Tag: foreign investors

Latin Americans Look to Acquire Homes in Madrid

21 August 2019

According to a report by Knight Frank, Latin American investors, including buyers from as Venezuela, Colombia and Mexico, are increasingly looking to acquire properties in Madrid’s prime residential market.

The investors, many of whom tend to spend three to six months per year in Spain, look to buy flats that can be used as short-term rentals for the rest of the year. Holiday rentals in Madrid are increasingly sought out by sophisticated buyers who are willing to spend approximately €500,000 to furnish and redecorate the flats.

The trend is even expected to accelerate in the short-to-medium term given the high quality of life and lower cost of living in Spain compared to Europe’s other major capitals.

Original Story: Short Term Rentalz

Adaptation/Translation: Richard D. K. Turner

El Cabanyal Monopolises Foreign Investors’ Purchases in Valencia

28 March 2019 – Valencia Plaza

According to a report published by the German real estate firm Engel & Völkers, the neighbourhood of El Cabanyal was where the most operations were closed by foreign investors in Valencia last year.

The price per square metre in the neighbourhood soared as a result and now amounts to around €3,000/m2-€3,100/m2. In many cases, the purchased properties have been renovated for rental by tourists, given that the  VUT limitations imposed on other areas of the city do not apply in El Cabanyal.

Original story: Valencia Plaza (by Estefanía Pastor)

Translation/Summary: Carmel Drake

Spain’s Large Socimis are not Perturbed by Podemos’s Proposed Tax Legislation

14 October 2018 – La Información

The Socimis, one of the great tax regimes currently booming in our country, suffered a serious blow on Thursday after an agreement was published between PSOE and Podemos to push ahead with the State’s General Budgets. As a result, the Socimis are going to have to pay tax (at a rate of 15%) on any profits that they do not distribute as dividends, in other words, the funds that remain in the companies to increase their capitalisation. But, which companies are going to be most affected? Only the smallest ones.

In recent months, the large real estate companies on the Ibex and the Continuous Stock Market have been distributing significant dividends, in some cases even exceeding their accounting profits by two or three times. Therefore, the new measure will not affect them, given that only undistributed profits will be taxed. By contrast, the small entities that are listed on the Alternative Investment Market – where they have their own segment – barely exceeded the obligatory dividend distribution of 80% of the profits for that type of company in most cases.

If we take Merlin – a giant in the tertiary sector –by way of example. Last year, it obtained a profit of €114.5 million (after discounting the appreciation of its assets) and it dedicated 205% of its profits to dividends. Even high figures were recorded by Colonial, which distributed 267% of its profits to its shareholders, and Lar España, which is listed on the main stock market, and which distributed 236% of its results after taxes to the owners of its shares.

By contrast, the small companies on the MAB complied with the law in a comprehensive way but without distributing such significant figures. Such was the case of AP67, a Socimi whose assets are primarily residential, commercial and office-based, which distributed just over €240,000 of its total profits of €300,000.

Why do the small companies only distribute the legal minimum? Most of the companies listed on this market are owned by a small number of shareholders, normally those who have been with the entity since the beginning and, therefore, they have no commitment to the owners of those shares. In fact, the movement in shares is so small in the majority of cases that the volume is almost nil.

By distributing 80% of their profits as dividends, they pay tax of up to 25% on those earnings, whilst the remaining 20% is posted to reserves and, previously, there was no requirement to pay any tax on that. With this proposal, the money that is not distributed to the shareholders (in other words, that 20%) would be subject to a tax rate of 15%.

For tax experts, these measures may scare off foreign investors, especially funds, which regard Spain as a good opportunity for investing after the framework for Socimis was brought into line with those governing REITs in countries such as France and Germany. Moreover, “other countries have an advantage over Spain going back many years and they offer more beneficial tax frameworks”, something that the new tax will only serve to dent in the Spanish system.

