Costa Brava Real Estate

MADRID, Spain — Home sales in Spain fell 27 percent in January compared to a year ago, the government reported Wednesday, releasing more bad news from the country’s once-booming real estate sector.

The National Statistics Institute said the number of mortgages granted in January also plummeted — by nearly 26 percent compared to January of 2007, in the biggest such drop since 2004.

Fueled by rock-bottom interest rates, the construction sector had been a driving force behind more than a decade of economic growth in Spain. Housing prices rose 17 percent in 2004 and 9.1 percent in 2006. But the sector started to cool dramatically in 2007.

Interest rates have jumped three points in as many years, there is a glut of housing on the market and banks spooked by the subprime crisis in the U.S. are now much tighter when it comes to lending.

Housing prices in major cities are now falling.

In Barcelona, for instance, they fell 0.5 percent in the first quarter of this year, declining for the fourth straight quarter, according to a study released Wednesday by idealista.com, a major Spanish real estate portal.

Prices are also falling in Madrid and Valencia, and the downward tendency will intensify over the course of this year, the study said.
- Source: BusinessWeek, Mar. 26, 2008

MADRID: Spain’s embattled real estate sector received more bad news Friday when it was announced that property sales were down almost 14 per cent last year, with the sharpest decline in the fourth quarter.

“In 2007, the total number of property transactions was 788,518, a drop of 13.93 per cent over 2006,” the CRE, an organisation that collects data on property transactions, said in a report.

The largest drop was in sales of older homes, which saw a decline of 15.05 percent, compared to 12.41 percent in new properties, it said.

In the fourth quarter, the decline was even more pronounced, with transactions plummeting 21 percent from 203,993 in 2006 to 161,906 in the same period in 2007.

The figures are further evidence of the slowdown in the property sector in Spain after years of growth during which millions of new homes were built and prices rocketed.

The government announced in January that property prices rose just 4.8 percent in 2007, down from 9.1 percent the previous year and the lowest increase since the boom in the market began 10 years ago.

The property sector has been the driving force behind Spain’s economic development in the past decade and contributes 7.5 percent to the country’s GDP, according to a study by the BBVA bank. The construction industry also employs 13 percent of workers.

The low interest rates that followed Spain’s membership in the eurozone in 1999 fueled the housing boom as Spaniards took out mortgages to buy homes for the first time or to trade up to a larger house.

But the market has begun to stagnate due to rising interest rates and the international lending crunch that has hit Spain’s credit-fueled expansion.
- Source: Reuters, Mar. 14, 2008

MADRID, March 11 (Reuters) - One of Spain’s biggest private savings banks has slashed lending to property developers which are caught in a looming housing crisis and barely able to sell land or property, its head of property lending told Reuters on Tuesday.

Jose Aguilar Martin, head of real estate at Seville-based Cajasol, said the bank was not lending to firms building holiday homes on the coast nor to property developers planning to build in areas designated as ‘rural’.

Cajasol’s tougher policy towards property firms is further evidence that Spain’s unprecedented construction boom has come to a shuddering halt and of the dire financial straits in which many indebted firms find themselves.

“Real estate on the coast (for second homes) is not being financed, or at least only under very tough conditions. There’s no foreign market, the domestic market is really down and there’s no investment market either,” Aguilar said on the sidelines of a property sector conference in Madrid.

“Promoters don’t have income because they are not selling houses, simple as that,” said Aguilar, adding it was practically impossible for indebted property developers to sell land either.

Several Spanish property developers have filed for creditor protection in the last few months, while Barcelona-based Habitat last month staved off bankruptcy at the eleventh hour by refinancing 1.6 billion euros of debt.

Around 65 percent of loans made by Cajasol are connected with the property market or mortgages. Spain’s 45 ‘caja’ savings banks, partly owned by regional governments, have assets of just under 1 trillion euros and make around half of all mortgages in the country.

Aguilar said some 90 percent of property companies borrowing from Cajasol had asked to refinance loans since the property downturn began last year, though he stressed Cajasol had not lent to a handful of well-known developers whose debt woes are mentioned almost daily in national newspapers.

Cajasol’s non-performing loans are likely to “almost double” in 2008 compared to 1.17 percent of all loans last year, he said.

All Spanish banks have said their level of bad loans will rise this year as the economy slows and as individuals and companies have difficulty meeting interim payments.

Other speakers at the conference also painted a grim picture of Spain’s real estate sector, which accounts for around one fifth of Spanish GDP and jobs.
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Aguilar said it was simply too risky to lend to developers who could spend seven or eight years getting permission to build on ‘rural’ land in a market where sales had plummeted and promoters debt levels were rising fast.
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Across Spain, unemployment is rising faster than anywhere else in Europe. Consumer confidence is at its lowest level since Spain’s last housing crisis, in the early 1990s, according to Eurostat and Bank of Spain data.
- Source: Summarized from a report by Reuters, via The Guardian, Mar. 11, 2008

According to an article in the Spanish daily ABC, the association of Spanish developers (APCE) asserts that almost all of the 1.6 million new properties built in Spain over the last 3 years have already been sold, refuting claims that 1 million newly built Spanish properties remain unsold.

The association also argues that reports of 800,000 odd housing starts each year are substantially exaggerated, as this figure relates to planning approvals, not all of which get built. According to the Spanish housing ministry’s figures 665,000 new properties were started last year, and 597,600 were finished.

Figures from the Bank of Spain reveal that foreign investment in Spanish property increased by 19.2% in the first 5 months of the year compared to the same period in 2006. The amount invested by Spaniards in property outside of Spain almost doubled over the same period.

The total amount invested by foreigners to the end of May was 2.252 billion Euros, almost the same as the amount invested in 2005, though still significantly below the 2.925 billion Euros invested in the peak year of 2003.

How does one reconcile this increase in foreign investment in Spanish property at a time when the market is clearly turning down?

One explanation might be that many of the off-plan sales made in 2004 and 2005 are only now being recorded as investments as buyers take possession of their properties and complete the purchase before notary. This is the moment when the investment is recorded in the national accounts.

Nevertheless, the figures do seem to suggest that foreign demand for Spanish property has picked up significantly since last year, even though property professionals report that the market is still very slow. By the end of the year we should know whether foreign demand has rebounded, or whether these figures can be explained by some other factor.
- Source: Excerpted from SpanishPropertyInsight.com, via Expatica.com, Sep. 2007

Sept. 18 (Bloomberg) — A residential real estate slump in Spain, where prices have almost tripled since 1997, is “unthinkable,” the top economic adviser of Prime Minister Jose Luis Rodriguez Zapatero said.

The solvency of the banking system and of real estate developers, as well as the unmet demand for new homes, will prevent any meaningful price erosion, David Taguas, head of the prime minister’s economic research unit, said in an interview yesterday at his office at the presidential palace in Madrid.

“To talk about severe adjustments or a meltdown in prices is ridiculous,” Taguas said in response to reports pointing to an end of the Spanish real estate boom. “That sort of crisis is unthinkable.”

The gains in housing prices are already slowing and excess supply may lead to a decline in prices, predicted Gonzalo Bernardos, an economics professor at the University of Barcelona, who expects a 20 percent drop by 2009. Home prices rose 5.8 percent in the second quarter from the year earlier period, the smallest increase in at least three years.

The Spanish banking system is also solid enough to withstand rising financing costs triggered by the fallout from the surge in defaults in the U.S. subprime mortgage market. A run on mortgage- lenders such as Newcastle, U.K.-based Northern Rock Plc or funding difficulties like those at Countrywide Financial Corp. in the U.S. are “unthinkable” in Spain, Taguas said.
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Rising interest rates have pushed home prices beyond the reach of many Spaniards.
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Still housing demand has been sustained by an economic expansion that has outpaced that of the euro region for more than a decade. The European Commission predicted on Sept. 11 that the Spanish economy will grow 3.7 percent this year compared with the 2.5 percent rate in the euro region.
- Source: Ben Sills, Bloomberg, Sep. 18, 2007

The recent property market upheavals have created ample opportunities for finding wonderful bargains in Spain – but caution is vital in choosing what you buy.

Although fears of a Spanish property crash did not materialise this year, the decade-long housing boom – which gave rise to stories of investors reaping double-digit returns almost overnight – has come to an end. Prices have risen by less than 6 per cent over the past 12 months, according to figures from the Spanish Government, which is the slowest rate of growth since 1998. Put differently, growth has slowed by 70 per cent since April 2004, and in certain provinces the prices have started to fall slightly.

Anecdotal evidence, however, suggests that the Spanish market is even more fragile in parts than the official figures suggest. Research by GRUPO i, the property consultants, reveals that it now takes an average of 20 months to sell a flat on the coast, compared with less than a year in 2004. Spain’s problem with oversupply is highlighted by GRUPO i’s prediction that 35 per cent of all new holiday homes built on the Spanish Costas this year will remain unsold.
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A straw poll of British agents in Spain reveals a significant drop in interest. Some of those who want to sell are unable to do so unless they are prepared to accept a loss. Patrik Connellan, the managing director of Euro Horizon in the Costa de Azahar, south of Barcelona, reports that purchases of property by British nationals have declined by about 50 per cent. This is bad news when you consider that the British are the biggest group of buyers in Spain after the Spanish. It is not surprising that homes are failing to sell unless owners are prepared to accept a loss.

Despite the gloom, there are good reasons to buy in Spain. The Spanish economy is still growing healthily and unemployment is at its lowest level since 1978. In a weak property market, bad news for sellers is good news for buyers looking for long-term investments.

The continuing price surge since the late 1990s meant that many homes became vastly overpriced – even badly located and poorly built ones – as profit-hungry investors rushed to buy. The recent shake-up in prices has gone some way towards restoring sense to the market. Real differences in prices are emerging between the good, the bad, and the ugly concrete monstrosities put up illegally.

Pockets of opportunities are emerging. Inland properties continue to do well. Growth in AndalucÍa, for example, has been driven by price rises in Seville, Córdoba and Jaén rather than the Costa del Sol.

The Balearics continue to do well. Urban planners in Majorca curbed excessive development over the past decade, so that prices here are higher than on the mainland.
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But no matter what or where they buy, investors must proceed with caution. “Many of the problems that buyers have had, such as land-grab, stem from the fact that they did not take independent advice when they bought,” says Conn. Accepting the local notary recommended by your estate agent could be a bad move.
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- Source: The Times, Sep. 14, 2007

Hundreds of estate agencies across southern Spain have gone out of business in a trend that experts say signals the end of a buoyant housing market that has fuelled the country’s economy over the past decade.

In a sure sign that the supply of houses is outstripping demand in overcrowded tourists resorts, more than 300 estate agent offices have closed this year on the Costa Blanca alone, property experts said yesterday. More are believed to have closed in other regions along the coast.

Many British owners of Spanish homes are now facing major losses with some experts claiming the property market is overvalued by as much as 30 per cent.

During the last decade vast swathes of the Spanish coastline have been developed in a construction boom that has made the nation one of the fastest growing economies in Europe. Spanish house prices have risen by more than 200 per cent in that period, encouraging many overseas investors - a large number of them British - to purchase property with the promise of short-term financial rewards.

But in the second quarter of this year the rise in house prices dipped below the rate of inflation for the first time in 10 years.

Analysts believe that because of low interest rates and poor regulations speculators have saturated the market.

Last year more than 800,000 homes were built in Spain, more than in Britain, France and Germany combined.

The result is a long anticipated downturn in the market with the worst hit areas in the big cities and on the Costa Blanca and Costa del Sol, where more than 250,000 homes are British-owned.

At the height of the construction boom in 2005 there were 7,000 estate agents on the Costa Blanca but 300 have closed this year, according to Enrique Llopis, honorary president of Alicante’s College of Real Estate Agents. “It is a symptom of the property bubble bursting,” he said yesterday.

“Demand is 10 per cent lower than it was a year ago and people are having to sell their property for less than they hoped.”

Earlier this year the Organisation for Economic Co-operation and Development said that Spanish house prices were so over inflated that during 2007 the country would see “an abrupt adjustment in which prices will plunge”.

The Spanish government said this week that the housing boom was coming to an end, bringing with it a rise in unemployment due to the expected further decline in new construction contracts being awarded.

In a bleak assessment of Spain’s prospects, the Socialist government admitted that the country faced an uncertain future.

“We face a period of uncertainty and lack of clarity,” said Pedro Solbes, the finance minister.

“This is always bad for the economy.”
- Source: Fiona Govan, Telegraph, Sep. 7, 2007

Related in The Telegraph:
• Mortgages to rise as crisis grips the markets:

Home owners are facing fresh misery as experts predict mortgage rates will rise as a direct result of the crisis that has gripped the financial markets.

Any increase in rates would be a severe blow to Britain’s 17 million mortgage borrowers, who have had to cope with five rises over the past year.

It would also be the first sign that the turmoil in the global money markets has crossed over the Atlantic and is starting to hit British consumers.
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Evidence has already emerged that banks are preparing the ground for higher mortgage rates.

In the past few days, five banks have increased their savings rates to around 6.7pc, according to Moneyfacts.co.uk, a leading financial research firm.

While this is great news for savers, economists warn that there is a sting in the tail. Danny Gabay, an economic consultants and former adviser at the Bank of England, said: “It is not in the nature of banks to offer savings rates higher than their mortgage rates. This is a precursor to higher mortgage costs.” Mr Gabay added: “Banks fear this is a problem that will stick around.”

Higher mortgage costs will be particularly harsh for two million home owners already expecting to be hit by a sharp escalation in their monthly payments, as their fixed rate deals - taken out at rock bottom rates around two years ago - come to an end over the next few months.

The Nationwide building society estimates that a quarter of a million mortgage holders will see their payments increase by £200 each month from October. Banks borrow much of their money in the wholesale markets, where rates have soared over the past month.
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The Telegraph also offers a good overview of the global financial crisis which, like so many other crises in the world, is rooted in irresponsible behavior on the part of Americans.

• Q&A on the global financial turmoil:

What’s the problem?
The turmoil in the global financial markets is no longer just a concern for bankers and economists. Many experts predict that homeowners and shoppers in Britain will soon notice the effects.

Why?
The credit crunch means banks and businesses are finding it more difficult to borrow money. And when they are able to borrow money, it is more expensive to do so.

Why are they having these problems?
Small businesses borrow money from banks. But big businesses, like banks, borrow some of their money directly or indirectly from the wholesale money markets. They pay the London Interbank Offered Rate – the rate that banks are prepared to lend to each other. Since the end of July, three-month Libor, the benchmark rate, has shot up from 6.04 per cent to 6.88 per cent yesterday – an historic high, compared to the Bank of England base rate.

How did this come about?
It all stems from the chaos in the American housing market, when US banks offered mortgages to people in no position to repay the loans. These mortgages – now worthless thanks to a US housing market crash – were then re-packaged and sold to investors and banks around the world. Many banks still do not know how badly they are exposed and are unwilling to lend money to anyone else until they find out.
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