Global institutional investors drive Spain's residential property market boom

Eugenia Jiménez
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Juan Carlos Calvo, director of investor relations at Metrovacesa
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Juan Carlos Calvo, director of investor relations at Metrovacesa

Spain's residential property market is now seeing an increase in construction activity plus a growing appetite from international investors with built-to-rent property investments driving the rise. 

Global investment in the residential market jumped 9% amounting to €99bn in the first half of 2019, according to the Global Living Report by property agent Savills Aguirre Newman.

When looking just at the Spanish market, the study estimates that investment into built-to-rent property transactions in the country are set to surpass €1.5bn in 2019 alone.

We see a growing appetite from institutional investors to buy residential buildings for rent in Spain, a segment traditionally dominated by individual investors,” Juan Carlos Calvo

The study also suggests that investment in this type of residential property is growing in the southern European country due to the limited supply of "finished" properties and to an increasing interest from institutional investors.

Professional investors are shifting their investment focus towards residential assets in a bid to get higher returns than those provided by more traditional asset classes, with a particular emphasis on student accommodations, elderly properties, and residential to rent. The latter experienced a 13% increase in the first half of the year amounting to €87bn.

The global financial crisis was a turning point for the country's real estate sector that changed home ownership from a symbol of security and stability to one of financial risk.

Structural changes in demand, coupled with new purpose-built supply entering the market, have opened the sector to more investors than ever before creating again opportunities to real estate development companies in the country.

Spain-headquartered real estate development company Metrovacesa is one of those companies tapping into these investment opportunities.

Juan Carlos Calvo, director of investor relations at the Spanish developer, eyes with interest the opportunities presented by the alternative asset class.

Loan funds are becoming more popular because capital is not flowing from banks as it used to do. Where do you get the capital from?

We use bank financing, because the terms offered by banks are more competitive than capital markets currently.

Loan funds have been rather active in the real estate sector in the last few years, mostly financing the purchase of land, where banks are more uncomfortable. But this does not apply to Metrovacesa, since we own a large land bank of 37,000 residential units and a sound balance sheet with low gearing ratios. 

What are your views on residential property yields vs commercial property ones?

Residential yields are traditionally lower and more stable than commercial property ones, and this is consistent with its lower risk profile. We believe that yields will remain low for quite some time, given the monetary policy from the ECB.

What are your views on real estate investments in Spain?

We see a growing appetite from institutional investors to buy residential buildings for rent in Spain, a segment traditionally dominated by individual investors.

A more professional market  is starting to emerge in Spain, following trends seen earlier in other European countries. Metrovacesa's role as a developer is to create attractive homes to meet the demand from institutional buyers as well as individuals. 

Eugenia Jiménez
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Eugenia Jiménez

Eugenia Jiménez speaks Spanish and is Iberia Correspondent for Investment Europe covering Spain & Portugal, as well as Italy.