Savills Aguirre Newman has organized a new Savills Talks Young Talents session, this time focused on financing the real estate sector and moderated by Carlos Chancho, Senior Corporate Finance & Strategy Consultant at Savills Aguirre Newman.
These are some of the main conclusions of the session led by young specialists in the sector:
• Given the uncertainty of the moment caused by the crisis of the Covid-19 pandemic, both real estate players and banks have adopted prudent and conservative positions when investing in and financing projects.
• Ensuring legal security for investors is key to incentivize projects and their financing.
• There is liquidity in the market and real estate will continue to be an attractive investment vehicle given its high profitability and protection against inflation.
• The solution to problems of access to housing cannot be universal and must be adapted to each segment of the population.
• Once the current situation improves and normalizes, significant investment growth is expected in the residential segment.
• New formulas such as crowdfunding and crowdlending democratize investment in real estate and are generating interest among small investors.
In the face of uncertainty, prudence
Real estate, like most markets, is very sensitive to fluctuations and fluctuations in the context. Therefore, given the doubts generated by the coronavirus crisis, both banks and investors have adopted a more prudent stance.
In the case of banking entities, the young professionals brought together by Savills Aguirre Newman agree that "they look closely at the viability of the projects": they study in detail the business plans and the fundamentals of the project and tighten the conditions for access financing. At present, they are betting more on projects that respond to a real demand, such as residential or logistics, compared to others with more speculative components such as second homes, as they point out.
The solution to the problems of access to housing cannot be universal and must be adapted to the different profiles
As pointed out by the participants in the debate organized by Savills Aguirre Newman, "in Spain there is a clear problem of access to housing, but the sector must differentiate each segment of the population very well and adapt solutions to each situation." Thus, they distinguish between:
• Groups at risk of social exclusion. In this case, the solution is to increase the public housing stock.
• Population with general problems of access to housing, such as young people. To solve this situation, young professionals are committed to public-private collaboration, such as the VIVE Plan promoted by the Community of Madrid.
• Imbalance between supply and demand in the free market. Faced with this reality, they recommend that the market itself regulate itself, since they consider that measures such as income regulation can be counterproductive and go against adequate affordability to demand. Thus, they give as an example the experience of cities such as Paris or Berlin, where the regulation of rents has caused a contraction in supply and a rise in prices, as well as less investment in real estate.
In this sense, they recall that investors are more concerned with the risk than the profitability of the projects and that for this reason they demand "clear rules and legal certainty" before investing. In addition, they point out, "we must bear in mind that a large part of the money is international, and if we do not provide facilities for investment, it will go to other regions."
Investment in the market is here to stay
The third point of the debate has focused on investment in real estate. In this area, the young professionals gathered by the consulting firm agree that "once the market normalizes, we will see a compression of yields" since there is much more core capital than core product. Likewise, they consider that with the stabilization of the market, more value-added funds will appear in search of projects, since they will be willing to finance proposals with higher risk and with higher returns.
Asked about the impact of a possible rise in interest rates, young professionals point out that the spread is still high and can easily withstand a rise in interest rates, so that real estate will continue to be an attractive segment for investors, especially when it comes to protect against inflation, which will keep the real yield of the bonds at very low levels in the future
Crowfunding, crowdlending ... formulas on the rise among small investors
Finally, the tenth edition of Savills Talks Young Talent has focused on the new forms of alternative financing that, according to the participants at the round table “democratize investment and attract more capital in real estate”, especially from small retail investors. In this sense, they are optimistic, since these platforms offer new vehicles for small investors, who until now could only participate through Socimis or large listed developers.
However, they point out, "the investor who bets on these platforms must understand the market and know where to put the money and for this to know the business plan of the projects" and they affect the specific risk implied by these formulas, on which it is concentrated. investment in a single project, versus diversification of listed companies.