“In the last five years there has been virtually no value for land,” said Rafael Powley, a Madrid-based director of strategic consulting at JLL. “There are no buyers and if you want to sell it right now, there is no price for it.”
Investing in land or half-built developments means spending money to start, demolish or complete schemes without any guarantee of selling them or finding tenants. Investors are reluctant to do this due to the Spanish recession and excessive supplies of property built up during the boom years.
“The money you need to spend upfront takes you backwards,” said Justin O’Connor, chief executive of property fund manager Cordea Savills, which has about 7 billion euros of assets under management in Europe.
“With land you need to take a long-term view beyond the five to seven year horizon of most institutional investors,” said O’Connor. However, his fund will look at shops and offices in Madrid and Barcelona which have already been rented out. “The only assets of value in Spain are ones with an income stream attached,” he said.
“Land and unfinished developments are about the same thing right now,” said Joe Valente, a managing director at JP Morgan Asset Management, who helps manage 7 billion euros of real estate in Europe. “Land is probably more valuable as it doesn’t have any demolition costs.”
Buying loans secured against land or unfinished schemes is as unattractive as buying the assets themselves in the short-term, particularly given the lower discounts offered by the bad bank, Powley said.
“About 40 per cent of the land that goes into the bad bank will never come out,” Powley said. “They may have to eventually get rid of it for a tenth of the price as farmland.”
REUTERS – (Additional reporting by Jesus Aguado in Madrid; editing by David Stamp) – Gulf News and Globaledge
