Financial Times


December 14, 2014 3:16 pm

Catalonia’s independence bid is harming property market, says CEO

Thomas Hale in Madrid

One of Spain’s largest property companies has warned that Catalonia’s bid for independence is beginning to affect real estate investment in the region.

“The problem with Catalonia is hurting the market a lot, particularly the Catalan market,” Ismael Clemente, chief executive of Merlin Properties, told the Financial Times.

Spain’s real estate market, which suffered badly in the economic crisis, has since attracted investors betting on recovery.

Merlin Properties, a real estate investment trust, (Reit) floated in June, raising €1.25bn in Spain’s biggest initial public offering in three years. The March IPO of Hispania Activos Immobiliarios, another real estate investment trust, attracted investment from financiers George Soros and John Paulson.

“Spain is clearly at the entry point of a prolonged recovery cycle, macro-economically and in real estate,” Mr Clemente said. “The only problem is external, non-economic factors,” he added.

In Catalonia, the campaign for independence has become increasingly vocal. Last month, a poll in which 2.3m of the region’s 7.5m people voted showed more than 80 per cent in favour.

“We’ve seen a swing in investor sentiment regarding Catalonia,” Mr Clemente said. “Investors are asking to run stress scenarios in which income deriving from the Catalan region converts into a local currency which subsequently suffers devaluation.”

Reits, called Socimis in Spain, are listed companies which invest in real estate and pay no tax on rental income from their portfolios. In Spain, they must pay out at least 80 per cent of their profits in dividends to investors.

Merlin, which invests in commercial real estate such as offices and shopping malls, is not pulling out of Catalonia. The company has €200m of its €2.2bn portfolio in the region, and will continue to add properties, Mr Clemente said.

The Catalan government said political tensions are not having a negative impact. “We are seeing an increase in investment because of the recovery,” Joan Josep Berbel, director of Invest in Catalonia, said. “From the whole pipeline of projects we are managing, less than 1 per cent of the companies are asking about this issue.”

Real estate analysts suggested that Barcelona still stands to benefit from a continued recovery in Spain, but that political risk may temper the boost it receives.

“On the one hand, Barcelona is benefiting from the recovery,” said Patricio Palomar Murillo, head of alternative investment at CBRE Spain, a commercial real estate company. “However, the region is not maximising investment because of continued political risk.”

Mr Clemente also cited the political landscape in Spain as another “non-economic factor” that is beginning to complicate the narrative of recovery, and highlighted Podemos, the new anti-establishment political party.

“The birth of populist movements like Podemos is clearly putting a question mark over the extent and intensity of the recovery,” he said.