Contents

1. Key Summary Points

2. Why Spain?

3. Why Costa del Sol?

4. The Spanish Property Market

5. Mediterranean Coastline Property Market

6. The Golden Triangle – Real Estate Focus

7. Conclusion

Disclaimer: No representation or warranty of accuracy - While Smart Property Professional has made all reasonable efforts to ensure

that all information in this document is correct, accuracy cannot be guaranteed and Smart Property Professional does not assume any

responsibility for the accuracy, completeness or authenticity of any information contained in third party statements and statistics. This

document, and all information, assumptions and materials contained herein, are for initial interest only and accuracy should be

ascertained in following communications.

Market Overview Report - Key Summary Points

1. Number 2 destination for tourism - In 2012, Spain was the number 2 destination for

tourism in Europe with 57.7 million tourist arrivals, a 6.6% increase on the previous year.

However, in economic terms Spain was the second largest tourism market in the World

accounting from 55.9 billion US dollars a 14% increase on the previous year.

Source: UNWTO World Tourism Barometer 2012 – view detailed chart

2. Increases in tourism in 2013 - Spain has seen continued increases in tourism in 2013 with

all key source markets showing notable increments on the previous year, including British

+9%, German +13.2%, Dutch +6.8%, Scandinavian +20.2% and Russian +30%.

Source: IET May 2013, European Travel Commission 2013-08-08 – view detailed chart

3. “The summer of recovery” - The Mediterranean Coastline and Costa del Sol have

benefitted from a large proportion of the increased tourism showing a 5.7% total increase

year on year.

Source: IET May 2013

4. Positive growth - Year on Year evolution of property pricing on the Mediterranean

coastline is starting to show positive results, after a consistent downward trend since 2007,

2013 figures are now starting to show a move towards positive growth

Source: Tinsa / IMIE June 2013 – view detailed chart

5. New development construction in Spain –New development construction in Spain has

literally ground to a halt over the past four years. In total, some 86,252 homes were started

in Spain in 2011, compared to 762,540 in 2006; an 88.7% drop from peak levels. This pattern

has remained consistent to date.

Source: Ministry of Public Works – view detailed chart

6. 13.6 per cent increase in the number of buyers - The latest figures released by the GCN

(General Council of Notaries) confirm that overseas investors are once again buying in Spain.

Its data reported that the number of home purchases made by foreigners in Spain during the

first six months of 2013 grew by 13.6% compared with the same period of 2012, reaching

24,552 transactions.

Source: General Council of Notaries

7. Large scale external investment beginning to absorb oversupply - Sareb (Spain’s bad

bank set up in 2012 to absorb the property assets of eight lenders) recently agreed to sell a

majority stake in a group of almost 1,000 homes known as Project Bull to private-equity

firm H.I.G. Capital LLC, a Miami based private equity firm, its first divestment of a real estate

portfolio. The properties are valued at about 100 million euros ($133 million).

Source: Bloomberg, August 9 2013 Click here to view full article..

8. Foreign nationals investing heavily in Spain - On a national level, foreign investment in

Spanish real estate reached 2,834 billion Euros in the first half of 2013, the largest amount in

nine years. The Bank of Spain reported that foreign direct investments in properties

increased by 16% in the first half of the year compared with the same period of 2012. This is

a constant upward trend which saw foreign nationals spending €5.54 billion on Spanish

property in 2012, compared with €4.7 billion in 2011, and €3.6 billion in 2009.

Source: Bank Of Spain

9. Foreigners now make up 12 per cent of the Spanish property market - Analysis of figures

from the Department of Housing by Spanish Property Insight shows that foreigners now

make up 12 per cent of the Spanish property market, and could be ‘crucial’ to any recovery.

