Costa Brava Real Estate

Costa Brava Real Estate, Aug. 30, 2009 — While a number of European countries are slowly recovering from the economic downturn, Spain remains stuck in its worst recession in 60 years.

Recovery is expected to take years rather than months.

Officials say the worst is over, DPA reports. But high unemployment, high budget defitic and low consumer demand continue to contribute to the country’s financial crisis.

Until the summer of 2007 Spain was one of Europe’s economic success stories.

But an out of control construction boom resulted in what DPA calls ‘a spectacular meltdown.’

While Spain’s housing crisis started before the global credit crisis instigated by the greedy practices of U.S. banks, Spain’s credit-fueled consumer spending has also collapsed.

In addition, the number of foreign tourists is expected to decline by 10 percent this year — with many tourists opting for newly popular markets in former Eastblock countries where hotels and restaurants are, for now, relatively inexpensive. Spain’s hotel sector is fighting back with deep discounts and special offers.

Further aggravating the crisis is the fact that Spain relies heavily on domestic demand rather than on export of its goods.

Spain’s households are already consuming 6 percent less than just a year ago — the sharpest fall in internal demand of any Western European country. During the second quarter of this year, demand fell by 7.3 percent.

Consumer prices fell for the sixth consecutive month in August, but Prime Minister Jose Luis Rodriguez Zapatero’s socialist government insists the country is not entering a period of deflation.

The unemployment rate is 18 percent, almost twice the E.U. average, and is expected to grow over the next four years. One report says there are now four million unemployed Spaniards and over one million families with not a single person employed in the family.

Meanwhile government spending is soaring due to economic stimulus measures and the payment of unemployment benefits — at a time when tax revenues are down due to the recession.

The deficit is expected to be almost 8 percent by the end of this year, nearly triple the 3 percent set under European Union rules.

House Prices

House prices in Spain fell by 10.1 percent in June, compared to June last year, according to Tinsa. Headquartered in Madrid, Tinsa provides real estate consulting and appraisal services in eight countries, including the U.S.

The June decline was greater than the 9.8 percent drop in May. Tinsa says this shows that the decline in house prices continues. Figures accumulated since the record highs of December 2007 put the decline in home prices at 13 percent.

Housing prices along Spain’s Mediterranean cost, which has suffered from massive overbuilding, were down 12.3 percent.

Economic research house Variant Perception writes in a report titled, “Spain: The Hole in Europe’s Balance Sheet.”

“Spain had the mother of all housing bubbles. To put things in perspective, Spain now has as many unsold homes as the US, even though the US is about six times bigger. Spain is roughly 10% of the EU GDP, yet it accounted for 30% of all new homes built since 2000 in the EU. Most of the new homes were financed with capital from abroad, so Spain’s housing crisis is closely tied in with a financing crisis.”

The report further says:

In order to hide from the effects of the real estate crash, Spanish banks have been buying properties before the loans on them go bad and trying to dispose of them through their own real estate companies. They have also come to own dozens of thousands of homes through debt for equity swaps. Estimates put the value of property repossessed or swapped for debt by Spanish banks at about €16 billion.

Consider the following: Spanish banks are now running their own real estate companies and have websites set up to move their stock. Among selling points are: pricing discounts of 25-50%, financial terms of Euribor plus 0% over 40 years, and guarantees to re-purchase the property in the future.

• BBVA is selling its repossessions via Anida. http://www.anida.es/anida“>

• CAM has set up Mediterranean International to sell off the bank repossessions. www.mediterranean-international.com

• Banco Popular repossessions: Aliseda Gestion Inmobiliaria is owned by Banco Popular to handle the repossessions. www.gesaliseda.es/

• Banco Santander – sells through Santander Altamira Real Estate www.altamirasantander.com Reportedly they have already sold half of their homes through
generous financing terms, many to its own employees.

• Banco Sabadell – sells through their property division www.solvia.es/GesPisSolWeb

• Banesto – Sells through a network of more than 20 real estate agencies, including Knight Frank International.

• La Caixa – sells through Servihabitat. www.servihabitat.com/svhPortal

• Caja Madrid – Sells through their website and the auction house Reser www.salaretiro.com/Servlet/RESER/Bridge/481_84900

• Bancaja – sells through its own website. Preference is given to existing clients, bank employees and their families.

• Caixa Catalunya – Sells through their real estate division Procam www.procaminmobiliaria. com/home_es.php

• CAM Bank – Sells through their real estate division Mediterranean Inmobiliaria.
- Source: Spain: The Hole in Europe’s Balance Sheet, Variant Perception

Spain’s housing market continues to be a source of bad news — unless you’re cash-rich.

While many buyers who are still paying off their mortgages are in trouble, those who are all paid up can sit tight until the situation takes a turn for the better again.

At the same time, those people who can purchase a property without going in debt can find wonderful deals all over the place.

MADRID, Dec 18 (Reuters) - Spanish house sales dived by 36 percent from July to September compared to the same period of last year and housing starts sank by 49 percent, the Housing Ministry said on Thursday.

