World Economy

Foreign Cash Revives Spanish Home Building

Foreign Cash Revives Spanish Home BuildingForeign Cash Revives Spanish Home Building

Residential construction is coming back to life in Spain eight years after a property crash, with foreign investment pouring into developments in Madrid and Barcelona, and a jump in building permits pointing to more growth to come.

Half a million newly-built homes remain empty after the mania that peaked in 2007, largely on urban fringes and in remoter areas where people don’t want to live, Reuters reported.

But demand for properties ranging from luxury apartments to homes for the middle classes is rebounding in leading cities and industrially-strong regions such as the Basque Country, showing how Spain’s economic recovery is on course despite political paralysis after two inconclusive general elections.

Construction and real estate accounted for more than a third of the nearly €22 billion ($24 billion) of foreign investment in Spain in 2015, economy ministry data shows.

While overall activity remains a small fraction of peak levels, funds spent on residential construction last year were more than 80 times greater than in 2014.

“The market has fired up precisely because players have come from overseas,” said Ernesto Tarazona, partner at property consultancy Knight Frank. “There are some local investors left, but not many.”

Foreign funds desperate for a return on their investments at a time of ultra-low interest rates have flocked to Spain as the 2008 crisis has knocked around 40% off property prices.

According to real estate portal Idealista, rental yields increased to 6.1% in the second quarter, five times the return on a 10-year government bond.

   9th on Global List

The Spanish capital ranked ninth globally in an Ernst & Young survey which asked real estate executives where they plan to invest in the next few months.

Investments vary widely—from buying blocks of rented apartments to packets of mortgage debt and banks’ property management units.

Private equity funds have become the country’s new developers, looking to make profit on residential building given Spain’s fourth year of economic recovery and a lack of suitable property in areas that are in demand. Property consultant CBRE predicts annual demand of 180,000 units over the next 10 years.

At the top end, Rockspring is funding a development of a 19th century building on Madrid’s up market shopping boulevard Serrano, where the nine apartments range in price from under €2 million ($2.2 million) to €8 million.

“By the time we had published the brochure, we had already sold 60% of the apartments,” said Eduardo de Roda, Associate Director at Rockspring Iberia.