A man walks past an unfinished block of houses in the neighbourhood of Cancelada, near Estepona, southern Spain November 30, 2012.© Jon Nazca / Reuters/Reuters
Picking the bottom on any market is usually a stupidly risky business, which explains why most investors place their bets when the asset class that appeals to them is already on the way up. Getting in a bit late is fine as long as you get out a bit early, that is, before the herd switches direction.
So what does Goldman Sachs know about Spanish real estate that no one else knows? It just bet heavily on that market.
Spain's property bust was the most gruesome in Europe, with prices down by a third or so since the 2008 financial crisis. The collapse destroyed the jobs millions of unskilled and semi-skilled workers, pushing the jobless rate to 26 per cent – Greek levels – and leaving many thousands of finished and partly finished housing projects empty. A good number of them are being razed, admission by the banks that those apartments and houses will never find buyers.
In spite of some predictions for more real estate value declines, Goldman Sachs and partner Azora, a Spanish fund manager, just plunked down €201-million ($266-million U.S.) for portfolio of apartments, mostly in Madrid. The seller was the Madrid regional government, which is struggling to close its budget deficit. According to the Financial Times, the deal follows the €125.5-million purchase by Blackstone of 1,860 rent-controlled Spanish properties. That sale was the first by Sareb, the "bad bank" set up to hold, and unload, the nationalized banks' dud real estate portfolios.
The Goldman and Blackstone deals may signal that the worst is over for the Spanish real estate market. Then again, the duo may have got their timing wrong.
On the plus side, there is little doubt that the worst is over for the Spanish economy. The jobless rate has actually fallen slightly, the banks have been bailed out and exports, thanks to an internal devaluation, are on the rise. Spain could be turning the corner.
On the negative side, the Spanish economy's recovery is bound to be slow and the glut of unwanted housing is astounding. In the quarter to the end of June, house prices were down 2.4 per cent from the previous quarter, and were down 7.6 per cent year on year, according to data released last month by the Spanish public works ministry. Net housing sales are still falling too.
Goldman's timing may be off by a few quarters, maybe longer. If the Spanish economy picks up, so might the housing market. Goldman didn't climb to the top of the Wall Street heap by getting its bets more wrong than right.
Eric Reguly