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Spain take NAMA lead on the road to recovery

The Spanish Government banks and property market appears to be following in Ireland's footsteps in some aspects of its bid to recover from the property crash.

International real estate advisers Savills have undertaken some research that shows some similarities in the recovery route adopted in Spain while also identifying a number of substantial differences.

Some of the positive impacts of the creation of NAMA lent themselves to being incorporated into the Spanish counterpart SAREB.

However, unlike NAMA, which will ultimately be beneficial to the commercial markets, the assets held in SAREB are mostly residential properties and loans, including land and developments at various stages of completion, with very few commercial properties.

In addition SAREB, structured as a private entity (where at least 50pc of its shareholders are intended to be private), has a disposal programme comprising €50bn worth of assets over a total period of 15 years. Its first sales will be key to kick-starting the investment market, which has seen a 75pc drop from its peak in 2007, excluding two one-off deals.

Savills reported that appetite for stock in both locations is driven from very similar investors but the markets are still at different stages of recovery with investors believing that there is now value to be found in Ireland while Spain bottoms out.

Interestingly, the firm finds, similar product trading in Spain has achieved 100-150 bps less than its Irish equivalent. Savills believes this is due to the perception of sustainability of office rents, which have dropped up to 55pc from their 2007 peak in some cases, and the scarcity of deals.

Therefore certain Madrid and Barcelona CBD deals are attracting surprisingly high investor interest. Amongst the bidders are opportunity funds, Latin American investors, Spanish domestic investors and even German funds, which compete with very different strategies for the very little product available.

Borja Sierra, CEO of Savills Europe, says: "Ireland is already one year into a new cycle with Spain sitting behind. Despite very different economy sizes the two countries are behaving similarly with Spain suffering a lag of between 12-24 months. It is just a question of timing and we believe the lag will be narrowing as the pricing gap dissolves"

The Savills report shows that Ireland saw real property values falling as much as 65pc from the peak. This resulted in real estate markets stagnating with €25m traded in 2011 against €3.2bn in 2007.

The Irish economy has seen an overall improvement in competitiveness of circa 50pc, which has been important in attracting inward investment, and this, combined with its low corporate tax, has attracted more business – over 600 US companies have a base in Ireland.

Angus Potterton, managing director of Savills Ireland, adds: "Ireland is entering what is expected to be its third consecutive year of growth, and there is a greater sense of renewed confidence, marking a turning point in the markets.

"We expect investment turnover to reach €1bn in 2013 supported by the return of investors and higher supply levels of quality assets."

Spain, Savills suggests, has seen similar wider economic issues and anticipates structural reforms and the dynamism of exports to drive economic recovery.

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However, the firm reports that since the creation of SAREB, which sees €50bn of loans transferred, the deleveraging process of the banks has accelerated with loan portfolios and distressed assets, particularly residential units, coming on to the market.

In 2012 total investment amounted to just over €2.1bn reflecting an increase of over 10pc since 2011, the weakest recorded year in Savills' time series, but cross-border investment is still limited suggesting buyer and seller expectations have not yet converged.

Jose Navarro, deputy managing director of Savills Spain, comments: "The Spanish economy is expected to go through another year of further depression but in the real estate markets we do believe that prices will bottom out, having dropped by up to 45pc from peak.

"This, coupled with a vehicle to improve transparency in the market, will encourage further investment from international parties."

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