Source: Department of Housing

10. Most premium real estate in Southern Spain - Marbella, the provinces premium real estate

market has seen a vast increase in the level of residential property sales, the volume of sales

on the “Golden Triangle” (Marbella, Benahavis & Estepona) increased by 21.1% in 2012, with

consistent activity in 2013 reporting a 25.4% increase in regional property sales for the third

quarter of (July to September) 2013.

Source: Ministerio de Fomento (Ministry of Public Works)

Why Spain?

Spain is one of the most popular tourist destinations in the World and continues to benefit from

ongoing growth as a holiday destination. In 2012, Spain was the number 4 destination globally in

terms of tourist arrivals, and the number 2 destination in Europe. However, in terms of tourist

receipts, Spain was the no.2 destination in the World accounting for 55.9 billion USD.

Source: UNWTO World Tourism Barometer- click here to view Chart..

According to the IET - Spain’s Institute of Tourism Statistics, Spain registered the best ever tourism

figures for the month of May 2013, as recorded by Frontur, the government research agency.

“The report shows a 7.4 % increase of foreign visitor’s year-on-year, a growth of nearly 400,000

tourists on 2012”

Source Markets – Visitor Highlights:

British tourists, as usual represent the majority of visitors, with Germans following in second place.

During May 2013, the British and German markets saw 9.4% and 13.2% increases in visitor numbers

respectively. The French market was up 5.9% and the Scandinavian market registered a massive

increase of 20.2%, the thirteenth month of increase in succession. Other growth markets highlighted

in the report were Italy, Dutch, Belgium and Switzerland. However, Russian tourists have shown one

of the most dramatic increases in 2013, showing over 30% increase in visits to Spain on the previous

year (source European Travel Commission, 2013).

0.00% 5.00% 10.00% 15.00% 20.00% 25.00%

Total

British

German

French

Dutch

Scandinavian

Spanish Tourism – Year on Year Growth of Key Source Markets (IET May 2013)

Andalucía continues to be one of the key tourist destinations in Spain receiving around 780,000 tourists in May 2013 alone, a 5.7% increase on the previous year.

Why Costa del Sol?

The Costa del Sol or literally “Coast of the Sun” is renowned as one of the most desirable

destinations in Spain for Mediterranean coastline holidays.

Recent tourism statistics on the Costa del Sol have created a media buzz – naming this summer the

“Summer of Recovery” for the more established tourist destinations – click here read the full article.

Recent statistics from the Instituto de Estudios Turísticos show that tourist arrivals on the Costa del

Sol in June 2013 stood at 817,000 a 2.5% increase on 2012.

Following suit with the rest of Spain, the main source markets consistently were comprised of British

and German tourists – with marked growth from the Scandinavian and Russian markets.

The Costa del Sol covers the main coastal destinations from Malaga through to Gibraltar, offering

not only popular tourist accommodation and resorts but some of the premium real estate in Europe,

particularly centred around Marbella and its surrounding suburbs.

The Spanish Property Market

Whilst the Spanish property market has undergone dramatic readjustment over the past 6 years

since its peak in 2006 – there are encouraging signs both on a macro and micro level.

Recent statistics reported by Tinsa, one of Spain’s largest property valuation companies, show that

year on year evolution of property prices has started to show levels of stabilisation.

Source: Tinsa - 2013

New development construction in Spain has literally ground to a halt over the past four years. In

total, some 86,252 homes were started in Spain in 2011, compared to 762,540 in 2006; an 88.7%

decrease from the peak levels. Source: Ministry of Public Works - click here view chart.

The market has been impacted by a number of distressed sales from individual owners and financial

institutions off loading their repossession stock; this is now beginning to absorb levels of oversupply

and show positive signs of price recovery.

The absorption of oversupply is not by any means limited to individual property purchases of

Spanish bank held real estate, there are a number of international property funds and large scale

investment entities looking to invest in stock and manage the disposal of the banks property

portfolios.

A recent article published by Reuters’ highlights the interest from U.S. investment firms Cerberus

Capital Management, Centerbridge Partners and Lone Star who are among those preparing to join a

preliminary round of bidding for Santander's Altamira Real Estate.

