Real estate as an asset class
Investing in real estate means that you are investing in real assets. Tangible assets. Real assets include commodities and real estate among others. Investing in real assets creates investor confidence. This security is difficult to find in other asset classes and for that reason, real estate has been the basis for generations in many successful investor portfolios. These investors often use an investment philosophy called the Yale model and assume that the risk level can be reduced, without negatively affecting the return on investment, by owning several asset classes in an investment portfolio. The Yale model was created by the american David Swenson, who managed the Yale University Endowment for several decades.
Real estate is an asset class that has many advantages. It is considered to be one of the more stable investment forms available. Both in times of high inflation as well as normal inflation, real estate has proven to be a good long term investment. This asset class also has a tendency to have a different price cycle compared to the stock
market, i.e. longer periods of ups and downs and milder swings. Both of these factors have a positive impact on an investment portfolio. In the current investment environment, ie long periods of low interest rates and rising stock markets, real estate has been a very good addition to equity-related investments. In addition, the urbanization trend has exploded for the last decades, in particular the big cities that are currently seeing a strong urbanization trend. You can read more about our investment strategy by clicking here.
The Spanish real estate market
Europe’s financial crisis 2008-2011 affected the Spanish economy negatively. Even investors. As a result of the credit crunch on the world’s financial markets, together with the weakening economy of Spanish households and businesses, the Spanish property prices fell sharply. Many construction projects commenced before 2008 were put on ice, while others, where the capital was completely closed, was taken over by the banks. All streets with newly manufactured semi-finished houses were empty with a bankruptcy sign outside which informed that the bank now owned the property.
Today, 9 years later, the situation is different. The lift cranes have been back for a few years and the market is hot again. In recent years, property prices have begun to rise sharply and we see great potential for good investments in the big four cities (Madrid, Barcelona, Valencia, Málaga) and throughout Costa del Sol. To a certain extent, Marbella reminds us of Miami, especially from a real estate perspective. Prices rose sharply in Miami when the city recovered from the financial crisis and the same has happened in Marbella since 2013.
In recent years, the Spanish economy has shown a significant recovery, measured both in unemployment, inflation and GDP. The growth rate in the Spanish economy has also been around 2% faster than the eurozone as a whole. The Malaga region in particular, is one of the fastest growing regions in the country. The Spanish banking system has also stabilized in recent years after several years of restrictive lending policy. This is obviously positive for property prices, as it will be easier for households and companies to borrow money for real estate acquisitions. Access to financing is one of the most important driving forces for the real estate market, regardless of country. Data from the Spanish Statistical Office, INE, also show that property prices in Spain have begun to rise since 2013. A sign that both international and Spanish investors has regained confidence in the Spanish residential real estate market.
However, Spanish residential prices are still significantly lower than before the crisis began. There are many indications that the recovery will continue for many years to come. The bank repossessions during the crisis have now begun to be sold at attractive prices, which creates very good investment opportunities. In recent years, the new production market has also been increasing significantly and several new building projects are underway. We expect this trend to continue for several years to come and has adapted our investment model based on that.
Spain in numbers
- According to studies such as those published by the Harvard Center for International Development, Spain will be the number one in Europe and the fourth in the OECD in terms of GDP growth to 2025 (3.8% annually).
- Spain is in a leading position in terms of ease of access to international investment. According to the OECD’s FDI Restrictiveness Index, Spain is the 9th most open economy to FDI in the OECD and G20 countries.
- FDI stocks in Spain amount to 2.1% of the world’s total, which is considerably greater than the 0.7% OECD median, and positions Spain at 6th in the EU in terms of cumulative foreign investment.
- Spain is also a leader in roads with the longest network of motorways in the EU. At over 15,000km Spain is far above the EU-average.
- In the maritime sector, Spain is the second European power in container movement and 11th in the world, with an installed capacity of 1 billion tonnes. Spain has a port system of 46 ports of general interest, which mobilise more than 26 million passengers annual and have freight traffic volumes of over 450 million tonnes.
- According to the International Congress and Convention Association (ICCA), Spain holds the 5th position worldwide and 4th in Europe in terms of number of international events and participants.
- An additional factor in Spain’s market attractiveness is its language, its use in business and the potential it offers. Spanish is the second most spoken language as a native (436m) behind only Mandarin worldwide. However it is also second by (i) number of inhabitants, (ii) most studied language, (iii) most used in international communication, and also (iv) content on the internet.
