Developing your wealth through property.

In News by redsocks

TT.

H&G’s

Head Boy.

Why H&G?

“We provide our client base and potential
investors with a range of opportunities that are always secured against land or property and have the potential to provide good levels of returns on a mid to long term basis. 

At H&G we bring together private clients and Spanish BMV Bond Syndicates to help you invest in High Yield Residential and Commercial Spanish Property.

High Yield Property Bond investments.

If you’re looking for attractive returns on your investment. H&Gs Syndicated Spanish BMV (Below Market value) Property Bond may just be for you.

It is just one of many options available to our high net worth clients.

The team at H&G has been helping clients to invest in Spanish BMV property for over 20 years.

We believe that our Investment is best suited to professional clients, qualifying high net worth individuals and sophisticated investors.

The H&G currently has access to over manages over £100      million Euros worth of BMV Spanish Investment properties and in the next 6 years we expect your net returns of over 12% after management costs, and excluding capital growth.

Our new Spanish BMV Hotel Investments for 2020 have the ability to give you attractive returns and a well-secured income.

Would you like to develop with us?

We love developingBMV Spanish Hotels as well as the usual residential property. Being proud of them when finished is a priority. Once we’ve identified and fully assessed a potential development opportunity, we bring like-minded clients together.

Each development is then managed by H&G through to completion, with members having regular input at site meetings, normally held on a quarterly basis.

As a member, you’ll have total discretion over how each project progresses. Most of our developments follow a clear path which is agreed at the outset of the project but may vary depending on any planning, market forces etc.

Our role varies depending on each development and will be set out at the onset of the development in a project co-ordination agreement. We have a strong track record of managing the development process from start to finish.

Is anything certain?

What is certain, is that nothing is certain.

In a tech-focused and rapidly changing world; New technology stock is still all the rage. Yawn.

Brexit is making even the sanest of investors a little twitchy, so if nothing can be certain anymore, where do we stick our hard-earned cash in order to make a healthy return and minimize the risks.

Development & Investment Property.

We feel that high yield investments cannot be categorised using historic data. This was always the case in the past of course; but remember, history has a habit of promoting only the winners and disguising the losers.

So, your Investment money should now be concentrated on ‘quality rather than a scattergun approach of quantity with a built-in hedge for failure.

H&G do not reward failure.

Failure is simply unacceptable when it comes to property investment.

At H&G our experienced property experts build investment models for our clients which actually work.

We ask ourselves these questions.

  1. “Would we invest here”?
  2. “Shall we invest some of our own money here”
  3. Do we trust our own judgement?

These are the sort of questions we ask when making a decision on a buying strategy for our clients.

The signs we see in the market nationally &locally are confusing and conflicting at, the moment so we look further afield at all the different sectors, including the Spanish BMV Property InvestmentMarkets.

Spanish Property Market Analysis 2015-2018

It is relatively well known that Spain has had issues with its banking system. That there was a property bubble and it popped several years ago.

Various estimates have been floated as to how much it will cost to resolve the problem. But determining cost is not the only interesting question here.

We want to be able to answer four questions:

  • How much will it cost to resolve the problem?
  • How long will it take to “return to normal”?
  • How will we know when “normal” has been reached?
  • What effects might this process have on Spanish society?

The Bubble

It has been said that during a bubble pop, pricing always returns to its place of origin. This makes sense, as the prices one pays for something, once bubble psychology is removed from the equation, is tied to the actual utility received from having the item. That level is most likely the point at which prices diverged from the norm. Which means that once the market starts moving recovery should be rapid.

So, the first step in determining the cost involves identifying the point of origin of the bubble. Viewing a Spanish property price chart, one might argue that Spain’s bubble started in approximately 2002.

The start date is a relatively arbitrary designation – so we picked a date when the trend of property price increases started to become particularly steep.

Instead of using nominal prices for homes, we considered using real prices – i.e. prices deflated by the CPI (The Consumer Price Index).

The Consumer Price Index (CPI) is the official measure of inflation of consumer prices of the United Kingdom. It is also called the Harmonised Index of Consumer Prices (HICP).

Then we concluded that the inflation that occurred on the way up would most likely be balanced by deflation on the way down. We are not sure this is true, but it’s one of the assumptions which we made.

So where are we?

Doing some quick math on this index provided by the Spanish Ministerio de la Vivienda it appears that home prices are down 27% from the peak.