In addition, Sareb (Spain’s bad bank set up in 2012 to absorb the property assets of eight lenders)

recently agreed to sell a majority stake in a group of almost 1,000 homes known as Project Bull to

private-equity firm H.I.G. Capital LLC, a Miami based private equity firm, its first divestment of a real

estate portfolio. The properties are valued at about 100 million euro’s ($133 million). Source:

Bloomberg, August 9 2013 Click here to view full article..

The levels of oversupply vary across the autonomous regions of Spain, with demand for higher end

coastal resorts showing to be of particular interest to investors, and beginning to meet supply.

Recent activity has confirmed the interest in the Southern Mediterranean coastline with a number of

external investments being concluded in latter 2013 including:

Real Capital Solutions a U.S. based investment firm closed their first large scale investment in Qtr4

2013 with a 7.1 million Euro acquisition of residential real estate formally held by BBVR bank in

West Marbella, with a number of additional tenders currently in place with Spanish banks for large

scale coastal property acquisitions.

In another Marbella based acquisition, Naturhouse part of the Kiluva health and dietetics group have

recently confirmed a 35-40 Euro million investment into the formerly bank owned Las Dunas Five

Star hotel resort in West Marbella. The project includes the total renovation of the hotel which is

expected to open its doors in Qtr 1 2014 and is anticipated to benefit the local economy with

employment for a large number of skilled workers.

Mediterranean Coastline Property

Market

It is important to note that touristic markets such as the Mediterranean coastline perform on a

different basis to the general domestic property market, due to the benefit of external investment

from many Northern European buyers who are seeking holiday homes in warmer climates, but are

also taking advantage of the current low pricing levels and distressed property offerings.

Construction of new housing in the Malaga province has dramatically reduced since the peak of the

property boom, as with the rest of Spain; however the chart below also illustrates the level of free

(uninhabited) completed housing – which in 2012 stood at 3,094 a significant reduction from the

35,784 homes reported in 2006.

Source: Ministerio de Fomento (Ministry of Public Works)

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Malaga Region - Housing Supply

Houses Started Free Houses

Recent statistics provided by the IMIE show display a marked improvement in property price

evolution in these micro markets such as the Costa del Sol.

Year on Year evolution of property pricing on the Mediterranean coastline is starting to show

positive results, after a consistent downward trend since 2007, 2013 figures are now starting to

show a move towards positive growth.

Year on Year Evolution June 2012 – June 2013

Source: Tinsa / IMIE June 2013

The latest figures released by the GCN (General Council of Notaries) confirm that overseas investors

are once again buying in Spain. Its data reported that the number of home purchases made by

foreigners in Spain during the first six months of 2013 grew by 13.6% compared with the same

period of 2012, reaching 24,552 transactions. This is a constant upward trend which saw foreign

nationals spending €5.54 billion on Spanish property in 2012, compared with €4.7 billion in 2011,

and €3.6 billion in 2009.

“In the first half of 2013 alone, overseas investors spent €2.8 billion on Spanish Real Estate, the highest amount in

nine years, an increase of 16% on the previous year”

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Source: Bank of Spain Official Figures

Analysis of figures from the Department of Housing by Spanish Property Insight shows that

foreigners now make up 12 per cent of the Spanish property market, and could be ‘crucial’ to any

recovery.

It is also important to note that the Costa del Sol coastline commands a premium in terms of price

per square meter of new property in comparison to the other Southern Spanish Costas as illustrated

on the chart below.

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Overseas Investment In Spanish Property Billions Of Euros

Average Price per Square Metre – New Construction Property June 2013

Source: Sociedad de Tasacion – June 2013

The premium real estate sectors of the Costa del Sol have historically and remain to be the regions

of Marbella, Puerto Banus and their surrounding suburbs. The popular real estate term for these

areas is known as the “Golden Triangle” which encompasses Marbella, Benahavis and Estepona.

