Investment Funds & Socimis Revolutionise RE Sector

26 October 2015 – Expansión

The real estate sector is recovering well. During the first nine months of 2015, purchases of offices, commercial and logistics assets, hotels and residential properties amounted to €10,800 million, representing an increase of 57% compared with the same period last year. After more than five years of severe economic difficulties, the return of investment, at the hands of investment funds and Socimis has breathed a new wave of optimism into the sector.

“After a really tough economic crisis, we were almost in a coma and the arrival of these funds is invigorating the market”, said Juan Antonio Gómez-Pintado, President of the Association for Real Estate Developers in Madrid (‘Asociación de Promotores Inmobiliarios de Madrid’ or Asprima), who together with Rafael González-Cobos, President of Grupo Inmobiliario Ferrocarril and Gecopi; Alberto Fernández-Aller, Corporate Director of Prinex Real Estate; and Manuel del Pozo, Assistant Director of Expansión, were responsible for opening the forum ‘The New Era of the Real Estate Sector in Spain: Investment funds and Socimis’.

The event, organised by the newspaper Expansión, in collaboration with Drago Capital, Gómez-Acebo & Pombo, JLL, Neinor Homes and Merlin Properties, and with Prinex as the technological partner, served to highlight the evolution of the market in recent years and the impact the Socimis have had on the strong investment figures recorded in the sector.

46% of the capital invested in Spain so far this year has come from Socimis, an investment vehicle inspired by the REITs in the USA, first launched in the 1960s, which did not arrive in Spain until 2009. As the Corporate Director of Prinex Real Estate explained, they are “a mechanism that allow us to hold much more open asset portfolios, without any major legal or regulatory obligations and with great tax advantages”.


Moreover, the entry of international capital is also helping to professionalise the sector, as well as to support the recovery of Spanish property developers and real estate companies, hit hard by years of paralysis and lack of investment. “All of the funds coming into Spain are looking for support from companies that already know the environment. They are using their capital to undertake operations with Spanish developers”, said Fernández-Aller. “They generate capital movement, investment and jobs. The Socimis are helping to create a professionalised stock of homes for rent”, added the President of Grupo Inmobiliario Ferrocarril. (…).

Meanwhile, the participants highlighted the threat that political instability poses to the recovery of the real estate sector. One example, they indicated, is Madrid, where all of the major urban planning operations (Canalejas, Chamartín and Edificio España) are currently on hold.

Large cities

The recovery of the real estate market is happening in a very uneven way and, for the time being, is limited to the major cities only, such as Madrid and Barcelona, and some coastal regions. (…).

Meanwhile, Juan Velayos, CEO of Neinor Homes, emphasised the profound transformation that the Spanish real estate market has experienced over the last 18 months and said that he was convinced that the mistakes that led this sector – which accounted for 25% of the country’s GDP at its height – to the brink of disaster, will not be repeated.

“What we are seeing in Spain is an absolute transformation of the industry. I do not think that the banks will let what happened before with the RE bubble happen again. We are not going to see any projects without equity. It is going to be a sector that, for the first time, builds what customers actually want. If we do not understand that (basic premise), then customers are not going to buy homes from us”, concluded Velayos.

Original story: Expansión (by Javier G. Fernández)

Translation: Carmel Drake

Foreign Investment ‘Pulls Up’ House Prices In 8 CCAA

15 April 2015 – El Economista

The housing phoenix is rising from the ashes, but, as yet, it is not soaring with equal force across the whole country. After 2014, which was year zero for the sector after seven years of hard-hitting decreases, the foundations are being laid in 2015 for a new cycle. Whilst in the large cities, such as Madrid and Barcelona, (the recovery) has taken off, fuelled by foreign investment, tit is still weak and flighty in areas with lower demand; nevertheless it is still a recovery.

The revival of the mortgage market, accompanied by an environment of low interest rates, a good overall economic climate and the outlook for growth both in terms of consumption and production, has generated the ideal breeding ground for the real estate sector to return to our economy, although in terms of size it is still well below its pre-crisis levels.

According to data from the National Construction Conference (Conferencia Nacional de la Construcción or CNC), in 2007, construction accounted for around 22% of GDP. Today, it represents approximately 5%. Leaving the excesses of the real estate boom aside, the prudent return of construction activity is important to enable proportional feedback between the Spanish economy and housing.

Where is real estate taking off?