- In the most recent edition of the WEF’s Global Competitiveness Report (2017-18), Spain’s highest ranking dimension by far is the quality of its infrastructure, reflecting Spain’s prominent position at this regard worldwide.
- Spain is a global leader in high- speed rail network, punctuality and fleet versatility. It has the second most extensive high- speed network in the OECD and first in the EU, with nearly 3,000km of track in service.
- Three of Europe’s main airports by passenger volumes are located in Spain: Madrid Barajas in 5th place, Barcelona El Prat in 6th and Palma de Mallorca in 13th. Both Madrid and Barcelona airports are among the highest ranking in terms of quality of service, punctuality and passenger experience.
- The World Bank’s Digital Adoption Index puts Spain among the leaders in digital adoption by individuals.
- Spain’s economy has delivered four consecutive years of growth (2014-17) and the last three at levels above 3%, i.e. above the main EU nations and higher than the EU average (3.1% vs 2.6%, 2017).
- The growth of Spain’s economy has come with the creation of more than 2 million jobs, a current account surplus over five consecutive years – an unprecedented achievement in recent history, and this has also seen a reduction in the public deficit by more than €70bn.
- Over the last ten years, Spain’s economy has significantly increased its level of foreign trade. Exports of goods and services as a proportion of GDP increased from 22.7% in 2009 to 32.9% in 2016, the third greatest increase in the OECD over the same period.
- Spain has also been the only major Eurozone country to maintain its share of foreign trade during the crisis years.
- Air Transport Association (IATA) has recently chosen Spain, Madrid in particular, as the site of its global operations centre, from which 83% of the world’s air traffic will be controlled.
Why invest on Costa del Sol?
The sun coast, or the Costa del Sol as it is called in Spanish, is the coastline of the Malaga province. Malaga is located in southern Spain with the Mediterranean as a neighbor. In addition to Malaga, there are also smaller towns along the coast, such as Torremolinos, Benalmadena, Fuengirola, Marbella and Estepona. This whole area is one of Spain’s largest tourist destinations and the sun coast has a long tradition of international tourism. Both from European countries and abroad. Each year, approx. 500 million overnight stays are sold throughout Spain, making it the world’s most visited country based on this statistic.
From an international perspective, Marbella is one of the most influential lifestyle hubs in Europe with a large proportion of international buyers. Ongoing establishment of international hotel brands such as W Hotel, Four Seasons etc shows that there is a strong confidence in the entire region. Even top-class restaurants such as Nobu confirms this trend. Through the decades, both Hollywood stars, royal families, nobility, Saudi princes, world artists, billionaires and sports stars have lived and vacationed down here on the sun coast. And this has not changed in the 21st century. It is undoubtedly here that the growth will take place in the future. Neighboring countries such as Portugal, Greece and Italy are still far from Spain in terms of the number of tourists per year.
Málaga is Spain’s 5th largest city and is also the largest city on the Costa del Sol with a population of approx. 1.7 million in the metro area. If your final destination from abroad is Marbella, Estepona, Fuengirola or any of the other towns along the coast, it is always through Malaga airport. Malaga is also a port city in which the city has invested heavily recent years. For example, large parts of the harbor area have been completely renovated with pedestrian walking areas and a large selection of cafés, restaurants and shops. The city also has a great cultural heritage with many attractions, museums, castles, parks etc. Pablo Picasso was born here and several of his beautiful artworks can be seen at the Picasso Museum in the old town (Centro Historico). The city of Malaga’s growth is partly due to tourism that is steadily increasing year by year. The City Council also regularly creates new projects to increase the city’s attractiveness and recently it has been decided to build a new cultural center of 13,000 square meters.
The Málaga province
International tourism plays a major role in the Málaga province’s growth. Towns like Fuengirola, Marbella and Benalmadena constantly attracts tourists from all over the world. Nor should we forget that the Sun Coast has the most golf courses per capita in the world. Only that in itself attracts millions of tourists and investors every year. The other major reason for the growth in the province growth is the massive immigration from other Spanish cities and from other European countries. From an European perspective Malaga is seen as a very hip and cultural city with decent city pulse and good business opportunities. This is evident in the real estate and housing market, as it becomes increasingly more difficult for tenants to get a hold of good long term rental contracts. In fact, in Malaga city, there is a shortage of rental apartments with long term contracts. That’s why investors like Spain right now.