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In 2021, Latin America was one of the largest investors in Spanish real estate, following only the USA, France, and the UK. Since then, Spain has only grown as an opportunity for LatAm investors, while Madrid has been dubbed by some as ‘the new Miami’.
On the 28th March, GRI Club held an online meeting with real estate leaders from LatAm and Spain in order to get an insight into what the thought process is for LatAm investors who wish to turn their eyes to Europe, as well as the challenges and incentives when doing so.
Investments in Spain as opposed to other countries in LatAm are being driven by the need to diversify due to geopolitical factors and currency, with some South American countries being seen as unstable. Meanwhile, Spain is in a unique position, as a country in the prestigious European Union with its stability, legal security, and the strong euro currency. The EU is seen as a competitor of giants such as the USA and China.
At the same time, it has higher real estate yields compared to other EU countries like Germany and France, where there is significant pressure on valuations and a better risk-return relationship. Retail in the country has seen success since the COVID pandemic, with high footfalls and the first quarter of last year contributing the most money out of any asset class - 2.9 million euros - to the record real estate investments in Spain in 2022.
Additionally, Spain and LatAm share a cultural closeness and language which lends itself to business relationships. Compared to Miami, another popular destination for LatAm investors that is closer in location, there are more opportunities as the country was slow to recover from the financial crisis in the early 2010s.
The quality of life in Spain is impressive and the cost of living is lower, which is significant for those who wish to immigrate there themselves. Spain’s golden visa program is alive and well, in contrast to other countries in the EU where they have recently been eliminated.
Read: The end of Portugal’s Golden Visa and its effects on real estate, on GRI Hub.
Opportunities in Spain arise from the growing number of Europeans interested in moving there, as well as niche opportunities in small and medium developments and cities outside of Barcelona and Madrid such as Valencia, which was mentioned several times as an exciting location by those at the meeting. Logistics is seen as an area of interest in secondary locations in particular.
One popular strategy for those involved in retail who attended is to purchase dominant centres in areas of influence. Returns are lower in large cities such as Madrid and Barcelona, so many focus on provinces and communities with positive demographic dynamics, for example, those supported by tourism, or having positive economic movements prompted by job creation.
Spain is one of the most popular tourist destinations in the EU. (Image: Karlocuki | Envato)
Senior Living is a topic under discussion for many due to the EU’s ageing population, although there is no strong trend there that is comparable to the USA and LatAm. The UK is seeing some growth, with many specialised operators and investors coming to prominence, but in Spain, facilities such as these are socially unpopular.
However, with the emergence of more user-friendly projects, it is expected that Senior Living will grow in popularity; day by day the asset class gains liquidity and many see a great path for future development.
Other Hospitality assets like Hotels are an obvious choice for LatAm investors due to Spain’s distinctive tourist market. Nevertheless, the area requires some transformation. One plan of attack for those attending is to combat sector risks and aid the transformation of the sector by controlling each stage of development. Read more about Spain’s Hotel market, as well as those of Italy and Portugal, on GRI Hub.
The residential market in Spain, mainly in cities with high population growth such as Madrid, Málaga and perhaps Valencia and Seville, has a very strong tension, there is very little new stock as a result of the increased construction costs and limited availability of land. Therefore, there is success to be found for those that can acquire the land necessary.
In Madrid and Barcelona there are some regulatory issues that have become very complex, which is a negative factor for international investors. Many see bigger opportunities in flex living, which is for short and medium-term contracts with many amenities included in a similar model to hotels.
Valencia is a popular secondary location for LatAm investors and developers in Spain. (Image: RossHelen | Envato)
Some believe that the rental market is appropriate for this economic cycle and also presents even greater tensions than the sales market. In turn, Madrid or Malaga are cities that are having a brutal demographic demand for professionals or postgraduate students who need a flexible housing solution and there is no supply. In other words, the rental market in Spain was generally fragmented, and there is very little institutional, stable offer with clear rules.
Spain, like the rest of Europe, has set limits to the increase in the rental price in an existing contract. This leaves the building owner unprotected in some cases, and can affect investor appetites - in fact, some at the club meeting opined that this is one of the only factors that negatively affect housing investments at this time. For pure residential Multifamily and contracts over 5 years, many investors today say that they are avoiding these projects for fear of stronger future regulations.
Short-term flexible rental contracts, such as those used for Co-Living projects, prevent this dangerous situation as prices are changed during renewals or tenant changes. Read more about the emerging asset class of Co-Living in Spain.
On the student housing front, many LatAm investors and developers see Spain as a prime location due to the success of the asset class in nearby Germany and the UK. Spain is also a preferred choice for many LatAm students due to culture and language similarities as well as temperature. Nevertheless, there is not a strong institutional presence in this market and Spain still lags far behind the aforementioned countries in Europe.
As mentioned, there is high demand for housing in most major cities which makes it challenging for students to find short-term accommodation at a reasonable price. Many believe that a specific product can be developed for this demographic sector with fewer barriers to entry and shorter contracts that provide mobility and good locations.
In cities like Madrid, young professionals struggle with rising rent prices. (Image: Gregor Schram | Unsplash)
One of the main challenges for this demographic when investing in Spanish real estate are the difficulty to move money to Spain, particularly for collective investments with multiple parties. Some expressed that there are difficulties with both local-level tax and migration structures, as well as the bank challenges.
Attendees emphasised the necessity of explaining the project and helping banks to understand the process. There are variations in the process depending on the size of the fund, the LatAm country of origin, as well as the asset class of the product.
GRI Club members heavily recommended working with a local partner in order to bypass many of these issues with expertise and market recognition. This is particularly true when new to the country, as banks are sensitive due to previous negative market conditions, such as construction companies ending up in bankruptcy.
These challenges appear to be small in the face of the opportunities that Spain presents for Latin American investors. Interest in the country is expected to increase, and will be a topic at the upcoming GRI Club event in Madrid.
Attend the LatAm investments in Spain discussion at España GRI 2023 to get insights from Spanish, Portuguese, and LatAm real estate leaders.
Written by Sarah Garnett