In light of the possible approval of the draft presented on Thursday by Unidos Podemos and PSOE, the Socimis “will distribute all of their profits as dividends to avoid the double taxation of the same money”, said a high-profile tax advisor consulted by La Información.

Original story: La Información (by Lucía Gómez)

Translation: Carmel Drake

CaixaBank: “The Banks Have Lost €150bn Due to ‘Real Estate'”

26 January 2018 – Eje Prime

The banks have lost no less than €150 billion due to real estate. That is according to Juan Antonio Alcaraz, Director General of CaixaBank, speaking on Thursday. Moreover, the director described a panorama that has “changed radically” in the mortgage market, basically because “people no longer think about buying (a home) and, even less so, about taking out a mortgage”, said Alcaraz.

The current situation of the banks with respect to real estate is that of reconstruction. “Our portfolio has recovered somewhat, but it is much smaller than before”, acknowledges the director, who recalls “the years when 900,000 new homes per year were being built in Spain, whereas now just 80,000 p.a. are being constructed”.

In 2017, CaixaBank undertook property developer loan operations worth between €15 billion and €20 billion. The decline in demand for these types of loans from banks has had an impact on the emergence of “new players, which have caused the figure of the property developer loan to disappear for certain vehicles”.

Moreover, at the meeting between professionals in the sector at Madrid’s IESE, Alcaraz recalled that there is still a shortage on the demand-side for the purchase of new build homes in Spanish society: “Three-quarters of the transactions closed in the residential sector involve second-hand homes”. That fact had an impact in 2017 given that Spain’s banks granted “around 60,000 new mortgages”, much fewer than in the past.

In terms of the emergence of real estate projects, which have been booming in recent years with the arrival of new property developers, the CaixaBank representative says that “there is not a single project that has not been performed for lack of financing”, although he clarifies: “The problem is what type of projects we are talking about and what is being financed”.

“On the stock market, there is space for many more companies in the sector”. Having recently arrived from London, where he works as a Director of Real Estate Investments for the bank Crédit Suisse, Jaime Riera spoke about overseas funds, the largest investors in the Spanish property market. “The whole world understands that it is a cyclical sector and that, leaving aside the recent political events, there is consensus over the strong performance of the real estate business”, said Riera. Nevertheless, the executive has diagnosed “less potential for transactions in the retail sector”.

Another established connoisseur of the British market, Fernando Bautista, European Director of Real Estate Investment at Citi, highlighted at the same meeting that the weight of the real estate sector on the British stock exchange “is much greater than on the Spanish stock market”. For that reason, and after recalling that “without Anglo-Saxon demand, we would not be talking about the Socimis today, or about Neinor and Aedas”, said that “there is room for lots more companies on the Spanish stock market”.

The legal certainty of the new mortgage law

Drafts are already being prepared by the Government for the processing of a new mortgage law, news that is welcomed by the banks. “A new law would give us the legal certainty that we do not have at the moment”, said Alcaraz, who indicates that “the crisis has generated a very high degree of uncertainty over residential assets and mortgages. That is very harmful to us in economic terms”.

Original story: Eje Prime (by Jabier Izquierdo)

Translation: Carmel Drake

BBVA Sells Most of Real Estate Business to Cerberus for €4bn

29 November 2017 – Reuters

Spain’s BBVA said on Wednesday that it had agreed to sell 80% of its real estate business to US fund Cerberus for €4 billion ($5 billion), showing how investor enthusiasm for Spanish property is reviving.

A burst property bubble in 2008 sent Spain into a downturn that lasted for nearly five years, causing mass unemployment and prompting a more than €40 billion bailout for the country’s banks.

The economy returned to growth in 2013 and has outperformed the rest of Europe since then, helping to revive residential construction as house prices pick up, which has started to attract foreign investors back into the market.

The BBVA real estate assets included in the deal have a gross book value of some €13 billion, Spain’s second-largest bank said in a statement.

