Spain Real Estate Market Update

The real estate recovery continued during May, with the publication of several sets of positive results, in particular about the residential segment, and the completion of several transactions.

In terms of transaction highlights during May, Banco Sabadell sold a €1,000 million NPL portfolio to Grove and Lindorff. Meanwhile, Fortress completed its withdrawal from the Spanish market as it closed the sale of its recoveries business Geslico to Axactor, a Norwegian investment fund; and Värde finalised its purchase of the residential property developer Aelca, as it seeks to become the largest player in the property development sector in Spain. Activity also increased in other regions, with Juan Luis Gómez-Trénor acquiring the Generali Building in Valencia from the Zriser Group for €30 million and Helvetia completing its sale of the “La Vasco Navarra” building in Pamplona to Fitbox.

Meanwhile, in Madrid, Manuela Carmena’s government published in May revised plans for the development of the land around Chamartín train station in the north of the city. The new plans cut the number of homes to be constructed by 75% (to just 4,600 compared with the 17,000 planned by the property developer (DCN)). Moreover, the mayoress’s team continued to negotiate with the owner of Edificio España, the Chinese group Wanda that owns the property, regarding the plans for its renovation; it seems that Wang Jianlin has lost interest in the project and so is pushing ahead, in parallel, with the process to sell off the building to the highest bidder before the summer – so far, Domo, the Chinese fund Fosum, the Hong-Kong based firm Platinum Estates, the Philippine group Emperador, the US fund Hines and the insurance company Axa have all been cited as potential buyers.

Several organisations announced Q1 2016 results during May. The Notaries, Registrars and consultancy firm Arcano all released statistics about house prices during Q1. The Registrars reported price increases of 6.9% YoY during Q1 2016, whilst the General Council of Notaries announced that the average house price in Spain in March amounted to €1,261/m2. Arcano conducted a study, which revealed that the recovery in the residential segment is now being seen in every autonomous region, regardless of political colour, as well as in both the new and second-hand markets. This is good news for the sector that has seen a somewhat heterogeneous recovery until now.

The number of house sales also increased during Q1 2016, by 9.8% in YoY terms, to reach 99,427 operations. This positive trend was further boosted by data from the Ministry of Public Works and Transport, which showed that the number of housing permits soared by 57% in Q1 to 16,782, the best figure recorded during the first three months of the year since 2011.

The Socimis continued to forge ahead, with the four largest players (Merlin, Hispania, Lar and Axiare) reporting that they almost tripled their profits during Q1 2016 to €73.3 million, compared with €28.8 million in Q1 2015. In addition, Meridia converted its new RE fund into a Socimi, Procisa finalised the IPO of its office Socimi La Finca Business Park and GMP prepared to debut its Socimi on the stock market. At least four other Socimis are expected to make their stock exchange debuts over the next six months and although investors are convinced that Socimis represent a good long-term investment, they are concerned about the new left-wing coalition’s (Unidos Podemos) proposals to reform the tax regime applicable to these companies, given that it would likely put an end to their current tax exempt status.

Following the inconclusive results of the General Election back in December 2015, another round of voting will be held on 26 June 2016, which should put at end to the political uncertainty that has been hanging over the country and its investors for almost six months. In the meantime, local property developers are continuing to team up with international funds; and key players in the real estate market are searching for buyers for several attractive assets, including CaixaBank, which has put 144 hotels up for sale worth €1,000 million and the US investment firm Northwood, which has put the Diagonal Mar shopping centre in Barcelona on the market for €500 million.