The ministry said 118,533 houses were sold in Spain between July and September compared to 186,504 in the third quarter of 2007. The number of house starts fell to 75,268 in the quarter.

Analysts say the spectacular collapse of a 10-year construction boom last year is driving hundreds of builders out of business and could send banks’ non-performing loan ratios towards 9 percent.

Spain’s house builders account for a third of Spain’s 1 trillion euros ($1.44 trillion) of corporate debt. ($1=.6955 euros)
- Source: Ben Harding, Reuters via The Guardian, Dec. 18, 2008

A report by Reuters shows that the housing sector in Spain continues to produce bad news: Spain’s residential construction sector is in a severe and necessary slowdown which has sharpened significantly this year due to tightening credit conditions, Spanish Housing Minister Beatriz Corredor said on Tuesday.

Spain’s Socialist government hopes to steer the sector, which drives around 10 percent of the economy, towards rehabilitating existing homes given excess supply of around 600,000 new houses following years of overbuilding, Corredor said.

“It is in a very severe, intense slowdown,” Corredor said in a speech to an economic forum. “It has accelerated significantly since the beginning of the year.”

Steepening Spain’s housing slowdown are record high property lending costs which are causing problems for many households with mortgages, Corredor said.

Spanish Prime Minister Jose Luis Rodriguez Zapatero said on Saturday that European Central Bank President Jean-Claude Trichet had to show more prudence after market interest rates rose when he said the central bank might hike rates in July.
[...]

Corredor said Spanish house prices were now falling in real terms but declined to comment on whether they would fall on a nominal basis, as the International Monetary Fund and most economists predict.

Corredor reiterated it was a good time for first-time Spanish house buyers to enter the market as large property developers are likely to offer price discounts given the high level of new unsold homes.
- Source: Reuters, June 10, 2008

Here’s a frightening scenario for owners of coastal property in Spain: whether or not you legally bought or built it, it may not be your property after all.

VALENCIA, Spain: It’s been the dream of millions - a home by the sea in sunny Spain. People from all over Europe have invested hard-earned savings in coastal villas and apartments.

Now a government drive to clean up Spain’s concrete-filled coastline after decades of abuse may wash away many of those dreams like castles of sand.

Enforcing a much-neglected 1988 law, the Socialist government is getting tough about what constitutes coastal public domain - the strip of land stretching back from the water’s edge - and telling thousands of house and apartment owners their properties do not really belong to them.

“Out of the blue we’ve been told the house we have owned for more than 30 years is no longer ours,” said a retired British electronics engineer, Clifford Carter, 59, who lives with his Spanish wife in La Casbah, a beach-side complex in eastern Spain. “The house was built legally, but now they say we can only live here until we die but can’t sell the house or leave it to our children.”

The fears of losing coastal villas come as Spain’s real estate market is turning sour, a situation set off by the U.S. subprime mortgage and banking crisis, but with its own dynamics involving shady business practices.

In a separate but related scenario, pressure is mounting for the European Parliament to take action against Spain for demolishing homes owned by foreigners while claiming eminent domain.

Along the Spanish coast, a group protesting sudden enforcement of the coastal law formed in January says it already represents 20,00 people. It notes that up to half a million others - apartment and villa owners and restaurant and hotel proprietors - could be affected. Most are Spaniards, but many are foreigners.

“This is the single biggest assault on private property we have seen in the recent history of Spain,” said José Ortega, a spokesman for the group and lawyer for many of those affected.
[...]

The government is finishing the process of drawing the line that designates what is state-owned and cannot contain private property along Spain’s 10,000 kilometers, or 6,200 miles, of coast.
[...]

The economic impact on construction and tourism could be immense, Ortega argues.

This would be bad news for a real estate sector that has largely driven Spain’s economy for the past decade but it is cooling sharply.

The Costa del Sol Association of Builders and Promoters reported in February that overall sales of tourist property in southern Málaga province fell nearly 50 percent last year. It claimed the main problem was people being frightened by real-estate corruption scandals in which homes were built with licenses obtained through bribes.
- Source: In Spain, your casa is suddenly the state’s casa, AP, via the International Herald Tribune, Apr. 17, 2008

The article notes that mass tourism — and the resulting boom in construction — have turned changed the Spanish coast into a “continuous mass of concrete.”

Even town halls bypassed planning regulations, preferring a quick buck over a long-term future.

According to AP, Spain is the world’s number 2 tourism destination, and the most popular choice for northern Europeans seeking to own a second home.

Some real estate agents see a silver lining in the clouds. The government’s clean-up campaign will return much lost land to the nature tourists — and home buyers — came to Spain for in the first place.

Meanwhile, Kevin Brass notes that “Pressure is mounting for the European Parliament to take action against Spain for demolishing homes owned by foreigners.”

