Daniel Howarth is co-head of Enness International
Spain has suffered a long period of economic uncertainty over the last nine years, but research has shown the country’s economy is bouncing back, with levels of gross domestic product set to exceed that of pre-2008.
Following the launch of the single currency in 1999, Spanish money became incredibly easy to borrow, with interest rates artificially reduced. This ‘cheap’ money led to excessive borrowing, record housing starts and inflated real estate prices.
This extremely high leveraging left Spain highly exposed to the impacts of the global financial crisis, leading to a major crash in the property market, and many construction projects left unsold or incomplete. This along with a shortage of property financing contributed to a steep decline in property prices.
However, since 2014 Spain has been on an upward trajectory, with sustained economic growth – in 2016 it experienced a growth of 3.2%, outperforming that of other European countries.
The property market is also recovering with average selling prices and demand increasing over the last three years, and transactions are up too, particularly in terms of existing stock. New housing starts also saw a 70% annual increase in 2016, to approximately 85,000 units.
As well as a growing demand for property, we are also seeing an improved appetite from banks to lend in the region, thanks to sustained growth in property prices in prime investment regions such as Madrid, Barcelona, Marbella and the Balearics. This coupled with a healthy yield and increasing ‘occupier demand’, is enticing offshore banks to invest in lending platforms to accommodate existing and prospective clients looking to buy there.
Despite a rise in prices, Spain remains an attractive investment option in comparison to other Western European markets, except Portugal, and is indeed back on the radar of international investors.
On a macro-economic level, European economic recovery and record low interest rates provide a level of security for international investors, and a stream of cheap credit makes Europe a lot more attractive an environment for investors. Spain’s beautiful climate and increasing domestic investment in property development is flooding the market with new properties providing a large supply to the ever-increasing demand.
The residential property market in Spain has certainly benefited from investment from foreign as well as domestic buyers. Furthermore, several institutional investors internationally have bought property developers, bringing professionalism, as well as capital, to the sector.
Because of the above changes, banks that have previously restricted their activities to more secure and less volatile countries such as France and Germany are increasingly considering Spain as a good area of credit investment.
In conclusion, banks are opening up to larger loan amounts, on competitive fixed and variable interest rates and on an increasingly interest-only basis.
We recently secured a bridging loan on a 17th Century property for an expat in Mallorca. As there was high demand for the property they were buying, the client needed the loan to be completed with speed and efficiency, as is the case with all bridging finance.
The property was complete with all its original features, including an illustrious chapel, 50 hectares of land and most awe-worthy of all, a mountain! It was easy to understand why this was such a hot property in Mallorca, and why my client was so keen to get his loan secured as swiftly as possible.
The property was worth €11m, and the client wanted to borrow €8m to complete a commercial project, which would renovate all existing buildings to a luxury standard, with a potential plan for a new hotel conversion.
The issue encountered with this case arose in the need for a speedy valuation. Valuations can be particularly troublesome due to geographical location – unlike in the UK where you can hop in a car and drive to the property in a matter of hours, this is simply not the case in Spain. We also required a 90-day value as a British valuation requirement, and so I had to use a valuer who we had worked with previously and we knew would understood the client’s situation.
Thanks to our relationships and network of professionals in Spain, we were able to push through the valuation and secure terms with a lender at great speed.
The client already had a Gibraltarian limited company set up which the lender could lend to, this not only kept costs down, but also avoided tax charges that may have occurred due to national policy differences.
We secured a six month term, as the lender we used could fund projects abroad which are not considered standard purchases and also may require development work.