Real estate firms turn from Eastern Europe to Spain
South African real estate companies are starting to look for opportunities in Spain, with the Eastern European property scene having become saturated with investors.
The Spanish economy is a standout performer in Europe, having grown 3.2% in 2016, largely helped by an improving tourism industry. A recent European investment attractiveness survey by advisory firm EY ranked Spain as the fourth most attractive market after the UK, Germany and France.
Vukile Property Fund announced in May it had bought 86.89% of the shares of Castellana, an unlisted Spanish real estate investment trust, for R193m, becoming an early mover into the country.
Garreth Elston of Golden Section Capital said he favoured Spain over the UK as a property investment destination.
Spain’s growth was centred in certain cities as was the case with other strong European economies.
"The Spanish economy has been very consistent over the past few years. There is steady job creation and the current account balance has been positive since 2013. The growth has been regional or city-based, with strong performances from Madrid, Barcelona, Valencia and places near the Costa del Sol," said Elston.
A senior property analyst at Nedbank CIB, Len van Niekerk, said Spain’s fundamentals were strong but growth may decline.
"Gross domestic product growth accelerated to 3.2% in both 2015 and 2016 in Spain and unemployment, although still high at 19.6%, has improved from its peak of 26.1% in 2013," he said. Growth was expected to taper off to around 2.3% per annum for the next few years.
South African investors were looking for opportunities in markets other than central and Eastern Europe (CEE), he said.
"Valuation yields in CEE have compressed and some are looking at regions that are showing recovery opportunity such as Portugal and Spain.
"It is also a part of a continuation of the larger theme of South African listed property companies that simply see better and more plentiful risk-adjusted returns in countries outside SA," he said.
"Weak GDP growth in SA over the past few years together with the [ratings] downgrade and heightened political risk have had a negative impact on the country’s risk-return profile," Van Niekerk said.