Main vehicles for real estate investment in Spain
Real estate investment in Spain has experienced remarkable growth in recent years, making it an attractive focus for both domestic and international investors. Larger cities, such as Madrid and Barcelona, remain the focus of attention, but other less traditional regions, such as Alicante, Málaga and Bilbao, are seeing a significant increase in interest and investment. Diversification of investment has also played an important role, with investors seeking not only residential properties, but also commercial space, offices, hotels and tourist developments. In this article, we explain the main vehicles for real estate investment in Spain.
Real estate investment vehicles: capital companies, REITs and collective investment institutions
Making real estate investments through capital companies
We could start with a simple capital company; a limited liability company or a public limited company, which is endowed with funds to proceed with the investment. This is perhaps the simplest and most straightforward form, but also the one that offers the least opportunity for tax savings in terms of investment returns.
Real estate investments through REITs
Moving on to more sophisticated vehicles that offer better returns in terms of taxation, the first thing to mention are the Real Estate Investment Trusts (REITs). REITs are vehicles that (i) must have a minimum share capital of €5,000,000, (ii) their corporate purpose must be exclusively for the acquisition and development of real estate or land for lease, (iii) must not have a minimum number of shareholders, (iv) must be listed on a regulated market or multilateral trading system, and (v) are taxed at 0% for corporate income tax purposes provided that dividends are distributed.
Real estate investments through collective investment institutions (IICs)
Another alternative, when the vehicle to be set up is intended to be marketed to a group of investors, are collective investment institutions (IICs). While some of these vehicles are taxed at 1%, it is important to analyse each specific case taking into account the type of vehicle to be set up, the client’s profile and other circumstances, as this tax rate may vary.
Within IICs, there are open IICs and closed IICs.
Differences between open and closed-ended IICs
Open-ended IICs are those in which the number of shares/quotas issued is not fixed and investors can request repurchase or redemption, directly or indirectly, against the assets of the IIC in certain windows.
In the closed ones, the number of investors is closed and there is no possibility to request repurchase, therefore, they have to wait until the moment when the vehicle is dissolved or liquidated.
Open-ended IICs
In the case of open-ended IICs with a real estate investment objective, we find:
- Real estate investment funds and companies (FII and SII): they must have a minimum of 100 unit-holders and a minimum assets under management of 9,000,000 euros ( for funds) and 100 shareholders and a minimum share capital of 9,000,000 euros (for companies); 70% of the annual average monthly balances must be invested in real estate in the case of funds and 80% in the case of companies; and they must calculate a net asset value on a monthly basis.
Moreover, they can be marketed to any type of investor, i.e. there is no requirement for professional investors.
- Funds and Free Investment Companies (FIL and SIL): they must have a minimum of 25 unitholders and assets under management of at least €3,000,000 (for funds) and 25 shareholders and a minimum share capital of at least €2,400,000 (for companies); obligation to calculate the net asset value on a quarterly basis.
Investors to whom the vehicle is to be marketed must be professional investors or investors investing €100,000, or investment on the personalised recommendation of an intermediary providing the advisory service, provided that, if their financial assets do not exceed €500,000, the investment is at least €10,000 and does not represent more than 10 % of those assets.
Closed-end IICs
As regards closed-end IICs, the alternatives for investment in real estate are as follows:
- Closed-end collective investment funds (FICC): no minimum number of unit-holders; no minimum amount of assets required for incorporation, but no in-kind contributions can be received.
The requirements for investors to market these vehicles are the same as those indicated above for FIL and SIL.
- Closed-end collective investment companies (SICC): Same requirements as for FICCs, but for self-managed companies, i.e. those that do not appoint a management company, the minimum capital will be €300,000.
Investor requirements are the same as for FICC, FIL and SILs.
Do you need advice? Access our area related to real estate investment vehicles in Spain: