Investment Opportunities in the Real Estate Market of SPAIN. Tuesday, 10 th May, 2005

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1 Investment Opportunities in the Real Estate Market of SPAIN Tuesday, 10 th May, 2005

2 Content Spanish Economy: an overview The Spanish Real Estate market 2

3 Spanish Economy: an overview The Spanish Real Estate Market 3

Geography Spain is the second largest country in the EU (in terms of

covers most of the Iberian Peninsula, which it shares with Portugal,

Canary Islands in the Atlantic Ocean and the North African cities of

4 Geography Spain is the second largest country in the EU (in terms of territory) Total extension: 506,013 km 2 The territory of Spain covers most of the Iberian Peninsula, which it shares with Portugal, and also includes the Balearic Islands in the Mediterranean, the Canary Islands in the Atlantic Ocean and the North African cities of Ceuta and Melilla. Over 4,000 km. of beaches Climate is mostly Mediterranean 4

5 Population Approximately 56.4% of the Spanish population is between years old Population pyramid in over years old years old years old 16.8 % 16.4 % 40% retirement 2nd move to smaller home (children leave home) 1st buying 1st moves (family growth, economy.) Million men Million women The years old group helps to push up housing demand Source: Eumed and INE, Instituto Nacional de Estadísitca (National Statistics Institute). 5

6 Population A 64% of labour force in Services sector Labour force structure by economic sector in 2004 Construction 12% Industry 19% Services 64% Commerce 27% Others 37% Corporate services, rental and property services 14% Public administration 11% Agriculture 5% Hotel & catering 11% Source: INE 6

Political Institutions Spain is organised into 17 Autonomous Communities (Regions) Greater concentration of Real Estate business Spain is a parliamentary monarchy.

7 Political Institutions Spain is organised into 17 Autonomous Communities (Regions) Greater concentration of Real Estate business Spain is a parliamentary monarchy. The Constitution of 1978 assigned three different powers: Legislative Executive Parliament Government Judicial judges The Autonomous Communities are financially autonomous and also receive allocations from the general State budgets. As a result of this structure, Spain has become one of the most decentralized countries in Europe 7

Economy GDP growth continues to be faster than the average growth of the EU GDP (Gross Domestic Product) at market prices (% growth rate) 6 Main growth drivers: 5 4 3 2 1 0 Spain EU I II III IV I II

8 Economy GDP growth continues to be faster than the average growth of the EU GDP (Gross Domestic Product) at market prices (% growth rate) 6 Main growth drivers: Spain EU I II III IV I II III IV I II III IV I II III IV I II III IV a) Internal Demand b) Capital investment c) Construction Factors that have a negative impact: a) Trade deficit b) Higher inflation than EU c) Relocation of industrial product to Asia and North-Africa Source: INE and Eurostat. 8

Economy but inflation remains above the EU average too Evolution of Inflation (Harmonised Consumer Price Index) 4.5 4,5 4 3.5 3,5 Spain 3 2.5 2,5 EU 2 1.5 1,5 1 0.

9 Economy but inflation remains above the EU average too Evolution of Inflation (Harmonised Consumer Price Index) 4.5 4, ,5 Spain ,5 EU , ,5 0 Jan 1999 Jan 2000 Jan 2001 Jan 2002 Jan 2003 Jan 2004 Jan 2005 This is the cost that Spain is paying to reach the EU Economy level Source: BBVA and Eurostat 9

10 Spanish Economy: an overview The Spanish Real Estate Market 10

years in Spain Main Society and Cultural

More employment for young population Baby

housing affordability Almost 88% own their

11 The Spanish Real Estate Market A Real Estate boom has been driven in the last 10 years in Spain Main Society and Cultural Factors of the Residential Market Expansion More employment Higher participation of women in labour market More employment for young population Baby boom Imply more income per household Foreigners resident in Spain Spanish people have few Strong immigration 1,448,671 Spanish culture interest in renting because renting cost is almost 80% housing affordability Almost 88% own their own flats Source: INE, BBVA, Seopan and Banco de España 11

Market Expansion Evolution of Euribor Better financial conditions Jan

31 Jan 2005 % Mortgages Reduction in price Increase on the term

5 (spread) Relation Spain/Europe Investment No alternative investments

12 The Spanish Real Estate Market A Real Estate boom has been driven in the last 10 years in Spain Main Economic Factors of the Residential Market Expansion Evolution of Euribor Better financial conditions Jan Jan 2001 % Jan 2002 Jan 2003 Jan Jan 2005 % Mortgages Reduction in price Increase on the term Increase on the loan to value (LTV) ratio Margin (spread) Relation Spain/Europe Investment No alternative investments Even 0% returns = European convergence GDP per capita Market housing prices Source: INE, BBVA, Seopan and Banco de España 12

