Hospitality Plans To Invest €600M In Second Fund

18 July 2017 – Expansión

Aina Hospitality, the management company that specialises in the hotel sector, and which is driven by the wealth management group Edmund de Rothschild, is preparing a new fund. On 15 September, the company will launch Aina II, which will have an investment capacity of €600 million and which will focus on superior four-star and five-star hotels.

The launch of this second investment vehicle tightens relations between Aina Hospitality and Edmund de Rothschild. Both parties have created a joint company through which they seek to boost investment funds in the hotel sector every three years. “Edmund de Rothschild collaborates with management companies that specialise in different sectors; now we are joining this group of associates”, said the President of the company, Jaime Tàpies.

Aina Hospitality will begin raising funds in September and the process is expected to take a year and a half, with the first window closing in March 2018. The aim is to secure investment of €300 million and to double the capacity through debt financing (leverage).

“The funds that invest in hospitality are usually of an institutional size; we are one of the few funds that provides an opportunity to medium-sized private investors”, said Tàpies. Aina’s first fund established a minimum entry investment of €1 million. No minimum ticket has been set for this new vehicle yet, although it will probably be somewhat higher than that of its predecessor.

The yield on Aina II will amount to around 12% per annum On the other hand, the rental income will contribute 8%, whilst the appreciation in the value of the real estate assets may vary between 3% and 7%. The fund’s life cycle will be seven years, which may be extended by two more years: “That does not mean that all of our investments will remain in the portfolio for the duration. The average life of an operation tends to last for between five and six years”.

The company plans to undertake between 15 and 20 operations and will apply a similar risk policy to that of the previous fund. “We will not invest more than 25% of the fund in a single country or city”, he explained. The company is expanding its radius of operation to 35 cities in Europe, including countries outside of the Eurozone such as the United Kingdom, Switzerland and Scandinavia.

Aina has a special interest in Barcelona and Madrid. “Occupancy rates cannot grow much more, but we do see a lot of potential in terms of property prices”, said Tàpies, who added that demand is continuing to grow by more than supply in both cities. Nevertheless, he said that, nowadays, there are other more interesting cities such as London, Paris, Rome and Milan.

Original story: Expansión (by Gabriel Trindade)

Translation: Carmel Drake

RE Investors Defy The Secessionist Threat & Back Barcelona

13 June 2017 – Expansión

There is no evidence that any real estate investors have revoked their plans to buy in Cataluña because of the sovereignty process. What’s more, in parallel to the secessionist threat, which was launched five years ago, the volume of investment has actually risen, from €450 million (in 2012) to €1,900 million (in 2016).

At the beginning, the funds expressed their concern and warned that their own bylaws prohibited them from investing outside of the Eurozone, and so if Cataluña became independent, they would be forced to withdraw. But their fear of a possible secession has gradually dissipated and the real estate consultants that advise them in their search for assets in Cataluña state that no one has asked about the issue for months (…).

The CEO of Cushman & Wakefield in Spain, Oriol Barrachina, corroborates that in all these years, “not a single operation (…) has failed due to the sovereignty process”. He states that “the economy throws aside all political problems” and Barcelona is growing at the same rate as Madrid, and at an even faster rate in certain segments (…).

The Director of Aguirre Newman in Cataluña, Anna Gener, said that, far from finding investors who are avoiding buying in Barcelona because of the process, she has seen “precisely the opposite trend: real estate operations have been increasingly carried out by international groups”. She explains that “the appetite from foreign funds to invest in Barcelona is increasingly greater and, in fact, the volume of operations is being limited by the shortage of real estate products up for sale: if more assets were to come onto the market, the investment volume would be greater”.

Furthermore, Gener hasn’t detected any impact in terms of the yields demanded either. “The yields at which investment operations are being closed in Barcelona are very similar to those recorded in Madrid”, she said.

In terms of the market of users, at Aguirre Newman, Gener said that “over the last few years, we have not worked with any multi-national company that has wanted to avoid establishing its headquarters in Barcelona for fear of an eventual secession”. The effect has been the opposite: “we have seen a rebound in the number of multi-nationals deciding to establish their headquarters in Barcelona, such as Tesla and Amazon” (…).

Meanwhile, the CEO of JLL in Cataluña, Jordi Guardia, added that the multi-nationals that are establishing their offices in Barcelona and its surrounding areas “are signing contracts with very long timeframes, which undoubtedly indicates a sign of confidence”.

