Spanish residential property investment opportunity Why Costa de la Luz? A specialist real estate advisory team focused on identifying, for our clients, property investment opportunities in golf developments along the Costa de la Luz Section I: General Overview of the Spanish Housing Market 2 Spanish House Prices remain affordable for northern European buyers Spanish house prices have risen significantly, yet they remain differences are more acute when compared to key Northern Europea affecting our business will be the purchasing power of foreigners ( Spain. Spanish average house price evolution 1987-2003 Average property price 3,000 2,000 Property price evolution in Spain compared to property prices é/m2 1,000 1987-2003 CAGR 10.1% Spanish house prices and0 GDP relative to the EU - 2002 Averag 140 1987 120 1988 cheap when compared to property prices across most of Northern Europe. 1989 100 1990 in particularn cities, Northern home to Europeans)our target market. who intend The tomost purchase important a property macroe along coa 80 1991 Finland 1992 60 Norway 1993 40 1994 Sweden 1995 20 1996 2001 GDP per capita - Relative to EU average Denmark Spain 0 1997 Sources: INE, UK land registry, HBOS, Department of 1998 40 60 80Greece 100 120 140 160 Européenne de l'Immobilier, Bulwein AG, Ministerio France 1999 3,000 Austria 2000 2001 Netherlands 2,000 Germany 2002 /m2 2003 € Ireland 1,000 in EU countries Italy € /m2- Relative to EU average UK 0 UK s in EU countries - 2002 Ireland Italy Economy, Switzerland, RICS, Statistics Norway, Sta Netherlands de Fomento, Titan research 4,000 Germany conomic factor 3,000 e property pricesAustri ofa European cities - 2002 /m2 France € 2,000 The Denmark 1,000 Norway stal Sweden 0 Greece Spain London Portugal Paris Finland Stockholm tistics Finland, Statistics Sweden, Denmarks Statis Amsterdam Dublin Frankfurt Madrid Barcelona Seville Malaga tik, Gunne, Confédération Valencia 3 Affordability According to the OECD, Spain is 14% cheaper than the EU 15 average. Moreover, it is 17% cheaper than the UK and 13% cheaper than Germany, countries that represent 40% of Spanish foreign visitors. The purchasing power of Spanish consumers is slowly converging with the EU average and, at €15,000, it is still substantially below the average EU income per capita of €23,000. Price Levels vs EU 15 Average 25% 20% 15% 10% 5% 0% -5% Italy Spain Ireland Austria France Finland Greece Sweden Belgium Portugal -10% Denmark Germany Luxemburg Netherlands EU 15 Average -15% United Kingdom -20% -25% -30% Source: OECD Main Economic Indicators 2003 4 Foreign Investment in Residential Housing BBVA research indicates that residential property investment by foreigners reached €3.5 billion in the first half of 2003. Foreign demand has grown between 20% and 40% per annum every year since 1999. Foreign residential property investment Source: BBVA, October 2003 5 Tourism trends fuelling a more permanent venture • Spain received 79 million foreign visitors/tourists in 2002 • Northern Europeans are fascinated by Spain. 85% of the tourists who visited Spain in 2002 were “repeat” customers and 75% had been to Spain three or more times, and more than 65% of them planned to return within 12 months. Coastal Spain attracted 86% of tourists in 2002 • Tourists spent € 38.5 billion in Spain in 2002 • August is the peak month • 750,000 golfing tourists go to Costa del Sol each year, boosting tourism by 15%. Last 3 years 60% increase in spending on golf related tourism • British and German visitors represent 40% of the tourists visiting Spain. This figure has remained constant • Tourists by origin (millions) – 2003 : England 14.5; Germany, 10; France, 8; Italy, 2.5; Netherlands, 2.4; Belgium, 1.8; Portugal, 1.7 • Andalucia is the region where tourists use hotels the least, staying mainly in rental properties or with friends and families • The average stay is 10 days. Tourists who stay at hotels normally stay for shorter periods (8 days), while people who rent or stay with friends stay for longer periods (16 days) • 45% of tourists stay between 4 and 15 days • 60% of English tourists come on “organized trips/holiday packages” • Tourist arrivals via low-cost carriers grew 40%, reaching 2.6 million in 2002 • Hotel occupancy across Spain, during 2002 was 58% Source: Anuario Estadistico, INE 6 Immigration trends There are currently 1.45m registered foreigners in Spain (Ministerio del Interior). Coastal Mediterranean provinces have the largest number of registered foreigners. Over the last eight years the number of registered foreigners in Spain grew at a CAGR of 52%, compared with 7.5% in the previous decade (1985 – 1995). Forty percent of registered foreigners reside in coastal provinces, and represent approximately 5% of