The Spanish Banking / Property Opportunity in Brief:
The Spanish Banks:
Burdened with as much as 40 billion euros ($55 billion) of repossessed real estate, they are under increasing pressure to sell as prices fall and investors return to the market. Spanish banks have disclosed their ownership of 180,000 units and 17.2 billion euros of foreclosed properties via earnings reports, websites or third parties. That includes more than 50,000 parking spaces, 10,500 retail outlets and more than 6,000 storage units.
Property sales will increase as Spain’s economy recovers from a five-year economic slump and banks seek to reduce the costs of holding the properties. We estimate Spanish banks’ bad assets to be more than double the amount disclosed by lenders so far and include about 400,000 homes, plots of land and commercial real estate.
The gap between asking prices and bids is narrowing every day, we are advising our entire client base, to enter the market now if they have any interest in this market. We would argue that, given the sheer amount of product available, we foresee a huge amount of bank-owned real estate and non-performing loan portfolios being sold in the coming months. And when it’s gone it’s gone.
Spanish banks acquired the assets after companies and homeowners defaulted during the country’s worst economic slowdown in 50 years. Spain was forced to seek a European bailout for the industry and reduced the number of savings banks to seven from 45. Falling property prices and a recovering economy are sparking renewed investment in Spain, giving lenders a chance to ease the burden of owning so much real estate.
Social change scares most people. But it doesn’t have to – “if you know how to anticipate it”.
Most people lack this skill. We, however, are in a unique position, we are the educated minority who understands how to predict — and benefit from – the coming changes.
Our market analysis allows us to explain how repeating waves of social mood create peaceful eras and turbulent times. How a positive mood induces people to expand their business, dress with flair, buy happy music, and live in peace— and buy property / stocks. It also explains how a negative mood induces us to do the polar opposite.
“Social mood drives all of our collective experiences”. Increasingly, the world’s social scientists and savviest investors / observers know this.
With this in mind, the time to invest in Spanish property in now, far too many investors enter the property market like sheep, blindly following the socioeconomic trends and thus the group. They enter at the top of the market and exit at the bottom; this is complete nonsense and financial suicide. You should invest at the bottom of the market and exit at the top to produce the best ROI, it’s not rocket science.
This market has been growing continuously over the past five years, due to an increase in delinquencies and subsequent foreclosures.
Nine lenders that didn’t receive aid as part of a European bailout of the Spanish banking system last year hold about 52 percent of the real estate taken over in foreclosures. They include Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA and CaixaBank.
So-called REO or real-estate owned properties are those held by entities like banks, governments and insurers after failed foreclosure auctions.
Spanish banks are increasing efforts to sell the residential assets they’ve taken on, prompting bigger price cuts. Repossessed homes in Spain sold for an average discount of 72 percent in 2013, compared with 48.3 percent for all properties sold since 2009.
SAREB, the Spanish bad bank created in 2012 to absorb 50 billion euros of real estate assets from lenders, holds 13.4 percent of the repossessed Spanish real estate. Sareb sold 6,400 properties through November, generating more than 2 billion euros of revenue in its first year.
It sold a controlling stake in a portfolio of 1,000 homes valued at 146 million euros to Grupo Lar, a privately held Spanish developer, and Fortress Investment Group LLC.
“The change in sentiment about investing in Spanish real estate and the amount of cash international investors have to spend here will mean that banks will find buyers for some of these assets. An “overwhelming” amount of property is still being taken over by lenders.
The banks are becoming desperate to remove repossessed properties from their books as their costs spiral. The banks are legally obligated to maintain and ensure that the land and property which they have repossessed is fit to be re-sold and kept serviceable and secure. It must not pose any threat to health and safety. An example of this is Bank-owned land plots, which must have a perimeter fence installed as well as signs identifying the owner and periodic weed killing. No one really talks about land, but there will be an enormous quantity of it taken onto the Banks books shortly.
Other costs to the bank, includes a semi-annual property tax and monthly municipal and community levies, these are “peanuts” compared with the expense of keeping squatters out.
The Nightmare of Squatters:
The process of evicting squatters is long and expensive, that’s what banks really dread, the banks fear squatters above all other issues. Squatters are sometimes families that can’t afford to rent or own and who move into un-protected empty property without permission.
According to a 117-page “Squatting Report” there are 3 million empty homes in Spain or about 100 for each of the 30,000 homeless people. The number of homeless is rocketing in Spain. The country has the euro region’s second highest level of unemployment at 26 percent.
