Last week the Spanish government announced its latest batch of half-hearted measures to throw a life line to developers, and revive Spain’s flagging housing market: A 3 billion Euro credit line for developers who put their unsold inventory of homes up for rent, and the introduction of real estate investment trusts (REIT) to facilitate property investment. The measures were announced by Zapatero, the Spanish president, in a heated parliamentary debate on Spain’s economic crisis.
The 3 billion Euro credit line, from Spain’s Institute of Official Credit, a government agency, will be made available to developers struggling to refinance their debts. Developers with an inventory of unsold homes will get access to fresh funding from the ICO if they put their properties on the rental market.
Given the hundreds of billions of Euros of debts accumulated by developers in recent years, fresh funding of 3 billion Euros is a drop in the ocean that is unlikely to make much of an impact. It will, however, help some firms survive for the time being. For their part, developer associations welcomed the announcement.
The impact is further limited by the fact that many of Spain’s 500,000 plus unsold new properties have been built as holiday homes on the coast, and holiday rentals will not qualify for help. This means developers of holiday homes on the coast will not get access to the ICO’s funds. The main beneficiaries will be developers of residential property in areas of strong rental demand, in or close to cities.
Opinion is divided as to what good, if any, the introduction of REITs will bring. For a start, the timing couldn’t be worse. In the present market most investors are giving Spanish real estate a wide berth. That said, Spanish REITs are unlikely to appear anytime soon, given the complexity of these investment vehicles, the legislative changes required to introduce them, and the slow pace at which the government is likely to move.
All told, the government’s new measures may do nothing more than give breathing space to a few favoured developers at the tax payers’ expense.
You could argue that the government shouldn’t be bailing out any developers, but the government is right to limit its interference to a few futile gestures. What the Spanish property market needs now is a big drop in prices to get demand going again, and there’s not much the government can do about that.