According to Guardia, just like in the investment segment, more operations are not being closed due to the shortage of supply. “No new office buildings have been built for many years and so we now face a significant shortage in terms of availability”, he said. Despite that, very good volumes of office and logistics space are now being leased”.

The warnings from the large international investors regarding their reluctance to invest in a possible independent Cataluña have not only disappeared, they have been turned on their heads. Some of those who warned about the consequences of the secessionist threat a few years ago are now starring in some of the largest investments in Cataluña. Such is the case of the President of Merlin Properties, Ismael Clemente, who warned in 2014 that “the problem with Cataluña was harming the real estate market a lot” –  earlier this year, Merlin acquired Torre Agbar in Barcelona for €142 million.

Original story: Expansión (by Marisa Anglés)

Translation: Carmel Drake

BBVA: House Sales Will Rise By 7% In 2017

11 April 2017 – Ok Diario

According to BBVA, the recovery in the real estate sector in Spain “is really taking hold”. The entity forecasts a 7% increase in property sales in 2017 and that investment in homes will grow by 3.2% during the same period. Meanwhile, it predicts that house prices will rise by 2.5%.

These are the most recent forecasts about the sector for 2017 from BBVA, which highlights that the “positive evolution” of the real estate market in 2016 displayed significant geographical heterogeneity, with Madrid, a large part of the Mediterranean Coast and the two island regions leading the recovery.

The entity said that 2017 will be marked by more moderate economic growth forecasts, of 2.7%, compared with 3.2% in 2016, and positive expectations in terms of property price rises.

In this way, the entity expects residential sales to grow by around 7% this year, and for prices to continue their recovery, with an increase of 2.5% YoY.

The revival of the mortgage market in recent years is helping to fuel growth in residential demand, says BBVA. In fact, new loan operations to households to finance the acquisition of a home increased again in 2016 to reach €37,500 million, up by 5% compared to the previous year.

Similarly, construction is continuing to respond positively to the growth in demand and prices, which is why the real estate sector is expected to generate growth for the economy once again. Investment in housing is expected to increase by 3.2%.

Growth with uncertainty

Nevertheless, BBVA warns that a number of risk factors have been building up in recent months, which could limit the scope and speed of the recovery.

Firstly, it warns that uncertainty persists relating to the outcome of Brexit. In addition to this geopolitical factor in Europe, the potential effects of decisions taken by the new administration in the USA and the increase in energy costs should also be taken into account.

Meanwhile, the increase in inflation in the Eurozone may lead to a change in monetary policy. During 2017, the ECB’s stimuli are expected to decrease, which could lead to an increase in interest rates at the end of 2018. “This increase in financial costs represents a risk for the Spanish economy”, said the entity.

In any case, BBVA highlighted that positive financing conditions, and the strong economic outlook, mean that the real estate sector closed 2016 with 460,000 transactions, up by 13.5% compared to 2016 (…).

Last year, the stock of finished housing continued to decline and prices grew by 1.9% on average, which shows that “the industry responded once again to the boost in demand”. Similarly, the number of building permits grew by almost 30% in 2016 to reach 64,000 permits, to record the third consecutive year of recovery. (…).

Original story: Ok Diario

Translation: Carmel Drake

Eurostat: House Prices Rose By 6.3% In Q1 2016

13 July 2016 – El Mundo

House prices in Spain rose by 6.3% YoY in Q1 2016, which represents the highest increase since Q3 2007, before the burst of the Spanish real estate bubble, according to the most recent data from the EU’s statistics office, Eurostat.

During the fourth quarter of 2015, house prices in Spain rose by 4.3% YoY, i.e. by two tenths less than the YoY increase of 4.5% recorded in Q3 2015.

In this way, the Spanish real estate market has recorded eight consecutive quarters of YoY rises in terms of house prices, after six consecutive years of price decreases.

Compared to the previous quarter, house prices in Spain rose by 1.4%, after remaining stable during the final quarter of 2015, which represents the highest QoQ increase in real estate prices since the second quarter of last year, when they increased by 4.1%.

Across the Eurozone as a whole, house prices rose by 3% YoY during the first quarter of 2016, in other words, by four tenths more than the YoY increase recorded in Q4 2015 and their highest increase since Q1 2008. In quarterly terms, house prices in the Eurozone rose by 0.4% between January and March, after increasing by 0.1% during the previous quarter.

Across the European Union as a whole, prices rose by 4% YoY, compared with an increase of 3.6% during the fourth quarter, whilst the quarterly increase in house prices across the twenty eight countries amounted to 0.7%, i.e. three tenths more than in the previous three months.