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 The Spanish Real

change (%) 30 20 10 Housing prices That means high increase in leasing prices but there s not

13 The Spanish Real Estate Market that has caused revaluations near 20% p.a. Housing prices and yield Year on year change (%) Housing prices That means high increase in leasing prices but there s not margin to keep increasing 0 Housing yield -10 With a stable annual yield for the rent Source: Banco de España 13

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 * The Spanish Real Estate Market Foreign investment in Real Estate has multiplied by 8 in the last 10 years in Spain Foreign

14 * The Spanish Real Estate Market Foreign investment in Real Estate has multiplied by 8 in the last 10 years in Spain Foreign Investment in Spanish Real Estate (Million ) ,000 1 Cross- Border investment reaches the equivalent to 1% of the GDP , , , , , , , , , , , , , , , ,1 0 Foreign Investment in RE % on GDP * Jan-Nov 2004 there is too much money in the market but a few opportunities for high yields Source: Banco de España 14

aggregates Forecast Real Estate Supply and

56 % Good to Invest in Real Estate Inflation

15 The Spanish Real Estate Market A Macroeconomics analysis of principal aggregates Forecast Real Estate Supply and Demand Interest rate Employment Strong in demand Stand by, slightly up ( ) Unemployment rate % Good to Invest in Real Estate Inflation Stand by, 3%-3.5% Brent price Exchange rate /$? 1.3 $ / (1)?? (1) Source: Cinco Días.13th of April of

The Spanish Real Estate Market What happens with Oil Price? Brent Oil Price (1) ($- barrel) 60 55 50 45 40 35 53.37 $ 41.

16 The Spanish Real Estate Market What happens with Oil Price? Brent Oil Price (1) ($- barrel) $ % 73% $ * Brent ($/b) Brent ( /b) * 22nd April 2005 (1) Source: INE, Expansión 16

17 The Spanish Real Estate Market Increasing on Spanish Real Estate demand would press on yields down More demand than supply Leasing standing/increasing but not so much According to ULI report (*) 3.9 Bill. more in two years from EU pension funds Decreasing on yields (*) Trends In Real Estate Europe 17

The Spanish Real Estate Market Returns in Spain Returns (in %) 2000 2001 2002 2003 2004 Office 6% 5.75% 5.

18 The Spanish Real Estate Market Returns in Spain Returns (in %) Office 6% 5.75% 5.2% 5.5% 5.4% Retail 7.5% 7,3% 7.3% 6,6% 6% Industrial 10% 10% 9% 8% 7% Residential 3.8% 3.4% 3.1% 2.8% 2.4% Source: IPD, JLL 18

19 The Spanish Real Estate Market Investment Market Building City Buyer Price (Millions ) Foreign investment in Spain Ed. Telefónica C/ Ríos Rozas 26 Madrid Peabody Fund Renault Building Madrid Metrovacesa 170 Pº Castellana REPSOL Madrid Metrovacesa 70 Albacete 5 Madrid Realia 60 Other sectors 59.5% 40.5% Real Estate Pº Castellana, 92 Madrid Pontegadea 57 Ed. Torre Diagonal Litoral Barcelona BBVA Inmobiliaria 65 World Trade Center Alameda (3 buildings) Barcelona Siemens 75 Ed. Torre Tarragona, 161 Barcelona CS Euroreal 62 Pº de Gracia, 16 Barcelona Pontegadea 55 Viviendas PAU Las Tablas Madrid BCSH Inmobiliario Oficinas Torre L Hospitalet Barcelona BCSH Inmobiliario 59.7 Source: Knight Frank, Expansión 19

20 The Spanish Real Estate Market Real Estate Investment in Spain No Bubble for next 2 years Low Risk Currently Low Yields Few Opportunities 20

21 The Spanish Real Estate Market How to invest in Spain Other Families 1 Through Joint Venture with: Bank 2 Supported by an investing market adviser 21

Spanish economy A spotter s guide to the Spanish economy

Banco Sabadell Investor Relations Spanish economy A spotter s guide to the Spanish economy This document has been prepared by: Investor Relations at Banco Sabadell - investorrelations@bancsabadell.com