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Spain tweaks the odds on Blackstone's property bet

BUY when others are fleeing is an investing chestnut that has served those who punted on Spain's crisis-hit housing market well. Foreign investors like Blackstone have enjoyed fat returns after snapping up assets since the country's economic nadir seven years ago. But a government plan to bring in rent controls could end the seemingly unstoppable winning streak.

Newly elected Socialist Prime Minister Pedro Sanchez and far-left government partners Unidas Podemos are considering a radical fix for the country's runaway rents. Under the terms of a coalition agreement, they propose that Spain's ministry of public works construct a price index to limit rent increases. They have a valid beef. The median Spanish tenant spends a quarter of their disposable income on housing, well above a proportion of around one-fifth in Italy, Portugal and France, according to the Organisation for Economic Co-operation and Development.

Rents have increased by 50 per cent since the end of 2013, roughly double house-price growth, according to Bank of Spain research. Although the percentage of renters in Spain is low by European standards - around a fifth of the overall housing market - the proportion is growing quickly, especially among young people.

Such factors go a long way towards explaining why Spanish property became one of the hottest property bets over the past half-decade. Blackstone is now one of the country's biggest private landlords, with 15,000 multifamily rental units. The likes of Bain Capital and Cerberus have poured tens of billions of euros into houses, real estate developers and mortgage-backed loans.

Foreign investors may now look elsewhere. After all, they can earn comparable or higher returns in Belgium, Ireland, Poland and many cities in France or the Netherlands than the 3.5 per cent or 3.6 per cent rental yields on offer from prime residential property in Madrid and Barcelona, according to Catella, a consultancy.

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Rent controls could also hit all residential property values, according to one investor, by lessening the relative attraction of buying a home over renting one. There are some provisos. If rent controls lead to less housing supply, demand for property would likely rise, supporting prices. Fears of a housing shortage may persuade some regions to shun the controls.

Lastly, Sanchez has a fragile parliamentary majority of just two votes, potentially making it hard to enact controversial policies. Nonetheless, Spanish property no longer looks like a one-way bet. REUTERS

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