After the hangover of the crisis, the housing sector is starting to record its first price increases. According to Sociedad de Tasación (ST), the average price of new and used homes increased by 3.3% during the first quarter of 2015 to record nine consecutive months of increases. With the latest rise, the (average) price per square metre amounts to €1,316, according to the Trends in the Real Estate Sector report. Nevertheless, the evolution is very uneven across Spain.

The value of properties in eight autonomous communities has increased. Navarra, led the ranking with an increase of 6.7%, followed by the Balearic Islands (6.5%), Valencia (5.7%), the Canary Islands (5.4%), Madrid (3.8%), La Rioja (3%), Andalucía (2.8%) and Extremadura (0.3%).

Fluctuations are still expected

Nevertheless, as Juan Fernández-Aceytuno, CEO of ST, notes, this data should be interpreted with caution, given that it comes in the context of a decrease of around 45% in the price of homes; as such the downward trend has less distance to travel. Moreover, if we focus only on the price of new homes, then the decrease has not bottomed out yet.

All of this, he explains, draws a picture that is characterised by “stabilisation, but with a serrated edge”. In recent months, positive and negative data has been recorded and the distribution of the recovery is uneven. Therefore, although the majority of the experts agree that house prices have bottomed out, it is too early to talk about a full recovery. For that, the CEO of ST says, the figures for the number of transaction and mortgages granted will need to return to the levels last seen in 2001 and 2002. And he adds that those two variables are the ones that are really going to shape the evolution of the real estate sector. “A market the size of Spain should be granting around 750,000 mortgages and closing 800,000 house sales per year”, he says.

Who is buying?

Despite the opening up of the credit market and the improvement in conditions, the level of financing continues to be low and does not stop flowing between families; this brings us back to a position of prudence, says Fernández-Aceytuno. “The stored-up demand will have to be released at some point”, but decisions to buy are still being postponed. Price decreases and greater employment stability may provide a boost for all of those latent buyers.

So, who is behind the increase in the number of house sales? José Luis Ruiz Bartolomé, expert in the real estate sector and author of the book ‘Return, property, return’ (‘Vuelve, ladrillo, vuelve’) explains. After the necessary price decreases, there has been a strong inflow of foreign investment, both by funds as well as individuals, especially in the coastal regions. Moreover, as this expert indicates, more homes are being sold, but “location is becoming very important”.

The outlook, therefore, is that the evolution (of prices) will be very different in some areas than in others. This is confirmed by the report about the residential market in Spain issued by Maxxima REA, which states that 2014 was the turning point for real estate investment in Spain. According to the study by that real estate consultancy firm, transactions to date have been concentrated in Madrid and Barcelona, and have focused on prime assets, whose supply is scarce. As a result, the prices of higher quality assets in better locations have increased.

More properties are being bought and sold

What is undeniable is that the evolution of prices is supporting the revival of house sales. According to the latest statistics from the National Institute of Statistics (INE), house sales increased by 15.5% in February with respect to the same month last year, to reach a total of 29,714, whereby recording six consecutive months of increases.

Another positive statistic, but again, one that needs to put in perspective, since it is still a comparison against minimum real estate activity. In terms of the geographical distribution of house sales, the map is uneven. Whilst sales are soaring in Aragón (49.2%), followed by Madrid (28.4%), Barcelona (23.2%) and the Balearic Islands (21.7%), other regions are suffering from a decrease in the number of house sales, including (-22.7%) and the Canary Islands (-5.5%).

The return of the cranes

(…) Refer to article dated 30 March 2015 for these details.

The risks

In this overall market context, the obvious question is “Is this recovery stable”? All of the experts agree that it is. The change in the cycle is here to stay, but they also call for caution because money is “very easily frightened”, according to Ruiz Bartolomé, who warns against two risks: political instability, with the rise of parties such as Podemos, “which scare off overseas investors” and the danger that Spain becomes complacent and puts the brakes on its structural reforms.

At the Sociedad de Tasación, they are more optimistic in this sense and they believe that the risks of destabilisation are remote. “Not even the electoral calendars will have a direct impact on the market”, explains its CEO. However, any sharp rises in interest rates would impact the recovery, however such a move is highly unlikely, especially given the latest monetary policy measures undertaken by the European Central Bank.

Original story: El Economista (by Silvia Zancajo)

Translation: Carmel Drake