However, historic anecdotal evidence from 2013 suggests property prices are closer to 35-40% below peak, and recoveries from foreclosure sales by a Spanish bank in 2012 show a 53% recovery rate – a 47% drop.

So let’s say the preceding chart is not telling us the truth or if we’re kind, we can say it lags substantially behind real-time.

Likely instead of 73, it should probably be reading around 60. Operating under the assumption that prices will eventually return to around 45 that says prices are going to be off around 55% from the peak when all is said and done. From a property pricing standpoint, we have another 33% left to go (60 to 45 = 33% drop from here). Perhaps the real price correction ended somewhere in mid-2014.

Totalling the bank loans made in the private sector, Spain created about €1.44 trillion in new bank credit during their bubble phase. [Note: ECB data only goes back to 2003, so I had to estimate the amount of bubble money created in 2002 to be about €100 billion.]

If we assume the ratio of costs will be similar to that of Ireland, 32% of €1.44 trillion ends up being €460 billion – half for capital injections, and a half for the Bad Bank. Totalling the bank loans made in the private sector, Spain created about €1.44 trillion in new bank credit during their bubble phase. [Note: ECB data only goes back to 2003, so I had to estimate the amount of bubble money created in 2002 to be about €100 billion.]

If we assume the ratio of costs will be similar to that of Ireland, 32% of €1.44 trillion ends up being €460 billion – half for capital injections, and a half for the Bad Bank.

To date, Spain has allocated €32 billion to their Bad Bank [Banco Malo] and an as of yet undetermined amount to their bank rescue/capital injection program. To put it mildly, this doesn’t seem like nearly enough.

But is €460 billion the right amount? That’s open to debate. It might be more.

A recent corruption scandal in Spain has resulted in PM Rajoy’s popularity dropping – a recent survey had 85% of those polled having “little or no faith” in him. His party (the PP) had a 24% support rating, the lowest on record.

Why talk about corruption in a finance discussion? Well, corruption matters a great deal in these affairs – the managers of a Bad Bank have a lot of money to spread around, well-connected bankers have a whole lot of garbage assets they’d love to get rid of for as high a price as possible (and in fact their jobs DEPEND on them selling their garbage for as high a price as possible), and so the risk of overpayment for bad assets increases right along with the level of corruption.

The more public money that gets dropped on the banks, the better condition the banks will be in – for paying salaries, bonuses, dividends, and so on, and the smaller the losses will be for bank shareholders and bondholders.

We assert that corruption is likely to raise the cost of the bailout since the amount of public money that will be funnelled to the bank will be maximized in a corrupt regime. We don’t think the cost will be any lower than €460 billion, and Rajoy himself once mentioned the figure €500 billion as being required for a complete bank rescue. We do not think that was a number idly constructed from thin air. What’s more, we believe that the folks at the Spanish Central Bank and the ECB are not fools.

They’ve done the same math that I have, and Rajoy’s remark was simply a political shot across the bows of the ECB in the negotiations over who pays what; a form of “don’t mess with me or else the game is up.” It reminds me of the old saw – owe the bank 1000 dollars, the bank owns you. Owe the bank a billion dollars, and you own the bank!

That’s all just speculation on our part, but we find it interesting that our math adds up to approximately Rajoy’s threat. It wasn’t intentional, but that’s what came up.

So we believe that €500 billion is a good guess

How long to return to normal?

It’s irrelevant. How long is a piece of string?

The property bubble is over from the standpoint of pricing when property prices return back to their point of origin. (It’s quite possible prices will overshoot as well, but let’s leave that out of the discussion for now). It would seem that this might complete within the next year or two 2016 / 17.

However, calculating when the economy will “return to normal” is another matter entirely. Monetary deflation from the bubble sometimes continues long after prices have retraced. This is for several reasons, all of which have to do with the speed at which losses are recognized, as well as the level of debt forgiveness in the economy in question.

Hyman Minsky (Hyman Philip Minsky was an American economist, a professor of economics at Washington University in St. Louis, and a distinguished scholar at the Levy Economics Institute of Bard College), had a model where he attempted to explain the anatomy of a bubble through finance. In his model, there were three types of borrowers:

  • Hedge Borrowers, whose debt repayments (principal, interest, taxes, expenses, etc.) could be covered by the economic activity provided by the investment.
  • Speculative Borrowers, whose investments could only cover the interest payments, and relied upon capital appreciation (bubble effects) to make up the difference.
  • Ponzi Borrowers, whose investments could not even cover interest payments, and relied entirely on capital appreciation for the loan to make economic sense. Many of the subprime / neg-am borrowers fell into this last category.