the local population in these areas. Approximately one third of registered foreigners are EU nationals. Many more EU citizens who live or have a second home in Spain choose not to register. For example Deloitte & Touche estimates that more than 500,000 British nationals own a second home in Spain. Foreigners in Spain 1975 – 2003 (June) 1,600 1,448,671 1,400 1,324,001 1,200 1,109,060 1,000 895,720 800 600 538,984 Registered foreigners (000's) 400 430,422 165,289 200 241,971 0 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: Ministerio del Interior, Delegacion del gobierno para la Extranjeria y la Inmigracion 7 Coastal property is surprisingly still cheaper than national average According to Hamptons International, around 2.5 million people live on the coast. This number is expected to rise to 10 million by 2011. Average property prices along the southern costas have historically traded at a discount to the national average. Average price growth in focused costas versus the national average 2002 property price comparison 1200 1400 1200 1000 1000 800 800 /m2 € /m2 € 600 600 400 400 200 200 0 1987 1991 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Costa de la Costa del Costa Costa Costa National Luz Sol Almeria Calida Blanca average Costa de la Luz Costa del Sol Costa Almeria Costa Calida Costa Blanca National average Note: Titan’s definition of ‘Costa’ when analysing property prices, is to include any local municipality along the coastline, but not to include inland municipalities Source: Ministerio de Fomento, Titan Investments research Source: Ministerio de Fomento, Titan Investments research Convergence towards the national average has been most evident in Costa del Sol and Costa Almeria. In the period 1999-2002, Costa del Sol property prices have risen 77% (CAGR 21%) according to the Ministerio de Fomento. This compares to a 54% (CAGR 15%) increase for the national average. Other costas have risen in line with Spain’s average, with the exception of Costa Almeria, which rose 61% (CAGR 17%) since 1999. Costa de la Luz remains the cheapest costa. 8 Comparison of rental yield potential and principal appreciation Our research indicates that the current rates of price appreciation in Costa del Sol are not sustainable. We believe that tourism will remain strong in Costa del Sol, but other costas will have stronger price appreciation as they converge towards Costa del Sol prices over the next five years 5 year historical rolling CAGR %, based on regional house prices Indicative assessment of growth rates – 2003-2008 Average Discount to average 20% price/m2* price in Costa del Sol Price CAGR 2003 2003 2008 2003 - 2008 Costa de Sol 3153 0% 0% 3.0% 15% Costa de la Luz 1948 38% 15% 9.5-10.5% Costa Almeria 1778 44% 35% 5.5-6.5% Costa Calida 1501 52% 30% 11.0-12.0% 10% Costa Blanca 2178 31% 20% 5.5-6.5% 5 year CAGR% 5% 0% 1996 1997 1998 1999 2000 2001 2002 Costa de la Luz Costa del Sol Costa Almeria Costa Calida Costa Blanca Source: Ministerio de Fomento * Based on our analysis of current average prices for two bed/two bathroom apartments in developments overlooking Frontline Golf or beachfront Costa de la Luz Costa del Sol Costa Almeria Costa Calida Costa Blanca Average rental yield* 5.9% 10.3% 6.5% 5.8% 7.6% Principal appreciation 8.0-9.0% 3.0% 5.5-6.5% 11.0-12.0% 5.5-6.5% – Expected growth until 2008 ** *Rent is based on average seasonal weekly rents for a 2/3 bedroom apartment. High season is assumed to be 12 weeks, Low season 40; High season occupancy 80%, Low season occupancy ranges between 40-60% depending on location ** Inflation assumption 3% Source: Homes Overseas, Rental agencies, Titan Investments research 9 Section II: Overview of Costa de la Luz Not only charming and beautiful, Costa de la Luz also has superb property investment opportunities 10 Where is Costa de la Luz Costa de la Luz is the coastline of the two Spanish provinces of Huelva and Cadiz. It faces both the Atlantic and the Mediterranean. Map of Europe illustrating Costa de la Luz Region of Huelva Region of Cadiz 11 Costa de la Luz – Portuguese border to Sotogrande Land is still attractively priced and developers are focusing their attention on this region. The leading real estate agencies of Costa del Sol are starting to open offices in the Costa de la Luz. The region’s international profile will likely be enhanced in the immediate future. Costa de la Luz is the western part of Andalucia’s coastline and borders both the Atlantic and the Mediterranean. The Andalucia tourist site describes these 417 km of coastline as ‘beautiful golden sands and small seaside towns devoted to national tourism.’ The coast has been guarded from over development by local municipalities, conscious of protecting the local seafood industry.