If you’re looking to diversify your portfolio, you might want to take into account the possibility of investing in foreign real estate – more exactly, in emerging markets that have growing economies. Spain is one of the best countries for real estate investment. Gross rental yields have returned to normal, meaning that even the smallest apartments offer handsome returns. Given that they demand more maintenance, it’s possible to justify a higher yield. In spite of the fact that Spain suffered one of its biggest economic slumps, caused by the COVID-19 pandemic, it’s slowly but surely transforming into an investment destination.
If you’d like to build a nest egg for the future by investing in the overseas market, make sure you understand what you’re getting yourself into. Before you commit your hard-earned money to a real estate project, it’s worth becoming familiar with a couple of factors. It may be more difficult to finalize deals during these times, but with perseverance and hard work, there’s nothing you can’t achieve. Please continue reading to discover the key insights about the Spanish commercial real estate market.
- Buying vs. renting commercial property in Spain
When it comes to investing in commercial real estate property, you have two options: buying and renting. When you acquire commercial property, you’re purchasing it from a seller with cash or loan proceeds, enjoying full ownership. You have the right to legally and exclusively dispose of the real estate asset in any way you want. When you lease commercial property, you rent it from its owner. There are two types of tenures, namely, ground lease and usufructs. Under a typical ground lease, you’re free to build on someone’s land and enjoy separate ownership of the building. As a usufructuary, on the other hand, you can use someone else’s property, but for a fixed period of time.
The decision of whether to buy or rent commercial real estate space depends entirely on your preferences. Buying is a good option if you can afford the down payment, mortgages, and upkeep. Nonetheless, it’s important to take into consideration the resale value of the property. A commercial lease involves significantly less cash, yet you should have money prepared for a lawyer, resale state broker, and property inspector. Regardless of what conclusion you arrive at, don’t forget about the location. A shop located in a luxury shopping district such as Passeig de Gràcia will be much more expensive as compared to one found in a third-level location. You can save a lot by stepping away from a prime location, whether a shopping district or gambling venue.
You can invest in office spaces, logistic properties, shopping centers, and hotels. Hotel operators, in particular, are bracing for a recovery as the COVI-19 vaccine continues to be administered. Many hospitality resorts have remained open even in 2020. Smaller, drive-through hotels have experienced an uptick in demand. Not the same thing can be said about casino hotels that can’t deal with the competition generated by web-based gambling establishments. People would rather share food recipes and get a chance to win at online slots than to visit a physical casino. If you’re a value-seeking investor, carefully choose what bricks to invest in.
- Spanish real estate investment structures
Real property can be held directly or by means of entities. For high value, assets can be held via specifically created structures. Spain offers various vehicles well-suited for real estate investment, as follows:
- Limited liability companies
The most commonly used corporate vehicles in Spain are sociedades anónimas and sociedades limitadas. They are very much similar as far as operations are concerned. The only notable difference between the two is that the latter implies fewer formalities. An ever-increasing number of foreign investors are using LLCs because they ensure personal liability protection and have favorable tax treatment. Companies incorporated as investment vehicles tend to have a low share capital and they capitalize via shareholder loans. It’s necessary to consult the state laws before moving forward.
- Spanish real estate investment trusts
In Spain, there are special legal and tax investment vehicles aimed at real estate assets that generate rental income. Individual investors can earn a share of the income generated by commercial real estate ownership without having to actually buy real property. The Sociedades Anónimas Cotizadas de Inversión Inmobiliaria are similar to the U.S. REITs. While on the subject, it’s worth mentioning that the casino industry has come together with the real estate industry to form gaming REITs. Many casino operators have started to emphasize online gaming, so players pueden jugar juegos como tragaperras online. And they raise cash by selling gaming properties.
For the time being, gaming REITs haven’t managed to attract investor attention in Spain, which comes as a surprise given that gambling is a legitimate form of entertainment here. Anyway, let’s get back to the topic. A SOCIMI can hold real estate properties, all over the world, not only Spain. The law around SOCIMIs has relaxed over the years, meaning that regulatory barriers have been eliminated. The dividends are distributed to shareholders once a year. You receive 100 percent of the earnings coming from the investments purchased, 50 percent from the gains realized from selling real property, and 8 percent of all the other profits.
- Liquidity levels are considerably high
The commercial real estate market in Spain is liquid, which translates into the fact that assets can be easily purchased or sold at market value. This situation can be explained by the wide audience of potential buyers and how easy it is to estimate the value of property. Financial institutions are lending more, yet investors end up in the situation of struggling to secure financing to invest in the commercial real estate sector. You can generate higher returns by combining liquid and illiquid investments. More exactly, diversify your portfolio by adding low-correlated assets.
As a rule, experienced real estate investors ignore the value of liquidity when becoming involved in commercial real estate. Don’t follow in their footsteps because you might end up having regrets. You must be equipped to buy and sell in any market, using the best tools at your disposal. While it might be preferable to sell in a hot market, you might have difficulty scaling your asset. You can mitigate the risks in several ways, but liquidity will impose speed on how you can build up your portfolio.