The first phase of a popped-bubble involves rapid deflation, as corporations and finance organizations who were Ponzi and Speculative borrowers and who may legally walk away from their loan obligations do so relatively rapidly – taking perhaps 2-4 years. From the Ireland bubble charts, it seems that corporations bailout faster than the finance borrowers. Of course, this depends on the willingness of the banking system to recognize the losses. “Extend and pretend” strategies drag this process out.

In conclusion: 

Spain’s housing market is now recovering, amidst gradually improving economic conditions.

However Spanish house prices dropped 3.03% during the year to end-Q2 2014, (-3.12% inflation-adjusted), the lowest annual decline since Q2 2008, based on figures from TINSA.

During the latest quarter, Spanish house prices increased slightly by 0.15% (-0.78% inflation-adjusted) in Q1 2015.  Residential property transactions surged 48% in Q2 2015 from a year earlier, according to the Instituto Nacional de Estadistica (INE).

The improvement is mainly driven by foreign property buyers, buying on the coast and in cities like Barcelona.

Britons accounted for 15% of all sales to overseas investors, followed by the French (10%), Russians (9%), and Belgians (7%), according to Spain’s society of property registrars.

Spanish house prices have been falling for six years, with a total decline of 40% (46% inflation-adjusted) from the values reached in Q4 2007, before the crisis.  There have been over 25 consecutive quarters of y-o-y declines:

  • During the last year to Q2 2014:
  • In the Capital and Large Cities, house prices dropped 4.8%, a large improvement from annual declines of 11.5% in Q2 2013, and 13.5% in Q2 2012
  • In Metropolitan Areas, house prices dropped 3.0%, far lower than from annual declines of 12.7% in Q2 2013, and 11.7% in Q2 2012
  • On the Mediterranean Coast, house prices dropped 7.1%, an improvement from annual declines of 7.5% in Q2 2013, and 13.3% in Q2 2012
  • In Balearic and Canary Islands, house prices increased slightly by 0.1%, in contrast with annual declines of 3.7% in Q2 2013, and 6.8% in Q2 2012
  • In Other Municipalities, house prices fell just 0.1%, a remarkable improvement from annual declines of 11.5% in Q2 2013, and 7.3% in Q2 2012

Urban land prices remain weak, down 10% y-o-y in Q1 to an average of €141.5 per square meter (sq. m.), according to INE.
The Spanish economy expanded at its fastest clip for six years in Q1 2015, with a GDP growth of 0.6%, thanks to increased domestic demand. The economy is expected to grow by 1.8% in 2014 / 5, after contracting by 1.2% in 2013, and by 1.6% in 2012, and after meagre growth of 0.05% in 2011.

So where are we now?

  • In 2008, Spanish house prices fell 8.75% (-10.05% inflation-adjusted)
  • In 2009, house prices fell 6.57% (-7.23% inflation-adjusted)
  • In 2010, house prices fell 3.85% (-6.67% inflation-adjusted)
  • In 2011, house prices fell 8.17% (-10.28% inflation-adjusted)
  • In 2012, house prices fell 11.34% (-13.82% inflation-adjusted)
  • In 2013, house prices fell 9.19% (-9.44% inflation-adjusted)
  • In 2014, house prices appeared to have found a sort of imagined bottom and flattered out.
  • In 2016 American Banks started buying BMV Property and Spanish Construction Stock under the radar to the tune of some 300 million dollars.
  • In 2017 the BMV Market started to rally’s and the serious counting has started
  • 2018 the prices in some places like Marbella are back to normal and above historic price levels. The Canary Islands are booming and the prices are 12% above 2010 levels today. Wow!
  • In 2019 Warren Buffet entered the market in a very big way, enough said!!

What’s the time?

The time to invest in Spain at its lowest level with Risk / Reward ratios totally in your favour was 2015.

Now,2018 – 19 we expect to see some significant movement in the market over the next 4-6years, in fact in some areas prices are positively on a bull already.

The 2 old favourites, Marbella and Puerto Banus, are heading the surge in the south of the country. New money from China, India and oil money from Angola and Venezuela are swelling the silk purses of the savvy Banks ready and open for business.

The interior of many of the Canary Islands are turning into nature reserves and not before time. Property on Gran Canaria is about to become a finite resource, it’s a very very good bet.