“They [property buyers] were assured that deeds to their property were legal as advised by local lawyers, developers and officials,” British Labour MEP Michael Cashman said at a press conference, after members of Parliament staged two days of discussions on the issues. “Now because of a combination of corruption and interpretation of new property laws, these people are facing ruin.”
- Source: Kevin Brass, British EP members call for action against Spain’s ‘land grab’ laws, Raising the Roof, International Herald Tribune properties blog, Apr. 8, 2008

Citing El Pais, Expatica.com’s Spanish division notes the ongoing troubles in Spain’s housing market:

The acute shrinkage of the residential construction industry in Spain, and the credit crisis, are the principal forces behind the intense deceleration of the Spanish economy and the corresponding rise in unemployment. Daily statistics and predictions from international institutions confirm that the housing market is going through a profound adjustment, and there now only remains a certain degree of controversy about the speed and intensity of this adjustment.

On Monday the European Commission reduced its forecasts for Spanish growth this year and in 2009 to 2.2 percent and 1.8 percent respectively, against the 2.3 percent announced by Pedro Solbes for both years - due precisely to the freefall of housing prices in recent months. This forecast is considerably more pessimistic than that of the Spanish Economy Ministry.

Joaquín Almunia, the European Economy Commissioner, calculates that activity in the Spanish real estate sector will diminish by as much as a third during the next three years, and that this process will raise the unemployment rate to 10.6 percent in 2009.
Almunia’s predictions are founded on reasonable arguments, and seem a logical consequence of the sharp shrinkage of an activity that, during the last eight years, has significantly contributed to growth and employment in Spain. But they express only one of the possible courses the deceleration may take.

The unforeseen rapidity with which the Spanish housing market is falling seems to indicate that it may well bottom out earlier than the most pessimistic forecasts say it will. And while this circumstance will not spare the Spanish economy a high cost in terms of employment, it does hold out some hope for a moderate recovery of growth by the middle of 2009.
- Source: Housing Prices in Freefall, Expatica, May 1, 2008

Kevin Brass travels the world reporting on tempting locations, unusual homes and hot markets.

He is a longtime contributor to the Properties section of the International Herald Tribune, The New York Times, Los Angeles Times, People, NWA World Traveler and a wide variety of other publications.

In Raising the Roof, the properties blog of the International Herald Tribune, Brass writes,

When you talk to experts in the Spanish property business, they tell a dramatically different story than the charts and valuation reports.

“The market has totally stopped,” said Frederic Mangeant, partner in Knight Frank’s Spain office, when asked about Madrid.

Around the country, agents, developers and industry analysts say there has been a dramatic pause in the market in recent weeks. Both buyers and sellers appear to be taking a deep breath, in anticipation of more bad news to come about dropping valuations and tightening credit.

“Everybody is waiting,” said Julia Serrano Rituerto, head of the residential office for Cushman & Wakefield in Madrid. “hey see prices are going down. It’s quite a normal reaction.”

Of course, the big question now is: How long will the pause last? Few believe anymore that it is a simple “dip” in the market. Property sales were down 25 percent in the first two months of 2008 compared to a year earlier, according to recent reports.
- Source: Kevin Brass, Experts say buyers in Spain “waiting” for more bad news, Raising the Roof, International Herald Tribune properties blog, May 7, 2008

Spain’s Socialist government kept a gag on any discussion of the housing slump in the run-up to the general election on March 9, but now it has secured re-election, the trickle of bad news has become a flood.

Builders are going out of business because real estate developers — whose sales have slumped — cannot afford to pay them. The number of construction groups filing for protection from creditors shot up 87 per cent in the last quarter of 2007, compared with the same period in 2006, according to the national statistics institute.

Some of Spain’s biggest real estate groups, including Colonial, Fadesa and Habitat, have been locked in negotiations with creditors to stave off bankruptcy.

At the height of the 10-year construction boom, Spanish and international banks lent billions of euros to these companies to finance their expansion at home and abroad. In a downturn, real estate groups will be under pressure to write down the value of assets on their books. The Bank of Spain, the financial regulator, is also obliging banks to set aside more provisions against loans to builders and real estate developers.

The question now is how deeply the real estate slump will affect the wider economy.

Dominic Bryant, an economist with BNP Paribas, says Spain is more vulnerable to a housing crisis than other European countries because of the size of its construction sector. “Housing investment equals 9 per cent of [gross domestic product], more than double the average of some developed economies and much higher than the 6.3 per cent of GDP seen in the US before the collapse of housing investment,” Mr Bryant says. Investment in the rest of the construction sector accounts for another 9 per cent of GDP. Construction employs 13 per cent of the workforce.

At the same time, the international credit squeeze has dried up foreign funding for Spain’s spending spree, much of it on housing, and this has transformed a soft landing for the construction sector into a crash.

“A sharp slowdown is clearly under way in Spain,” Mr Bryant says. He estimates economic growth will slow to 2 per cent in 2008 and 1 per cent in 2009, from 3.8 per cent last year.

But if house prices start falling — as Asprima, the association of real estate developers, predicts they will — the contraction will be still sharper.
- Source: The Financial Times, Mar. 28, 2008