Spain: One of the Best Real Estate Investments in 2010
January 12th, 2010
2010 is going to be the most exciting one real estate investors have seen in a decade. I’ve got my eye on diverse opportunities around the globe, each of which represents an excellent value play.
In Europe, projects and banks are in deep trouble. The resulting financial distress has created pockets of opportunity where you can buy quality cash-flow property for 50 cents on the dollar. In Europe right now you can get deals with discounts of 52% on list prices, or 40% on official valuations – deals in blue-chip locations that will immediately throw off positive cash flow.
These are opportunities in locations that will be the first to recover once real pent-up demand recovers. In some cases, up to 100% financing may be available.
After years of market overshoot on the upside, today we see the opposite – overshoot on the downside. You could profit in 2010 on distressed and bank foreclosed properties in Europe. The best deals are in projects that have gone bankrupt.
Here is why this opportunity exists: Banks lent to developers to build. Developers built in anticipation that there would be no problem selling their units. After nearly a decade of runaway demand and floods of cheap money, they took their eye off the ball. Developers took on more debt and risk than they should have and they overpaid for land.
The Credit and financial crises, combined with oversupply, led to a breakdown in many markets. Sales dried up and high-quality, completed units were left sitting, waiting for a buyer. Banks need to purge their loan books. Developers want to lick their wounds and move on. Forced sell-offs are happening…demand is almost non-existent. This is a formula for opportunity.
Distressed deals are available in many places in Europe, though most markets make little sense and I wouldn’t recommend them. In Central and Eastern Europe, for instance, deep structural and currency issues make the deals unattractive.
I’m focused on my three golden rules:
Buy quality (location, construction, amenities, and fit-out).
Don’t take on any construction risk; buy completed units.
Don’t take on any project risk; make sure, for instance, that the condominium is functioning. You don’t want to be one of 10 owners in a 100-unit condominium.
I wouldn’t consider any distressed deal that doesn’t tick all three boxes. So where should you look?
The best opportunities are in Spanish property, and Portugal. Developers here relied heavily on debt. The discounts can be big – more than 50% in some instances. The banks who control many of the failing developments will offer mortgages of up to 100% at extremely competitive rates.
In Spain and Portugal, invest in prime resort properties in areas that haven’t been overbuilt. There’s a lot of junk out there, which you should avoid. However, the market has stalled for quality inventory, too. Northern Europeans will still come in droves to enjoy the region’s sunny weather, and these folks will still need to stay somewhere. Buy where these tourists want to stay – in places that are close to golf courses, beaches, and an international airport. Places like Granada in Spain or Portugal’s Algarve.
Story from Daily Reckoning
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