Property market in Spain continues to perform poorly

Posted on June 27th, 2012 in Real Estate in Spain by author

Official figures released by Fomento, the Spanish government source, reveal that property values across the country fell by 37.5% last year compared to 2010. Excluding social housing, the country recorded a total of 307,931 house sales in 2011, representing an overall value of €50.5 billion.

The Property Register quotes slightly different figures but still shows the same depressing picture. According to the Property Register – 370,204 home sales including social housing took place in 2011. That means the Spanish housing market is now at its most contracted since the Property Register began releasing figures in 2005. In the final quarter of 2011 sales transactions declined by 11%.

The Property Register also revealed that only four regions control the property market: Andalucía, Catalonia, Madrid and the Valencia community have cornered nearly two thirds of the entire sector. Anyone researching figures on the Spanish property market should remember that global figures are not really representative of the actual picture in the country.

According the latest Asking Price Index published by Idealista.com, a leading property portal, asking prices for second hand homes and resales declined by an annual 3.4% during the first 3 months of 2012.

Fernando Encinar, head of research at Idealista.com, explained that the difficult lending situation and latest legislation introduced by the government to put pressure on banks and the property sector to continue with the strategy of making housing more affordable, has resulted in property prices sliding further downwards, a trend that is set to continue until the end of 2012.

“Today you can find homes at prices that seemed unthinkable, especially from the estate agents that are getting the best discounts in the market,” Mr Encinar added. Existing homeowners may be suffering thanks to lower asking prices, but newcomers into the market are happy about the greater affordability of homes.

Fomento’s figures also reveals that new planning approvals declined by 31% per annum in January with just 4,698 approvals being granted. Could this trend spell the end of the construction industry in the country? Once house builders were the driving force behind the Spanish economy, now they are at their wits’ end of how to stay afloat.

Meanwhile, BBVA, one of the country’s largest banks, has predicted the Spanish housing market will continue to contract with house values declining until at least 2013. Sales transactions are also predicted to decline by an additional 20% and house prices are to drop by another 15%, before the market has finally adjusted to rock bottom.

SOURCE: www.spanishpropertyinsight.com

Getting a foothold on the Spanish property ladder with distressed properties

Posted on March 31st, 2012 in Real Estate in Spain by author

Not every investor has access to large funds to start their property portfolio. Distressed properties in Spain present would-be investors with an ideal opportunity to get in on the buy-to-let or holiday-let market.

Jon Ainge, director of International Property Success, pointed out that, while banks have introduced far stricter lending criteria, which have made funding a property problematic for some investors, they are willing to advance mortgages on Spain’s distressed properties. Recently introduced legislation forces Spanish banks to shed the glut of properties on their books in order to reduce their exposure to under-performing assets.

Jon Ainge explained: “If banks currently finance a development they are keen to deleverage themselves of the current risk they hold – this is where you will find that most loans are not being issued in countries such as Spain.”

The recently published Global Distressed Property Monitor by the Royal Institution of Chartered Surveyors revealed that increased demand for distressed properties had occurred in the last three months of 2011, far more than in the previous quarter.

Industry experts forecast roughly the same number of distressed Spanish properties would enter the housing market in the first quarter of 2012 than there had been listed in the previous quarter.

SOURCE: www.propertyshowrooms.com

Spanish property prices continue the downward spiral

Posted on March 14th, 2012 in Real Estate in Spain by author

January’s house prices saw the worst depreciation since 2008 and, while this news was greeted cheerfully by potential foreign buyers, the Spanish press has expressed fears over a deepening of the crisis.

Spain’s new government, headed by the People’s Party, appreciated the “good” news, as lower prices mean greater affordability. Government officials are currently putting pressure on banks to cut prices for residential properties by launching higher capital requirements and making far greater provisions for bad debts and “undesirable” properties on their books, namely those properties that are unlikely to be sold.

Idealista.com, a Spanish online property expert, commented on January’s sales results as being “the worst month since the Spanish housing crisis started four years ago” and underpinned their statement with statistics that revealed a 9.4% decrease in a year-on-year comparison with 2011.

Traditionally, December and January are the worst months for selling property anyway, which means the average month on month decrease of 1.9% has to be seen in context. The average price per sq. meter is static at €2,000, meaning a typical 2-bedroomed holiday apartment still sells for just €130,000.

This is potentially good news, as low prices at desirable locations such as the costas have already caught the attention of international investors. Large numbers of self-catering tourists coming to Spain for their holidays have the potential to increase yields on rental income and Spain’s revenue from tourism was at a record high in 2011.

It is estimated that at least 36% of all bank-owned housing stock is in seaside locations. Such developments received generous funding during the housing boom years, when developers speculated on rising prices. Now such key-ready housing stock bargains are luring potential buyers from the Benelux countries, the UK, Germany and Scandinavia to Spain once more.

Propertyinspain.net, a specialist in bank-owned housing stock, described the whole debacle best by saying “crisis, what crisis? Price reductions are good news for both international and Spanish buyers.”

Is Spain’s government right after all? Affordability can be measured in two ways: who can afford to buy in Spain at what price? Domestic buyers have far less money to spend on properties located at the costas than international investors, but this has prompted Spanish buyers to look for property bargains in cities and towns, leaving the seaside housing stock largely to foreign buyers.

The Bank of Spain has told off the country’s banking sector, suspecting that prime properties are being held back until better market conditions are starting to surface. Housing stock that nobody else wanted has instead been offered at rock bottom prices to bank employees, their families and friends, even to long standing customers. Despite such tactics, some 600,000 housing units remain unsold to-date, representing a year’s worth of housing stock during 2007 peak times.

Spain’s banks will come under increasing pressure to release quality properties in prime locations at the costas onto the market to achieve more sales. They will also be called upon by the government and the Bank of Spain to come up with better incentives, so that international buyers can take advantage of lower prices and improved finance options.

SOURCE: www.propertyinspain.net

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People’s Party is being urged to introduce property reforms

Posted on March 2nd, 2012 in Real Estate in Spain by author

After a landslide victory, Spain’s brand new government formed by the People’s Party (PP) has a tall order to fulfil the expectations of an electorate that kicked out the last government, which it held responsible for the financial woes of the country.

When the People’s Party was last in power, they put their weight behind the real estate sector, because it generated huge revenue and jobs for the country. Voters are hoping the “Property Party”, as the new government has been nicknamed, will do so again this time round.

It’s not just overseas buyers who are asking for urgent reforms in the property sector – Spanish families have been suffering from the same ill-judged banking follies as their overseas counterparts. With record numbers of households going into mortgage arrears and hundreds of thousands of repossessions having already taken place and with hundreds of thousands more to come, the People’s Party has its work cut out to satisfy the electorate at home and investors abroad, who have traditionally been  the driving force behind Spanish property boom years.

Banks stand accused of not being more lenient with debtors, while they themselves were largely responsible for producing the crisis in the first place. Easy to come by credit for mortgages people couldn’t really afford, spurious construction guarantees that weren’t worth the paper they were written on and reckless spending have all been blamed for the crash of the property market, and in its wake numerous scandals involving corrupt regional officials of the previous government and unscrupulous developers working hand in glove to cheat buyers came to light.

Now people are looking to the new People’s Party government to firstly take a close look at the last resort measures introduced by the outgoing government, while at the same time coming up with new ideas to reinstate and enhance confidence in the Spanish real estate sector with both home-grown and international buyers. Millions of jobs in the construction industry were lost when the market crashed – millions of jobs need to be created afresh and a huge amount of incoming investment funds are needed to get the Spanish economy back on track and refill the empty tax coffers again.

The outgoing Socialist Government hurriedly cut VAT/IVA on property purchases by 50% from 8% to just 4% for a 5 month period lasting from August to December 2011. They also introduced an Online Registry Service for potential buyers, who wished to verify the legality of the property they were trying to purchase.

The Socialist Government also dispatched their perhaps less than effective Minister for Housing on a “Property Roadshow” across Europe, where he was supposed to reassure investors and members of the press that all was well with Spanish property market – but failed largely to do so.

Far from providing reassurance on “Land Grab” scandals and satisfactorily answering questions concerning compensation claims, the Spanish government’s “Property Roadshow” teams did little, if nothing at all, to lay fears and scepticism by potential buyers, affected home owners and the media to rest.

Ben Walker, sales manager at one of the country’s leading real estate portals promoting distressed property bargains offered by banks and desperate developers, remains unconvinced any of the previous government’s measures has had the desired effect. “None of which seemed to work as it was perceived as too little, too late in Spain and in countries like Sweden, Russian and Britain,” he said.

Ben should know – he works for Propertyinspain.net, a portal that offers some 19,000 bank-owned properties, which were selected for promotion to international investors and families seeking bargains for a lifestyle change. “The previous government’s confidence building efforts may have had the opposite effect. The new government has 1 month to the start of the New Year buying season to come up with enough incentives and safeguards to get more buyers tempted by the genuine bargains and mortgage deals on offer,” he added.

The new Online Registry Service was tested by members of the media, only to reveal fatal flaws in translations as well as incorrect and even out-of-date details. Outstanding court cases on fraudulent property transactions, land grabs and spurious bank guarantees were not even listed and at the end of the day prospective buyers still didn’t know, whether or not the properties they wished to buy were legal and safe to be bought.

Although the tax cuts, which typically would have saved some €8,000 on a €200,000 purchase, were meant to be available for 5 months until the end of 2011, banks were too disorganised and took 60 days and more to approve mortgages, which is rather counter-productive, given that potential purchasers require sufficient time to take legal advice, plan their viewing trips and have legal documents translated.

Ben Walker expressed his worries: “If they don’t get a grip on the market, they may find economic recovery splutters out and the Eurocrats take over the reins as in Greece, Ireland and Italy.”

SOURCE: www.propertyinspain.net

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Spain’s commercial real estate sector worst for a decade

Posted on March 2nd, 2012 in Real Estate in Spain by author

Data compiled by Savills PLC revealed that in the first 9 months of 2011, 52% less investment has been made in Spain’s commercial real estate sector, with a total of €1.25 billion worth of transactions on retail space in shopping malls, office space, warehouses and hotels taking place.

This means that the commercial real estate sector is currently seeing the lowest level of investment recorded in the last 10 years. It is feared a recovery will be slow in coming, given the financial state of the various Eurozone economies and the lack of credit being available as a result.

In the first ten years of a European single currency, the 10-year Spanish yield lies at 321 basis points above German bunds of a similar maturity, which is a decrease from a single currency peak of 418 basis points recorded on August 5th.

Investors who had been interested in Spain were put off by Spanish banks making it more difficult to get financing and offering borrowing at a higher cost after a flood of bad debt was incurred on property loans. Spain has Europe’s highest rate of unemployment, 21% of Spanish workforce is out of a job. As a result, the country is having difficulties meeting its deficit target of 6% gross of domestic product in 2011, particularly since growth is sluggish and Europe’s sovereign debt is spiralling out of control.

Gema de la Fuente, head of research at Savills’ London-based Spanish business, said that only a huge deal could now prevent 2011 from becoming the worst year with regard to investment levels since 2001.

Alienating Investors

Ismael Clemente, managing director responsible for Spain and Portugal at RREEF, Deutsche Bank AG’s commercial real estate investment division, believes that the pressure on Spanish sovereign debt is putting off investors and profitable property deals that were supposed to take place in 2011 failed, because finance could not be found.

He added that sales of sizeable portfolios of commercial real estate would not increase either until Spanish economy had recovered and banks had sorted out their balance sheets.

Earlier this month CBRE Group Inc. conducted a poll among some 600 property investors, of whom 71% believed that Spanish real estate sector would start showing an improvement in the next 18 months.

Patricio Palomar, head of research at CBRE Spain, commented that the poll’s results were bad news, since investors clearly felt there was not going to be an improvement in the short term.

Ramiro Rodriguez, an analyst with BNP Paribas Real Estate Spain, believes that investment volumes in Spanish real estate sector won’t improve until the country’s economy picks up, which is not expected to happen until 2013 or even 2014. The road to recovery is paved with a number of obstacles that must first be overcome, like the many structural reforms needed, a forecast change in government and the small matter of Spanish banks carrying hundreds of thousands of repossessed properties as assets on their balance sheets.

At present a number of large deals are simply hanging in the air. Property portfolios held by the regional governments of Andalusia and Catalonia with a total value of $1.3 billion as well as real estate assets held by Banco Santander SA fall into the “pending” category. Santander carries at present properties worth a total of €8.3 billion on its balance sheets.

Rental Decline

Data collected by BNP Paribas Real Estate on the rental situation don’t make for any more cheerful reading either. In the second quarter of 2011 Madrid’s vacancy rate for office space stood at 13.4%, while the average rent was down by 3.2% per annum and down by 4.7% compared to the first quarter of 2011.

A square meter of office space in Madrid now stands at €15.30. The prime office market hasn’t fared well either with rents going down by 3.5% for the year, meaning just €27.50 rent per sqm. This represents a fall of 33% from the peak of €41.00 rent per sqm being charged during the second quarter of 2008.

In Spanish second largest city Barcelona, vacancy rates dropped sharply and now stand at 14.4%, while average rents decreased by 3.8% compared year-on-year, meaning that a square meter of Barcelona office space only brings in a rental income of €13.50 in 2011.

Gema de la Fuenta wondered when there was going to be light at the end of the recession tunnel. “Though economic indicators for this year and next are positive, we have already seen them downwardly adjusted as the year progresses,” she said.

SOURCE: www.bloomberg.com

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People’s Party may take drastic measures to get Spanish banks back into line

Posted on March 1st, 2012 in Real Estate in Spain by author

Alvaro Nadal, economy secretary to the People’s Party (PP), warned that a PP-led government may wish to alter Spanish accounting rules to allow banks to sell assets, write off bad debt and make their dealings more transparent.

Currently polls predict that People’s Party will win the next election to be held on 20th November. In an interview conducted at the opposition party’s head-quarters, Mr Nadal said that his party was keen to get to grips with the thorny issue of what was actually sitting on banks’ balance sheets.

“Regulatory orders and changes in the way bookkeeping is done in the financial sector could be some help in the case of certain assets,” Mr Nadal explained. His party would tell the Bank of Spain and other regulatory agencies that “we have to push in this direction and we have to put assets on the market to show the real price of those assets.” In other words, the hundreds of thousands of repossessed properties sitting on balance sheets are only worth what an investor is prepared to pay for them under current market conditions.

The Bank of Spain has already forced banks to allow for larger reserves against the properties they repossessed in exchange for loan defaults. At present Spanish banks have made provisions for $146 billion (€105 billion), following the collapse of the property market in 2008. Now they are staring a huge increase in cost of borrowing in the face in the wake of the worsening sovereign debt crisis in the Eurozone and worries over real estate losses.

“We haven’t been transparent enough,” said Alvaro Nadal. Liabilities that could be recovered, would be recovered, he stated, and liabilities that needed to be written down, would have to be written down. Write-offs would have to be faced and written off, he declared, but using public money as a bolster for capital was going to be the last resort, he promised.

SOURCE: www.bloomberg.com

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Price reductions for Spanish properties on the horizon

Posted on March 1st, 2012 in Real Estate in Spain by author

Anyone thinking of buying a property in Spain should wait and see if prices for properties will fall further – the Bank of Spain published its intention to force financial institutions to making greater provisions for losses on property for debt exchanges. This news is likely to have a negative impact on house values, if vendors are forced to reduce the asking price for their properties.

Apparently draft proposals for the Bank of Spain ruling are on the table for discussion. Forced to reduce their bad debt ratios, Spanish banks have been accepting properties and land in exchange for debt for the last two years from developers who got into financial difficulties.

This practice has resulted in Spanish banks now owning hundreds of thousands of unsold properties across Spain. Naturally, the Bank of Spain is keen to prevent Spanish banks from increasing their property portfolio even further.

The Spanish property market needs to undergo further price adjustments, despite the decline in prices over the last few years. A variety of reports and surveys published recently have stated that in view of the hundreds of thousands of distressed sales on the market, property prices are still far too high.

Some reports estimated that currently a record number of 1.5 million unsold residential properties stand empty across Spain. The estimate includes new builds on the market as off-plan properties and second-hand homes for resale.

A recovery of the Spanish property market has been hampered by the unwillingness of Spanish financial institutions to accept write offs and their property for debt swaps have actually helped to keep house prices at an artificial high, says Spanish Property Insight.

It is a buyers’ market right now, with vendors having to accept that there will be some considerable “haggling” over price from savvy investors.

SOURCE: www.aplaceinthesun.com

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Investment in land no longer a safe bet

Posted on March 1st, 2012 in Real Estate in Spain by author

Once upon a time buying land was one of the soundest investments anyone could make. For a decade or more Spain’s housing boom fuelled the country’s economy to the envy of its European neighbours. Now everyone’s eyes are on Spain for an entirely different reason: how badly affected is the Spanish economy really? Will Spain’s economy falter like Greece, Portugal and Ireland, pulling the rest of Europe down into a financial abyss?

Greece and Ireland are far smaller economies and even there a bailout was hotly debated among European member states – but bailing out Spain? What happens next depends to a great extent on Spanish banks, which are currently seeking an additional €15 billion ($21.1 billion) to deal with further capital obligations foisted on them by the government. And how low things can really sink for Spanish banks depends to an even greater extent on the Spanish housing bubble, currently bursting left, right and centre.

During Spain’s property boom, land was the most sought after commodity everyone wanted. Gradually the extent to which land was sold, developed and often illegally built on is only now beginning to emerge, after the Bank of Spain asked lenders to confess to their exposures in detail.

It seems local councils gave out building permits for land development without asking too many questions, especially so, since they received a fee or a percentage of the land themselves. Carlos Ferrer-Bonsoms, a member of consultancy Jones Lang LaSalle, commented recently, “The main issue for the banks isn’t excess housing, it is land”.

Goldman Sachs estimated that nearly a quarter of banks’ €320 billion exposure in loans handed out to developers is underwritten by land. Almost half of the banks’ €70 billion assets held in real estate is made up of land. Indeed, Spanish financial institutions, banks and savings banks as both owners and lenders, are exposed to the tune of €100 billion worth of empty building plots.

It may take at least five years before the current oversupply of housing stock and plots is addressed. Currently there are some 1.5 million Spanish properties that remain unsold, according to industry expert Mr Fernando Rodriguez y Rodriguez de Acuña, a spokesperson for consultancy RR de Acuña. A million of these homes need to be sold, before the remaining plots can be developed. He estimated that some 2.7 million properties could still be built on existing land suitable for development.

While building plots in urban areas like Barcelona or Madrid or at the most desirable locations at the Costas stand a good chance of seeing development in the future, many plots have no hope whatsoever to get developed, indeed Mr Fernando Rodriguez y Rodriguez de Acuña calculates that 1.45 million developments won’t go ahead until 2021, since they are in such poor locations and a great number will probably never be constructed at all.

To address this over exposure Spanish banks are resorting to forming consortia with those developers, who are still financially sound. In some cases banks have formed cooperatives to construct homes on the more desirable plots of land in their possession, hoping that a portion of the development will recoup their losses. In order for a bank to advance financing though, the developer must shift a high percentage of the properties off-plan and upfront, which is not exactly an easy task in the current economic climate.

There are other alternatives and La Caixa, one of the largest Spanish savings banks around, exchanged loans for land with bankrupt developers. The bank uses the land to build affordable, low-rent homes for young families and old people. The construction of 1,100 new homes is being funded by La Caixa’s charitable foundation. Once tenants have occupied their home for ten years or more, they have an option to buy their home from Obra Social la Caixa.

As lenders are beginning to brace themselves for huge losses, the doom and gloom is spreading across Europe, which may require Spanish banks to set aside even greater provisions. The largest Spanish bank, Banco Santander, has currently allowed for 35% to 40% of losses, but this figure may well have to be increased soon.

Spanish banks, which are left with a lot of building plots on their books, are reluctant to let their land go for less than the original value. There’s a limited choice of how to get land holdings off a bank’s balance sheet. While in 2004 land transactions were worth €23 billion, in 2010 this figure fell to a mere €4 billion, reflecting the current situation that distressed funds may be willing to buy at a hefty discount, but banks are not willing to part with land assets for a fraction of the asset’s value.

Just where all this land and housing misery is going to end, nobody knows. Meanwhile, Spain’s left with thousands of empty plots that may never be built on.

SOURCE: www.economist.com

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