Why the sun is still shining on Spanish real estate



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Badly shaken in the 2008 financial crisis, nine years on the Spanish property market is still feeling the reverberations from the crash.

In 2017, however, we are seeing a fierce comeback with a boost in Spanish investment from overseas investors. For the UK, which is currently going through a period of uncertainty post-Brexit, lenders are finding their feet, too. The triggering of Article 50 has not yet dented the buoyancy of lenders and investors, however, this is no real reflection of the bumpy ride we have ahead. 

While both territories find themselves in a period of readjustment, Tim Mycock, development director at Reditum Capital, one of the UK’s leading mezzanine and bridging global finance providers, talks about the challenges lenders may experience when advancing in both territories and why the Spanish market is worth reconsideration. 

“Buyer confidence is finally growing in Spain and a number of foreign nationals are looking to move there permanently or to buy a second home. As a result, of all property sold in Spain in the first half of 2015, 12.7% was bought by foreign buyers with British nationals leading the way . In the UK following Brexit, there has been no slowdown in foreign investment demand . 

Deals in Europe have remained strong following the referendum and time has shown that British investors still have an appetite for European investment . The two markets are very much building and keeping up momentum respectively. 

Many sites in Spain stalled post 2008 crash due to a lack of finance – and faith. Conversely, the UK has a number of development lenders who have been prepared to offer leverage post financial crash, making utilising expensive bridging finance more attractive in Spain to unlock these hindered schemes and fuel growth.

There are a number of contributing factors that investors, lenders and developers need to bear in mind when finding their way through the maze of the Spanish market compared to the UK, from identifying risks, right the way through to the legal pitfalls. Here are the three that should remain paramount: 

Spanish property
Spanish property is still popular with investors

Practice with caution 

A major difficulty with the Spanish market comes from the trust issues between investors and lenders as a result of the 2008 crash. Terms offered are now typically lower than the UK. A lack of general bank finance in Spain means very few senior debt lenders are prepared to lend and when they do, it is typically at 50% LTV or lower, whereas for the UK, LTVs are up to 70% and are readily available, meaning there is no halt in finance for developers. 

Finance in Spain is typically more expensive than the UK, due to the above additional complexities, thereby making Spain – providing risk is mitigated – more attractive than the UK for investment for lenders.

Transparency in assessment 

We have been blessed in the UK with a planning process that is transparent and regulated – which is not necessarily the case is Spain. Particular care should be applied to make sure permissions are valid and a full assessment of development costs is conducted. Utilising either international or British monitoring surveyors is key to having a totally transparent, third-party opinion of charges.

Before dipping your toe into overseas investment, it is highly beneficial to note that Royal Institution of Chartered Surveyors (RICS) red book valuations are less commonplace in Spain, where banks conduct their own valuations or employ local third party valuers. In the UK, however, nearly all valuations are RICS accredited and follow a standardised format. 

Legalities and notaries 

Where solicitors in the UK are absolutely crucial to buying any property, in Spain solicitor’s undertakings for costs are not commonplace, causing investors to pay valuation and legal costs upfront. For the investor, it means having to find additional resources upfront, rather than upon financial close.

The Spanish legal system appears to be more complex than the UK and navigating security on assets can prove to be tricky. Again, unlike the UK, the use of notaries is commonplace in order to conclude a transaction – make sure you book these in advance! 

There is a constrained supply of new stock in certain areas of Spain – taking Marbella as an example – due to issues surrounding planning and the lack of traditional bank debt. But with increasing purchaser demand and an upsurge in bridging loans to fill in the gaps of stalled developments, now is a good time to examine Spain as an alternative to the UK, provided that due diligence is thoroughly carried out.

 

1 Comments

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    Gerard Ward

    Great read thanks for posting this informative article.

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