The number of home sales inscribed in the Property Register in April 2018 rose by 9 per cent year-on-year, according to the latest data from the National Institute of Statistics (INE).

Tick tock. 

Timing, timing, timing is the key now.  By the time you have heard about the upside of Spain on the Bloomberg news channel, all the good stuff will be gone, as sure as eggs are eggs.

Yes, location is very important, but right now you must take a position and be in close to the perceived market bottom which will allow you to maximize your Capital ROI when the time comes to sell the portfolio.

The red line in the chart above illustrates that the Spanish property market is no longer shrinking, though there are still no signs of a significant recovery in sales at a national level either.

Other than a modest return to growth in sales, the most noteworthy trend, once again, is the collapsing sales of new (never-previously-sold) homes, as the pipeline of new homes in Spain runs dry.

Right Now.

If you want to purchase rather than enter our Bond offering. Then In our expert view now is the time to invest in Spanish property, but, talk to H&G first before diving in off of the high board.

Remember the five golden rules;

  • Take good advice, (paying for expert advice is far cheaper, than losing your life savings on a bad investment).
  • Invest with your head, not your heart.
  • Stay as risk-averse as possible.
  • Timing & location, location, location remains the key to success.
  • Ensure that the property is clean. H&G will do the due diligence for you. (We do not want to find hidden debts, dodgy planning permissions or absent habitation licenses).

By investing in high-quality apartments/villas located in popular areas, which have easy excess to airports, restaurants and the beach if possible, you should be able to generate exceptional rental yields and a capital return in the future.

Spain is once again a hotbed of investment interest at the moment, investor’s world-wide are setting sights on their old favourite. Remember tourism numbers have never fluctuated to any great degree, Marbella’s hotels, for instance, have been 98% full for the duration of the downturn. With heavy weigh investors and large US Investment Houses entering the market, all the clever money appears to be heading back to Spain and her associated islands.
 

H&G High Yield Bond Offering 2019.
Benefits of the H&G Bond.
Here are nine benefits of buying an Investment Bond in a property syndicate:

  1. A syndicated property Bond can offer you long to medium-term returns away from the stock market.
    2. Choosing to invest in Syndicated Property Bonds means you can pick and choose which properties you want to invest in.
    3. If you’re a new investor, or you are spreading your investments, it gives you the opportunity to purchase bigger and better quality stock in prime locations.
    4. You own your share of the property and are in control of your investment.
    5. You can choose a property Syndicate Bond that best suits your needs e.g. yield, covenant strength, business sector, location, length of Bond.
    6. You can spread your investments amongst a wide range of property assets and you may also be eligible for one of our syndicated loan opportunities.
    7. You’re free to sell your individual Syndicate Bond at any point.
    8. Our Syndicated Property Bond opportunities are SIPP and SSAS pension fund compliant (subject to your SIPP or SASS provider’s approval).
    9. All our Syndicate purchases are made entirely from cash funds and carry no borrowings or charges.

Find more information on Spanish BMV Property Investment Bond opportunity.

Due Diligence.
Firstly H&Gs Investment Bonds are not covered by or regulated by the FCA.
However, we follow the FCA Guidelines as a measure of best practice

FCA regulatory framework provides strict guidelines we must adhere to. Under FCA rules our product cannot be promoted to Retail Investors and must only be offered to qualifying high net worth and sophisticated investors as detailed below.
 
High Net Worth Investor – An individual who has signed, within the period of twelve months ending with the day on which communication is made, a statement to confirm they have an annual income of not less than £100,000, or net assets, excluding their primary residence, of not less than £250,000.

Certified Sophisticated Investor – An individual who has a written certificate within the last 36 months by an FCA Approved Person confirming that the Investor is sufficiently knowledgeable to understand the risks associated with engaging in investment activity in non-mainstream pooled investments.

Self-Certified Sophisticated Investor – An individual who has signed, within the period of twelve months ending with the day on which communication is made, a statement to confirm that have sufficient knowledge to understand the risks associated with engaging in investment activity in a non-mainstream pooled investments.

Under Spanish Law, it is essential for H&G to verify all of our prospective client’s investor status prior to delivering any financial promotions or details of any current investment opportunities.

It is not until we have the completed appropriate checks that we can register you as part of The H&Ggroup of property investors, therefore we would appreciate your cooperation. 

Good luck for 2020 everyone.

 
TT
H&G’s
Head Boy.