BBVA said the whole portfolio was valued at €5 billion, with the price involving a discount of 61.5%, in line with the coverage ratio for its foreclosed assets.

As at the end of September, BBVA had a non-core real estate property portfolio with a gross value of around €17.8 billion, of which the bulk were foreclosed assets worth around €11.9 billion.

The deal is the largest since Santander sold control of property worth €30 billion to the US investor Blackstone Group in August.

Santander sold its portfolio at a net value of €10 billion after a discount of around 66%.

The rebound in the property market has also allowed Spanish banks to tackle toxic balance sheets faster than rivals in Italy. Banks in Europe are under pressure to reduce soured loans after new guidelines on this from the European Central Bank announced last month.

Analysts at broker Keefe, Bruyette & Woods viewed the transaction as a positive step towards reducing BBVA’s non-performing assets ratio (non-performing loans and foreclosed assets) from 7.2% to 4.5%.

BBVA’s shares were up 1.94% at 1150 GMT, compared with a rise of 1.6% on the European STOXX banking index SX7P.

At a group level, BBVA has non-performing assets worth around €33 billion on its balance sheet – of which around €25 billion are in Spain.

Since 2015, BBVA’s real estate business has generated losses of €1.37 billion.

BBVA said it would retain control of 20% of the real estate portfolio, which it said would be exclusively managed by Cerberus’s Haya Real Estate.

The bank said the deal was not expected to have a significant impact on profits and would have a slightly positive impact on the fully loaded core tier 1 capital ratio (CET1), a measure of financial strength.

It also said that once the transaction was completed in the second half of 2018, BBVA would have the lowest relative real estate exposure among the main Spanish financial institutions.

Original story: Reuters

Translation: Carmel Drake

 

Socimis Fear Rise Of Left-Wing Coalition, Unidos Podemos

26 May 2016 – El Economista

Since 9 May 2016, when the political leaders of Podemos, Pablo Iglesias (pictured above, right), and Izquierda Unida, Alberto Garzón (pictured above, left), announced their intention to stand together in the upcoming General Election on 26 June, the possibilities of them beating the Socialist Party and, even, forming a Government, have increased considerably (the D’Hondt electoral law penalises minority groups).

The fact that Unidos Podemos has become a real option, according to the latest polls, is being felt on the stock exchange in sectors such as real estate. The Socimis have seen an average decrease in their share prices of 1.5% since 10 May, which represents a difference of 3.6 percentage points with respect to the Ibex 35, which has risen by 1.6% during the same period.

In its election manifesto, the purple party – which now has the support of IU – proposes reforming the tax regime for Socimis (as well as for the Sicavs). The real estate vehicles are currently exempt from paying Corporation Tax, provided they fulfil certain requirements, such as distributing 80% of their net profits as dividends.

“What it (the regime) does is raise the taxation (liability) up to the shareholders. They bear the taxation through their remuneration in the form of capital income (provided their share stakes exceed 5%), says Ana Hernández, an expert in Socimis.

Merlin Properties, the largest Socimi in the market, with a market capitalisation of €3,100 million (more than twice the size of the second largest firm, Hispania), is suffering more than most from the downward trend. Within the last month, short positions of the company’s shares have almost tripled, from representing 0.4% to 1.15% on 13 May, according to data prepared by the CNMV. Meanwhile, its share value had decreased by 20% since the last General Election was held on 20 December, more than double the 8% drop that the Ibex 35 has seen during the same period.

Concern amongst investors

“There is noise (in the market)”, acknowledged sources in the sector, although “maybe it is excessive”. (…).

“Spain is an attractive country for real estate investment” said Jesús Amador, analyst at Bankinter, who recognises, nevertheless, that the latest “initiatives” motivated by Town Halls close to Podemos “may influence” the investments made by the Public Administration, following “the cuts to investment for Operación Chamartín, the controversy with Plaza de España and the problems in Barcelona”. (…).