Of the countries for which data was available, the highest YoY house price increases were recorded in Hungary (15.2%), Austria (13.4%) and Sweden (12.5%), whilst price decreases were observed in Italy and Cyprus (-1.2% in both cases).

Compared with the previous quarter, the highest increase in house prices was recorded in Hungary (5.2%), followed by Austria (4.2%) and Romania (3.3%), whilst the most significant price decreases were registered in Cyprus (-3.4%) and Malta (-2.8%).

Original story: El Mundo

Translation: Carmel Drake

Eurostat: Spanish House Prices Rose By 4.5% YoY In Q3 2015

21 January 2016 – Cinco Días

The evolution of house prices across the European Union varied significantly between countries during the third quarter of 2015, just as it did between different regions in Spain. In this way, the data published yesterday by Eurostat, the EU’s Office for Statistics, shows that house prices rose by 2.3% on average in the Eurozone and by 3.1% across the EU as a whole, compared with the same period in 2014. If the evolution of house prices is measured with respect to the second quarter of 2015, then they rose by 1.0% on average in the Eurozone and by 1.3% across the EU as a whole.

Spain stands out in the ranking by country, with an average increase of 4.5% between July and September compared with the same period last year. As such, house prices here rose by almost twice the average recorded in countries that share the euro currency. Moreover, that figure represents the greatest increase since the last quarter of 2007. The increase amounted to 0.7% with respect to the previous three months. The highest YoY increases amongst State members during Q3 2015 were recorded in Switzerland (13.7%), Austria (9.3%), Ireland (8.9%) and Denmark (7.2%).

By contrast, the countries that recorded the most significant price decreases were Letonia, with a YoY decline of 7.6%, Croatia (-3.0%), Italy (-2.3%) and France (-1.2%).

Economic recovery

A comparison of the evolution of real estate prices and GDP in the Eurozone, as well as in the rest of the EU, shows that in global terms, houses are currently being sold at higher prices in those countries in which the economic recovery is well underway and where employment is also on the rise.

Moreover, the improvement in access to credit in general terms across the whole of Europe is driving up property sales, such as in the case of Spain, and so the logical result is that prices are also rising. (…).

Other noteworthy statistics include the fact that house prices rose by 5.6% YoY in both the UK and Germany in Q3 2015. (…). Meanwhile, in France and Italy, house prices depreciated by 1.2% and 2.3% YoY in the same period (…).

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake

Strong Pound Makes Spanish Property More Attractive To UK Buyers

26 January 2015 – Murcia Today

Tourism in Spain could also benefit from the weakness of the euro.

Following the announcement on Thursday that the European Central Bank is to inject at least 1.1 trillion euros into the economy of the Eurozone, the reaction on the international currency markets has been to invest in sterling and the US dollar, pushing the UK pound to its highest level against the euro for seven years.

By midday on Friday, one pound was worth 1.34 euros, although it dropped back to 1.31 by close of trading on Friday, meaning that pound-holders’ purchasing power in Spain has increased by 5% since 1 January and by 12% since April last year. At the same time, the euro fell to its lowest rate in eleven years against the dollar.

How the ECB’s “quantitative easing” policy will affect the Spanish economy as a whole will become clear over the next two years, but in the short term, the relative strength of the pound could have two very important consequences.

One of these is that over a short period of time, property in Spain has suddenly become significantly cheaper for buyers from the UK, and it is not unreasonable to imagine that demand may suddenly increase from British buyers in a market which, at least on the Mediterranean coast, already relies heavily on buyers from outside Spain. Coupled with low interest rates, the greater value of the pound means that for most UK nationals, property in Spain is now more affordable than it has been for many years.

At the same time, in a week in which some of the final figures for 2014 in Spain’s tourist sector have been made public, the greater purchasing power of UK residents could lead to further increases in tourist spending by visitors to Spain from the UK after record numbers of foreign visitors came here last year. Flight prices may come down slightly in response to falling fuel costs, and for those whose disposable income is in sterling, visiting Spain and other Eurozone countries is now less of a strain on the pocket than it was a year ago.

It is also good news for those looking to buy property for the first time: Euribor dropped to a record low making borrowing cheaper than ever.

Of course, on the face of it, the fall in the euro is not necessarily good news for Spain, but if the ECB’s intention is to stimulate economic growth in the Eurozone, then the property and tourist sectors of the Spanish economy may be among the first to benefit.

Original story: Murcia Today

Edited by: Carmel Drake