The Golden Triangle – Real Estate Focus

The Marbella region and specifically the “Golden Triangle” consist of some of the most premium real

estate in Southern Spain. The level of over construction in these more established areas is far more

limited than on the central Costas of Spain.

The national sales volume of new and used properties in Spain has slowed dramatically from the

peak levels in quarter 1 2006 of 251,640 homes to 75,642 homes in quarter 3 2012. Source: Tinsa

Outlook Report Q4 2012 – click here to view the full chart.

In comparison, the volume of residential sales in Marbella and peripheral areas (known as the

Golden Triangle) increased significantly in 2012 showing a 21.11% increase on the previous year.

“The Volume of residential property sales on the Golden

Triangle increased by 21.1% in 2012”

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Golden Triangle Property Sales Volume

Property Sales By Municipality

2006

2007

2008

2009

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2011

2012

Benahavís 650 633 438 559 422 311 592

Estepona 1,788 2,581 1,721 1,086 1,154 1,248 1,501

Marbella 4,432 3,568 2,110 2,199 2,389 2,259 2,531

TOTAL 6,870 6,782 4,269 3,844 3,965 3,818 4,624 Source: Ministerio de Fomento (Ministry of Public Works)

Consistent activity in 2013 reported a 25.4% increase in regional property sales for the third quarter

of (July to September) 2013.

The geographic origin of the property purchasers in the Golden Triangle confirms the direct

relationship with overseas investment and tourism trends, with the vast majority of purchases being

completed by the key Northern European tourist origin markets.

Golden Triangle Property Sales – Source Country

Source: Ministerio de Fomento (Ministry of Public Works)

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Conclusion

In summary, key market indicators are starting to display positive signs of improvement in the

Spanish residential property market.

Tourism is showing continued increases across the country with Spain ranking the Number 2

destination in the world in terms of tourist receipts in 2012 – a 14% increase in the previous year.

Specific micro markets such as the Mediterranean coastline and the Costa del Sol are the major

beneficiaries, with all key tourist source markets showing notable increments in 2013 to date – being

reported as the “Summer of Recovery” by local and national media.

In terms of the impact on property sales and housing prices, the national property index has

undergone dramatic readjustment over the past six years since the market peak in 2006, but is now

showing a return towards positive growth.

Specific micro markets that are predominantly fuelled by international investment are seeing far

more marked levels of improvement.

On a national level, foreign investment in Spanish real estate reached 2,834 billion Euros in the first

half of 2013, the largest amount in nine years. The Bank of Spain reported that foreign direct

investments in properties increased by 16% in the first half of the year compared with the same

period of 2012. This is a constant upward trend which saw foreign nationals spending €5.54 billion

on Spanish property in 2012, compared with €4.7 billion in 2011, and €3.6 billion in 2009.

Levels of oversupply in the primary micro markets of the Mediterranean coastline such as the Costa

del Sol, Malaga and Marbella are starting to disseminate. The level of free (uninhabited) completed

housing in Malaga province in 2012 stood at 3,094 a significant reduction from the 35,784 homes

reported in 2006.

Marbella, the provinces premium real estate market has seen a vast increase in the level of

residential property sales recently, the volume of property sales on the “Golden Triangle” (Marbella,

Benahavis & Estepona) increased by 21.1% in 2012, with consistent activity in 2013 reporting a

25.4% increase in regional property sales for the third quarter of (July to September) 2013.

The market has been impacted by a number of distressed sales from individual owners and financial

institutions off loading their repossession stock; however this is now beginning to absorb levels of

oversupply and show positive signs of price recovery.

There will still be a period of time before pricing levels begin to show marked increments as seen

before the global recession, however with demand showing very positive increases and supply

starting to heavily contract (particularly for more desirable property) the market is showing all of

the signs of early recovery.