The left-wing coalition proposes a minimum tax rate for Companies of 15%, which, in the absence of more data, would also become the future tax rate for the Socimis. “If they make the work more complicated”, said the President of one Spanish firm, “they will kill many of them off”.

Original story: El Economista (by Laura de la Quintana)

Translation: Carmel Drake

The RE Sector Attracts Overseas Investors Once More

12 April 2016 – Cinco Días

(…) Overseas capital is focusing on the property market once again. And Spain is one of the main European markets for offices, hotels and logistics. Madrid and Barcelona are leading the charge and the Socimis at the forefront of the revitalisation of the market. (…)

According to data from the Foreign Investment Register, published by the Ministry of Finance, the construction sector and real estate-related activities secured almost €7,700 million of direct foreign investment in 2015, i.e. 34.5% of the total. As such, one out of every three euros of international funds received by the Spanish economy last year was invested in the property sector.

Productive foreign investment (that which generates activity and employment) grew for the third consecutive year, to close 2015 with an increase of 11%, to €21,724 million. Of that amount, €4,706 million, i.e. 21.7%, was allocated to the construction of residential buildings and property development, compared with €1,762 million in 2014….Meanwhile, real estate-related activities (sales, purchases and rentals) accounted for 13.8% of the total, i.e. €2,992 million. (…).

In the context of this new activity, the Socimis have emerged as the main supporters of the market. The large Socimis experienced a real boom in 2015, when they flooded the MAB with their stock exchange debuts and came close to tripling their profits, which rose from €89.5 million in 2014 to €251.2 million last year, according to data from the CNMV.

Within the last year, the four largest Socimis (Merlin Properties – which has been listed on the Ibex 35 since December -, Hispania – thanks to its partnership with Barceló -, Lar España and Axiare Patrimonio) have doubled the value of the properties they own, to more than €9,200 million in total. (…).

The Socimis accounted for 41% of all funds invested in the purchase of real estate assets in 2015 – they spent €5,237 million on asset transactions. In this way, the increase in the volume of their investments amounted to 129%, in particular due to Merlin’s purchase of Testa for almost €1,800 million.

Wealthy individuals and several international funds have invested fully in these investment vehicles, attracted by the low prices in the sector and the tax advantages on offer (Socimis are exempt from paying corporation tax). The Qatar sovereign fund is trying to become the largest shareholder in Colonial; it now owns almost 30% of the Catalan real estate company.

George Soros has strengthened his commitment to Hispania, in which the millionaire John Paulson holds a stake of almost 10%. Carlos Slim controls Realia…Amancio Ortega, with his investment arm Pontegadea, now manages a very interesting and diverse asset portfolio.

The experts agree that the sector has left behind the turbulent times that it experienced following the burst of the real estate bubble. It is undergoing a period of normalisation and stabilisation – albeit a long way from its pre-crisis levels – and it is facing a new environment, with sustainable growth, in a market that is more mature and more professional.

Original story: Cinco Días (by Pablo Pico)

Translation: Carmel Drake

Marbella, The Most Sought-After Spanish Real Estate Market

3 February 2016 – El Mundo

All the agents of the Spanish real estate market agree on stating that 2016 will be the year for the real estate recovery to settle down completely in Spain. One of the markets that reflect so perfectly is Marbella (Malaga), where an increase in the number of operations involving luxury properties has been observed, as declared by Lucas Fox, a real-estate agency specialised in top-quality market.

According to the Association of Architecs of Malaga, in 2015 492 planning permissions were authorised in Marbella. This town has presented a new-work property demand that exceeds supply.

Such new luxury dwellings are the most wanted, and most of them get sold in few months after release. Lucas Fox Marbella sale prices were positioned around 3.5 million Euros in 2015. Their most significant sale was to a US purchaser who bought a 12.5 million-Euro property in the exclusive residential area La Zagaleta.

