REITs Pull Back from Housing Market in Spain as Rental Boom Runs Out of Gas

“Many families, scratching a living on badly-paid zero-security jobs, just cannot pay the sort of rents many landlords, especially the big funds, have been asking for.”

By buying up large numbers of rental properties in Spain starting in 2014, publicly traded Real Estate Investment Trusts (REITs) — or Socimis, as they’re called in Spain — played a leading role in the country’s multi-year rental boom. They’ve also helped to lure foreign investors, particularly from Latin America, into Spain’s real estate market. But according to a new report by Armanext, an advisor for the design, structuring and incorporation of REITs in Spain, the nascent market is already beginning to show signs of fatigue.

With just two weeks left to close out the year, Spanish REITs have attracted just €2.8 billion of fresh funds, down 45% from last year’s €5.1 billion. The share of residential properties as a percent of total assets in REITs has plunged from 38% in 2018 to 26% this year, as more money has flowed into commercial real estate, in particular offices and shopping centers, which together now represent 48% of total assets. Other popular assets in REITs include shops (10.4%), hotels (7.3%) and industrial warehouses (7.3%).

The main reason for the shift away from residential property, according to the report, is the Spanish government’s recent reform of Spain’s renting laws, which includes a measure that extends the minimum duration of rental contracts from three years to five years for private landlords and to seven years if the landlord is a company. “The rental reform has affected everyone who invests in property,” said the president of ArmanexT, Antonio Fernández.

For institutional landlords like Blackstone and the different property funds it owns, the reform also makes it more difficult to evict the existing tenants of newly acquired properties as quickly as possible in order to jack up rental prices for the incoming tenants.

Continue reading the article on Wolf Street

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