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Interview with Francisco Alacid

Can you tell me about Livalia’s investment philosophy?

It’s not our style to sell clients a property, and then let them figure out everything. We provide clients the entire investment service - from beginning to end. We take care of the rentals, and the resale of the property. From the moment you buy the property, to the moment you move on, we give clients an investment account and a statement, which shows their balance. We give financial advice, legal advice, a full service.

Livalia always focuses on returns on investment. We look for maximum return over a period of time – either emotional or financial. We have Caribbean properties with fantastic finishings where you would want to live, which would impress your friends. But we also we have rental properties you may never visit - but which will give great returns and growth in value.

But you are primarily developers?

Our partners come from the real estate development world, yes. After building over 30,000 properties in South East Spain, we crossed the Atlantic and started looking at Latin America and Central America. And we discovered a growing trend, that these countries were strongly emerging, and growing very fast. Some were becoming stable democracies, as in Europe. And we decided to start investing ourselves.

We began with Panama, purchasing about 150,000 square metres (sq.m.) on a Caribbean beach. Then we bought in Brazil, where we own about 2 million sq. m. After making these investments we decided to help other people get similar returns, and we founded Livalia.

We have found three countries that naturally fit that line of business: the Dominican Republic, Brazil and Panama.

What is the investment case for Panama?

Panama City’s environs have seen 15-20% annual value growth over the last years. We feel there has to be a limit to this. The growth cannot continue forever.

Yet most of the major investments in Panama have still not been built – the starting of the new canal is scheduled for October / November, the Energetic Centre for Latin America which will bring 50,000 jobs on the coast of Colón in the Caribbean is going to start in 2009/10… so most of the major projects which will bring investors and residents have not really started.

Though Panama may look overbuilt, only a small percentage of baby boomer investors would need to invest for Panama’s entire newbuild output to be absorbed. We believe it will happen. We expect the US economy will recover by early 2009. Tourism is at a very early stage, Panama has had a Ministry of Tourism for only five years. So we think rentals will continue to rise for the next 5-10 years. But we don’t see more than 2 or 3 years of prices rising at their present pace.

What attracts you to Brazil?

Brazil is our main focus, at the moment. It is the strongest new emerging market in Latin America, a massive economy, with 196 million inhabitants. Excellent growth. The data tells us that the North East area of Natal, where we are established, has at least 4-5 years of tremendous growth and fantastic opportunities.

Brazil just received investment-grade ratings. That means they can finance internationally, and some of that money will go into mortgages. The government’s economic policy is fostering a strong middle class. Imports are very heavily taxed, which promotes internal growth. People are visiting restaurants, traveling more often, and buying cars.

The interest rate on loans in Brazil has dropped by 6% in only 2 years. By our standards that is still expensive, you are talking of 11% for maybe 15 or 12 years’ loans. But for Brazilians it is fantastic. It allows them to buy properties. I still remember when in Spain 15-20 years ago, we had a 16% rate on mortgages. You can see that interest rates are going to come down, most people are going to start having access. When that happens, what normally follows is a real estate boom. Because right now people just cannot buy property.

According to the Government of Brazil there is a deficit of around 10 million properties. Natal has a deficit of close to 50,000 units, we are talking of units of E45-50,000 Euros, basically those are units that go to the local market. For an external investor, it is obviously a little bit more difficult, you have to come up with that money upfront, but from the perspective of growth and demand it is very attractive.

Why Natal?

Natal has several things that make it really attractive. No 1, it is the safest place in Brazil. It also has been certified by NASA as having the planet’s cleanest air, cleaner than Antartica. When you land you see, wow there is no pollution! So it is fantastic for tourism, and again, tourism is in its infancy but is growing rapidly, in fact Natal is the top tourist destination in Brazil. More beach resorts are advertised every day. The city also has a strong industrial economy, fishing, the manufacture of cotton. So demand is twofold, people on vacation, and locals.

Natal has two seasons, dry and wet, with an average of 26-7 degrees. It is always summer really, but when it rains, it rains. But it is not humid. Panama is a lot more humid and hotter.

It is said that the Dominican Republic will be impacted by enormous development plans. Is that why you are there?

At Livalia, we don’t believe things until we see them. In the Dominican Republic a lot is advertised – but will people really put their money where their mouth is? For example in Panama, last year, 37 projects were cancelled, mostly after money and reservations had been taken. Granted the money is given back, but this is not something that anyone wants to happen.

A couple of years ago I was in Dominican Republic, meeting some developers working on the harbour. Santo Domingo was going to be the place for the cruise lines, the whole area was going to be redeveloped, the military base was being moved. Well, it seems that the project is going along, but decidedly not at the speed we were told at the time.

In our opinion, in the Dominican Republic there are just too many large plans for the current global market. For instance, 45,000 units are being planned by a Spanish group. We ask: Who is going to buy?’ You can develop a high luxury resort for 45,000 people but where are you going to get the 45,000 who are going to put their money there, and do nothing with it? I have difficulty in imagining that.

That said, some of the best beaches I have ever seen are in the Dominican Republic. It is a beautiful place. Nature has really gifted it with wonderful resources.

So you are not recommending the Dominican Republic?

No, no, no – we are! Absolutely! The Dominican Republic is one of those investments where there tremendous emotional returns. It is a fantastic location. What you can buy is amazing with the value of the dollar nowadays. When I recommend the Dominican Republic, it is for someone who is looking for extreme pleasure, and leisure, to be close to fantastic golf courses, exceptional food, people treating you wonderfully, near the best beaches in the world, then the Dominican Republic is your place.

But if you expect a high growth in property values, a high return on rentals, then I would not advise the Dominican Republic. If you want capital growth of 10% minimum, and 7-8% rental returns, I would advise Panama. If you are looking at the long-term with low prices, then Brazil.

One very important thing - at Livalia, is we never hide anything. If the client is buying for the wrong reason we do not just agree with them. I would tell them, for what you want, this not appropriate. That is particularly important in countries which people don’t know, like Panama.

Has the global slowdown in real estate affected you?

Of course. A layer of the market is now dormant. The investor with only US$50,000 - US$70.0000 lacks confidence now.

On the other hand people with much more money are generally not really affected. They are interested. What they often want is to diversify their assets. They are often a little scared of the Eurozone. They may have a higher level of education, they can foresee that the US will come out of its problems in a year or two. They want to get into markets which will be ‘naturals’ for buyers from the United States.

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