The collapse of Spain’s debt-fueled real estate and construction boom, which represented 18 percent of gross domestic product at its 2007 peak, contributed heavily to the 82.4 billion euros of provisions made by banks in 2012 and the 16.3 billion euros made in the first nine months of 2013. (c) Real Instituto Elcano.
It is site security issues and legal eviction costs at the banks which hurt them far more than the funding and maintenance costs. The sooner they can sell these assets, the quicker they can reverse the curve and obtain liquidity.”
Investors Arrive in 2013:
Investment in Spain by funds, private-equity firms and other financial-services companies totaled 13.9 billion euros in 2013; this is more than double the amount invested in 2012. About 37 percent went to real estate assets and the proportion is expected to increase this year.
Firms including the Blackstone Group LP and Goldman Sachs Group Inc. have been buying real estate in Spain after home prices fell more than 45 percent from their 2007 peak and prime office rents fell more than 40 percent since 2008.
With George Soros, Paulson & Co, entering the market and investing in Property Company Hispania Activos Inmobiliarios and Pacific Investment Management Co. The anchor investor in the initial public offering of La Espana Real Estate Socimi SA, the market has sat up and taken notice of Spain and the lucrative investment opportunities available.
Golden Visa – Residency
The minimum investment is 500.000 € in cash, per application. This application covers the main applicant and his/her family.
The purchase has to be formalized in a public deed, and every movement of funds used shall be justified by legal means, according to anti-laundering money laws.
- Portfolio, one or several properties, with joint price of at least € half a million
- Type, of a residential, touristic, rural, commercial or industrial nature.
- Use, for rent, land to be developed, buildings under construction or decrepit buildings for renovation. Properties with different use can be combined.
There is no requirement that any property is intended for a specific use. Therefore, it is accepted to intend the property for leasing purposes totally or partially, or to use it for business activities of any kind. While maintaining the investment, the management of properties can vary along the time without affecting the permits.
The total investment must be free of liens or encumbrances at least on investments of € 500,000, on purchases over € 500,000, financing charges or encumbrance may exist over this amount.
A loan/mortgage on properties can be used to buy additional properties.
Initial investment equal to or higher than 2 million euro in Spanish government bonds or 1 million, whether it is in stocks or shares in Spanish companies, as well as bank deposits in Spanish banks.
Ownership of Companies
It is accepted that the investment has been made through a legal person domiciled in a territory non considered as a tax haven whenever the natural applicant person has control over such legal person.
Prior to the application for permanent Residency, the investment must have been completed.
The spouse and children under 18, (or older disabled children) may also be included into principal application for permits at the same time or after the principal applicant.
Other administrative requirements:
- Not to reside unlawfully in Spain.
- The investor must be over 18 years old.
- Not to have criminal records in Spain or in the country of residence.
- Not to be listed as unacceptable in Spain.
- To have a public insurance or private health insurance valid in Spain.
- To have enough economic resources for the applicant and his/her family.
- Authorization or visa processing fee.
Types of permit
Visa for investors
This allows to legally living in Spain for at least one year.
Authorization is processed in Diplomatic Missions and Consular Spanish Offices and can be issued for one, two or multiple entries.
Visa applications shall be processed and notified within 10 working days, except in case of applicants subject to prior consultation.
Residency permit for investors
This allows living in Spain for two years, and after that period, it can be renewed for another two years and so on. You can ask for a renewal although you had resided in Spain for less than six months a year.
Processing and granting the mentioned residence corresponds to the Spanish Ministry of Foreign Affairs.
The deadline for giving a resolution will be 20 working days from the submission of the application.
If a negative answer is not issued within the mentioned period, the application shall be considered as accepted.
Long-term residence and Spanish nationality
After five years of continuous residence, you can obtain an unlimited residence permit.
Likewise, once completed five -ten years of residence, Spanish nationality can be requested, this could be accelerated in some circumstances.
In such cases, an effective justification of at least six months of residence shall be provided, (unless due cause exists).
Now is the time to invest in Spanish property, investing in high-quality apartments / villas located in popular areas should generate exceptional yields and a very healthy capital returns now and on into the near future.
With easy access to all areas of Spain from the UK, Spain is a hotbed of interest at the moment, from investor’s world-wide.
With heavy weigh investors and large US Investment Houses entering the market, all the clever money is heading to Spain and her associated islands.
Please do not hesitate to contact H&G if you require our expert advice.
Report by T Taylor LL.B (Hons)
Legal Consultant & Spanish Property Expert.