After five years of severe recession and price adjustments to real-estate assets in Spain, there is finally light at the end of the tunnel. This good news in the Spanish real estate market is largely due to key structural modifications that should help the cycle change and increase the appetite of international investors.
2013 began with a big new player in the market, Sareb (wrongly called the "bad bank", but indeed the largest real estate company in Europe with more than €51 billion ($66.1 billion) in assets). Sareb will sell all impaired assets received at discount within 15 years. It has disclosed its business plan, consisting of an accelerated sale strategy for the next five years, during which time it will sell its properties and loans at attractive prices. These sales can be made directly or through the so-called bank asset funds, which are a tax-efficient type of trust benefiting from collective investment fund and securitisation fund features.
Sareb has already placed a first portfolio of €200 million in properties on the market (under the name Project Bull), and this should be a catalyst to stimulate the real estate investment market. The issue is whether financial institutions or Sareb itself will grant funding for some of these transactions, although apparently this will not happen. In general, local banks are not participating and institutional investors should rely on their own financial capabilities. Banks are usually only offering financing for assets acquired from their own asset management companies.
New tax measures were introduced at the end of 2012 and are positive for the real estate market, in both direct or indirect acquisitions. They include: (i) the amendment of article 108 of the Spanish Securities Market Act to give a more tax-efficient approach to indirect acquisitions of real estate through share deals; (ii) the modification of the Socimi regulations, equivalent to Reits; and (iii) changes made to VAT regulations so that in certain transactions subject to this tax, such as transfers of second-hand assets, the acquirer is to charge itself the tax, making VAT financing unnecessary in certain cases.
Finally, the Urban Leases Act was recently modified, with the aim of increasing flexibility in the lease market, based on the principle of freedom to contract.
Despite limited local financing, real estate transactions are increasing. This favourable legal framework for national and foreign investors, together with the availability of attractive opportunities, has made Spain an interesting target again for investors. In other words, where else in Europe can you obtain a 10% yield for a prime office property under lease, plus the upside of increased value in a few years? It may be time to refresh your Spanish contacts.
Silvia Alcoverro and Iñigo de Luisa
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