And Marbella still remains one of the most appealing Spanish markets, particularly for the foreign investor. According to Stephen Lahiri, director of Lucas Fox Marbella, this destination “remains to be a favourite for many customers from the north of Europe, specially United Kingdom, Benelux and Scandinavia.” This reflects on the increase of foreign purchasers, whose profile is changing, since “there are ever younger and focus even more on lifestyle, design and quality”, adds Lahiri.

Lucas Fox opens new branch due to growing demand

As a response to such property demand resurgence in this popular Spanish area, Lucas Fox has recently inaugurated its sixth Property Lounge in the luxury district of Nueva Andalucia. The office will operate in luxury areas in Marbella and the surroundings regions, in addition to emerging zones such as Estepona and Benahavís.

“Since its conceiving in 2013, Lucas Fox Marbella has turned into an essential part of overall business,” adds Lahiri. “Our new Property Lounge reflects the need to place the good-quality property demand resurgence in this popular location in Spain,” he states.

Original story: El Mundo

Translation: Aura Ree

CaixaBank Considers Selling 1,000 Homes To Overseas Funds

11 March 2015 – Expansión

‘Project Eurostars’ / The Catalan group is sounding out investors to assess their interest in the portfolio, which mainly comprises homes on Spanish coast.

The Spanish bank wants to widen the ‘drain’ through which it is offloading property from its balance sheet. As well as leveraging on the intense activity in their sales networks, financial institutions are looking to take advantage of the interest shown by overseas funds by packaging up batches of homes. One of the first groups to join this trend is CaixaBank, which has been sounding out the market in recent weeks regarding the sale of a portfolio of 1,000 homes known as Project Eurostars; Expansión has had access to the corresponding sales prospectus.

The group chaired by Isidro Fainé (pictured above) has handed over the management of this transaction, whose information was first distributed to funds at the end of February, to the real estate consultant JLL. According to the timeline proposed initially, investors should have submitted their non-binding offers yesterday and the process should close by the end of the month.

The Eurostars portfolio comprises 1,091 real estate assets, with an estimated combined value of €103 million. The majority of the portfolio is made up of 807 homes, primarily located on the Mediterranean coast, with an average value of €122,000. The portfolio also includes 250 parking spaces, 26 store-rooms and 5 shops.

The homes are concentrated in Barcelona, Tarragona, Valencia, Alicante, Granada, Cádiz, Navarra and Tenerife.

In the information that has been distributed, the advisor JLL highlights two key features that it hopes will appeal to foreign investors: the improvement in the real estate market, with an 18% increase in (the volume of) house sales between 2013 and 2014; together with “the positive economic outlook and increasing volume of investment”, with investors allocating €23,000 million to Spanish property in 2014.

The homes to be sold are currently held on the balance sheet of the Building Centre, a subsidiary of CaixaBank, after being foreclosed.

The group sold 13,794 properties in 2014, i.e. 27% more than in 2013 and the volume of foreclosed assets increased by 12%, to reach almost €15,000 million in gross terms.

Original story: Expansión (by Jorge Zuloaga)

Translation: Carmel Drake

Britons Buy Homes In Spain, Driven By Strong Pound

5 March 2015 – El Economista

The strength of the British pound makes (house) purchases in Spain more affordable.

Low returns on deposits (at home) encourages Britons to seek alternative investments.

Sun, financial repression and low prices. This perfect cocktail is converting Britons into the main buyers of homes in Spain, especially in areas near the beach. That is because, in addition to the traditional appeal of the coast, Britons are now facing poor returns on their savings at home, due to measures taken by the Bank of England, and because they expect to see a recovery in the real estate sector in Spain. The appreciation of the pound against the euro makes the investment even more affordable for the average Brit, who is also seeing prices in his own country year on year.

An example is Londoner Barry Leverington, who thinks that his money is better off in a Spanish home than it would be earning next to nothing in a British savings account. The bank employee, aged 33 years old, is looking at properties in the Mazarrón Country Club, in Murcia, where two-bedroom villas cost as little as €75,000.

