Funds, SII, and REITs (Real Estate Investment Trust) will be the stars of the investment in ‘brick’ in 2015. There are many ways of being part of the real estate boom without necessarily purchasing a property.
The assets of the real estate investment funds and companies have been on the rise for more than 2 years. This growth is encouraged by minimum interest rates and low returns on deposits. More and more savers choose to invest in order to make the most of their capital.
Since December, 2012, the growth of investment funds and companies in Spain has been reflected not only as regards investment amounts (+ 60% since December, 2012), but also in the number of investors (+ 45% since December 2012).
The beginning of 2015 has shown a fast increase in collective investment, with the greatest growth ever during the last 17 years (January 2015), thanks to a 2.8% increase in investment funds and companies.
Within this scenario, both SII and REITs stand out as the main investment vehicles. International funds invested 15% more in 2014, compared to 2013. The figures are represented by areas, such as Barcelona, with investments in real estate worth more than 1,330 million Euros.
Due to the lack of a high quality residential portfolio, most of the transactions involve offices, logistic centres and hotels. This trend is expected to change with the coming into play of new actors in the real estate promotion. Real estate investment reinvents itself with new products, which are more attractive for small savers and big real estate investors.
Investor’s appetite
Inspired by REITs in the United States, real estate investment companies have found in Spain the chance to invest in a market with attractive urban properties at an excellent price.
Among them, REITs are publicly traded (Spanish AIM and Stock Exchange), while SII are not. But both have significant tax advantages for investors who want to avoid the corporate tax.
Low taxation and the existence of good opportunities have called the attention of international tycoons, who have not hesitated to participate in real estate investment. This evolution has resulted in the purchase of logistics factories, office buildings, hotels and residential blocks worth 420 million Euros during the first quarter of 2015.
The main real estate investment companies have entered into the big Spanish cities, particularly Madrid and Barcelona.
The latest major transaction has had Hispania as main character, a REIT owned by tycoon George Soros, who purchased the well known residential complex Isla del Cielo in Diagonal Mar (Barcelona). Meanwhile, company Pontegadea, owned by Amancio Ortega, has acquired the buildings that house the Apple Store (Passeig de Gràcia, 1) and Burberry (Passeig de Gràcia, 56), as well as the former headquarters of bank Banesto (Plaça Catalunya).
This investment wave has come to stay. And if in 2014 the attention was focused on the commercial sector, in 2015 it will move towards high quality hotels and residential buildings.
Real estate collective investment
Among nonfinancial collective investment institutions, Spain distinguishes investment funds from investment companies.
Real estate investment funds can invest in all kinds of urban properties, with certain limits. On the other hand, among the companies investing in real estate, there are Real Estate Investment Companies (whose Spanish acronym is SII) and Real Estate Investment Trust or REIT (in Spanish, Socimi).
These companies have been one of the greatest novelties for investors in the past year. As they are corporations, they invest exclusively in real estate in order to rent them later.
The boom of REITs has been particularly striking. These corporations enjoy a very attractive tax regime: they do not pay the corporate tax and have a tax of 19% on distributed dividends. Those shareholders owning more than 5% of the shares are subject to a withholding tax, which does not apply to non-residents.
Some of the conditions of a REIT are to invest at least 80% of the capital in urban assets (flats, commercial stores or offices) and to be listed on stock exchange. At the same time, a REIT must maintain its assets for a period of three years and also distribute dividends (80% from rents and 50% from sale of assets). The rest of benefits must be reinvested in other real estate within a maximum period of three years.
Undoubtedly, this is a good way to boost the rental market and recover confidence in investors. It is a safe investment vehicle, which generates benefit and will make it possible to renegotiate for a greater price once the economy is stabilized.
And of course, this is all supported by solid real estate assets.
