Foreign money flows into Spain’s property market

In Barcelona’s genteel Dreta de l’Eixample neighbourhood across from Casa Calvet, an early Antoni Gaudí mansion, workmen are busy renovating a stately turn-of-the-century building. 

The project, managed by local developers Bonavista Developments, is part of a planned €100m investment in Barcelona real estate by London-based Europa Capital. Expected to be finished this year, the 14 luxury apartments with a rooftop pool have already been sold, for prices between €600,000 and €1.85m, all but two to foreign buyers.

Foreign money is driving a recovery in Spain’s property market, a sector that has been the country’s Achilles heel since the real estate bubble burst in 2008 and brought the economy crashing down with it. 

According to Spain’s property registrars society, foreign nationals bought 12.2 per cent of residential properties in the first quarter of 2015, up from 9 per cent in 2006. 

Their impact is most prominent in the luxury market. Home prices fell more than 35 per cent between 2007 and 2013, according to Spain’s statistics bureau. But posh areas popular with foreigners — such as Pedralbes and the Passeig de Gràcia in Barcelona, and Salamanca and Chamberí in Madrid — have already recovered 20 per cent of the lost value, says Patricio Palomar, director of research at CBRE Spain. 

“At the high end — €500,000 and up — it’s primarily being driven by international demand,” says Alex Vaughan, who in 2005 co-founded Lucas Fox, the Barcelona-based luxury estate agent that sold two-thirds of the units in the Bonavista project. Last year, 91 per cent of Lucas Fox’s 126 sales went to foreign buyers.

The demographic of those buyers has shifted over time, Vaughan says, from Europe to the Middle East, Asia, and the US. While the depreciation of the euro has attracted non-Europeans, the collapse of the rouble and tighter rules on currency transfers have kept out some Russians and other investors.

“We’ve seen Americans back,” says Francisco Nathurmal, founder of Bcn Advisors, another high-end Barcelona estate agent founded in 2005. “And the Swiss. The franc has really gone up. They’re buying like there’s no tomorrow.”

Launched in September 2013, a “Golden Visa” scheme that offers residency to foreigners who invest more than €500,000 has also boosted the recovery. Through the end of 2014, 490 visas had been issued to foreign buyers, largely from Russia, China and the Middle East. Vaughan says 5 per cent of his buyers apply for the visa; for Nathurmal, the figure is 15 per cent.

While foreign buyers have driven the high-end residential market, foreign investment funds have had an even bigger impact in the commercial sector. 

According to CBRE Spain, of the €10.2bn invested in commercial real estate in Spain in 2014, half came directly from foreign funds and another €2.5bn came from Socimis — real estate investments that can be traded like shares on financial exchanges — which are heavily funded by foreign investors.

“With their arrival three years ago, opportunistic international funds managers made a market at a time [when] we had hit bottom,” says CBRE Spain’s Palomar.

Until recently, these opportunistic foreign investors concentrated their money on hotels, shopping centres, and snapping up baskets of apartments and bad mortgage loans. 

In 2013, Cerberus Capital Management bought a package of bad loans valued at €574m from Spain’s Liberbank, for example, while Blackstone bought 1,860 Madrid apartments for €125.5m.

Last year, GreenOak Real Estate bought eight shopping centres for €160m and Qatari funds bought Barcelona’s Renaissance and Madrid’s InterContinental Hotels for €78.5m and €60m respectively.

But now foreign investors are looking to take advantage of another turn in the Spanish market — a pick-up in domestic sales.

Spain’s GDP is up 2.7 per cent over the past year and banks have begun to lend again. During the first quarter of 2015, Spanish banks signed nearly a third more mortgages for 27 per cent more capital than during the same period last year, signalling a return of local buyers.

“In the bigger cities we’re seeing more transactions involving local clients,” says Vaughan. “In Barcelona about 25 per cent of our business will be with locals this year. In Madrid and Valencia that’s much higher.”

In light of this shift, Spanish lender Kutxabank announced in December that the US investment firm Lone Star Funds was buying its residential real estate development division, Neinor Homes, for €930m. 

Juan Velayos, the former Global Head of Real Estate Deals at PwC who took over as chief executive of Neinor Homes in March, says that Neinor plans to build 1,000 units this year, mostly primary homes in the €350,000 to €450,000 price range aimed at the local market. 

“Neinor is the first big bet on residential development in Spain since the crisis,” says Velayos. “Two years ago, it was the exact same with retail; foreign funds began to bet on retail at a time when nobody was betting on a rise in consumption.”

Source: Financial Times