“Anyone who has some capital can buy in Spain, with almost no mortgage, and there is potential for prices to rise”, explains Mr Leverington in a telephone interview. “I grouped together some savings, and with the current low interest rates, I realised they were dormant, not doing anything”.

Foreigners return to Spain

Mr Leverington is not the only one. Foreigner buyers are returning to the Spanish real estate market, attracted by economic growth that exceeds the rates in most of the rest of Europe and by the signs that prices are bottoming out after years of decreases. In fact, sales of homes to foreigners accounted for 13.9% of total sales in the fourth quarter of 2014, a new record.

Britons are the biggest foreign investors, because the zero interest rates on savings accounts (at home) and the prospects for rising house prices in Spain mean that keeping their money in their own country is a much less attractive option.

In total, foreigners invested €6,050 million in Spanish properties during the first nine months of last year, 30% more than during the same period in 2013, according to data from the Ministry of Development. The 40,338 homes purchased represented an increase of 27% with respect to the same period a year before, with Valencia, Andalucía and Cataluña topping the list as the favourite destinations for foreign purchasers.

Interest from overseas investors is increasing after many left scarred, following the collapse of the Spanish real estate market with the onset of the global financial crisis and the burst of the local property bubble. The legacy from this collapse is a stock of more than 1 million homes, many of them in the South and East of the country, in areas very popular with Britons and Europeans.

House prices have also suffered a corresponding crash, having fallen by 42% since their peak in 2007, although in coastal areas, some properties have lost up to 50% of their value, according to estimates from the property appraiser, Tinsa. Nevertheless, it seems that the trend has changed, as the rate of decrease slowed from 9% in 2013 to 3% last year.

Deposits with no returns

The Bank of England has maintained interest rates at a historical low of 0.5% since 2009, which has impacted the interest rates offered by banks on British savings. A financial repression, which is making Britons look for alternatives for their savings, and from there Spanish property looks like a good option.

In addition, it is becoming increasingly expensive to invest in homes in the United Kingdom, where prices increased by 25% between December 2007 and December 2014, according to the Office for National Statistics, led by London, where prices increased by 18% last year alone.

Moreover, the recent increase in the value of the pound against the euro, which has appreciated by 13.5% in the last 12 months, means that homes in Spain are even cheaper for the Brits. This is an important effect to consider, according to the real estate expert José Luis Ruiz Bartolomé, “when something is gifted, it is even more attractive than when you purchase it with a strong currency”.

“People like me want to achieve some kind of return on their savings and they won’t get very far in the real estate market in the UK at the moment”, says Mr Leverington. “Properties in Spain are currently under-valued. It is a win-win situation for everyone”.

Spaniards are also returning to the market, although at a slower rate. The purchase of homes by Spaniards increased slightly by 2.2% in 2014 to reach 319,389 properties, the first increase since 2010, according to date from INE. A ray of light for the sector, although it is still a long way from the highs of 2006, when 955,186 homes changed hands.

Marbella, at its peak

Another symptom of the improvement is that despite the (housing) stock, cranes have reappeared in some areas of major cities and on the coast. Darío Fernández, from the consultancy Jones Lang LaSalle, explains that “we are seeing demand for primary residences from Spaniards in Madrid and Barcelona, and demand for second homes from foreigners in coastal regions. People are confident that the economic risks have disappeared, and see that prices are still very low”.

In fact, in some areas, such as Marbella, demand is so high that international funds are partnering up with local players to buy land and build new homes, adds Fernández. Currently, there are 400 homes under construction in the Malagan town, the highest number in the last six years.

Mr Leverington, the London bank employee, is going to travel to Murcia in June to get to know the area, and if he finds a property he likes, he will buy it. “I have already spoken to some estate agents, I don’t want to wait much longer, because as soon as there is any good news, the market will recover and I don’t want to miss out”.

Original story: El Economista

Translation: Carmel Drake