THE Spanish housing bubble isn’t in a hurry to deflate. Prices have held up and are now just 12 per cent off their 2008 peak. Volumes have jumped lately, with the number of homes sold rising 25 per cent year-on-year in the second quarter. But the market needs to adjust further.

Ultra-low interest rates – sometimes less than 2 per cent – have made houses more affordable. As for the recent spike in transactions, this probably reflects buying ahead of July’s VAT hike.

The market isn’t quite as healthy as it appears. Net new mortgage volumes fell in the second quarter. This suggests a shortage of first-time buyers, according to research by Iberian Equities. The latest transactions may therefore be doing little to absorb the estimated one million unsold, new-build properties.

It’s not clear how long the cheap money could be around to support the market. But there are reasons to believe that an ugly adjustment will come before long.

Firstly, consider the 60 billion euros (S$102.4 billion) of land and properties that the Bank of Spain says lenders have bought via debt-for-asset swaps. New rules will force banks to set aside provisions of 30 per cent of the property’s value if they haven’t been sold after two years. This is a powerful incentive for banks to dump the inventory.

Secondly, the planned elimination of mortgage tax relief from January 2011 will make housing less affordable, as would an eventual hike in interest rates. — Reuters

Source: Business Times, 11 Sep 2010

(MADRID) Spanish mortgage lending fell in May for the third straight month after a brief rise in February as the country’s banks, five of which failed a Europe-wide stress test on Friday, continued to withhold credit.

Mortgage lending for homes totalled 6.4 billion euros (S$11.3 billion) in May, down 7.2 per cent from the same month a year earlier and following a one per cent drop in April.

February marked the first annual rise in mortgage lending in almost three years, a brief respite for a battered property sector hit by the credit crunch after a decade of strong growth.

Spain’s mostly unlisted savings banks were heavily involved in expanding the property bubble by providing easy lending conditions to home buyers and property developers.

According to the Bank of Spain, the savings banks which failed the stress tests, which included property value declines of around 30 per cent, would need 1.835 billion euros in additional capital to withstand the worst-case scenario. — Reuters

Source: Business Times, 27 Jul 2010

(MADRID) Spain’s house sales rose 17.6 per cent in April from a year earlier, the second largest jump since the series began in 2007, official data showed yesterday, a sign of recovery for the crippled property market.

The biggest annual jump of 18.7 per cent was recorded in February.

The number of homes sold in April rose to 34,326, a long way from the series’ high in the first month the figure ran in January 2007, with 83,713. House sales fell 8.6 per cent in April from March, the National Statistics Institute reported.

The Spanish housing market, inflated in the last decade by cheap loans, has collapsed since the global debt crisis began, sending shock waves through the whole economy.

While, year on year, house sales are making a tentative recovery according to official figures, a Reuters poll shows house prices will continue to fall well into 2011. — Reuters

Source: Business Times, 15 Jun 2010

Spanish banks have been told by the Bank of Spain to devalue the housing assets on their books by 20 per cent, El Mundo reported yesterday, citing sector sources.

The Bank of Spain was not immediately available for comment.

Spain’s banks hold property worth an estimated 100 billion euros (S$195.2 billion), the newspaper said, taken on over the last couple of years as property companies went bankrupt and their creditors forced to mop up their unsold assets.

Analysts are concerned the country’s banks have been keeping a lid on potential losses by valuing the homes on their books at pre-crisis levels, while real property prices have dropped by more than 14 per cent from their high in 2007.

Spain’s second largest bank BBVA shocked investors at the end of January when it reported full-year earnings with higher than expected provisions, raising broader doubts about Spanish banks’ ability to absorb a property market crash.

Source: Business Times, 11 Feb 2010

Official data shows floor at end-2009 after two years of declining sales and prices

SPAIN’S property sector slide showed signs that it was nearing a floor at the end of 2009 after two years of steep declines in both sales and prices, official data showed yesterday.

The number of houses sold in Spain rose 5.3 per cent in November from a month earlier while house prices fell at the lowest annual rate in the fourth quarter since the same period a year earlier.

Spain’s decade-long economic boom, fuelled by cheap credit and soaring property prices, came to an abrupt end last year after the global financial crisis exposed structural weaknesses in the economy that the government is now struggling to correct.

House prices fell 6.2 per cent year on year in the fourth quarter of last year, the Housing Ministry said, compared with a fall of 2.8 per cent in the fourth quarter of 2008 and a record drop of 8.2 per cent in the second quarter.

The ministry’s figures are in line with private property surveyor association Tinsa which said on Tuesday that house prices slipped 6.6 per cent in 2009 year on year.

Property prices in Spain have fallen around 14 per cent from their high at the end of 2007 and while the official data showed the drop in value may be turning the corner, economists said that the sector is still highly overvalued. A Reuters survey in October predicted that house prices would fall a further 7.3 per cent in 2010 and 25 per cent from the peak.

Source: Business Times, 16 Jan 2010

Spanish house prices fell 7 per cent in the third quarter compared to a year earlier after a record drop of 7.7 per cent in the April to June period, National Statistics Institute data showed yesterday.

Third quarter house prices fell 0.9 per cent on a quarter-on-quarter basis compared with a 0.4 per cent drop in the second quarter, official data showed. The price of new homes fell 5.6 per cent year-on-year, while existing house prices fell 8.3 per cent, the INE reported.

Real estate values have been hit by sliding mortgage lending and house sales and prices are expected to have fallen by close to double digits in 2009, according to a poll conducted by Reuters in October.

Source: Business Times, 31 Dec 2009

Owners who need to sell their property but can’t are being forced to lease

(MADRID) Arancha Ibarra considers herself one of the lucky victims of Spain’s housing collapse.

After struggling to find a buyer for her renovated two-bedroom apartment in Madrid for two years, she found a tenant for 750 euros (S$1,540) a month, becoming one of the 1.5 million second-home owners thrust onto the country’s rental market.

The number of properties for rent in Spain climbed 55 per cent in the past two years to 3.3 million, the highest since the Ministry of Housing started collecting the data in 2004. Rents in cities, including Madrid and Barcelona, are falling for the first time in seven years with declines of as much as 8 per cent, according to Madrid- based property research firm Idea lista.com.

‘Those who need to sell but can’t are being forced to lease,’ said Fernando Encinar, co-founder and head of research at Idealista.com, Spain’s largest real estate website with 308,000 listings for rent and purchase. ‘We haven’t seen this number of properties for rent since the 1950s.’

Spain built about 29 per cent of new homes in the EU from 2001 to 2007, even as it represented just 9 per cent of the population. The resulting glut of 1.5 million unsold houses and apartments sparked the end of a decade-long real estate and construction boom that accounted for about 20 per cent of the country’s gross domestic product in 2007.

The ensuing housing slump has tipped the economy into the worst recession in 60 years with the unemployment rate climbing to 19 per cent, the highest in the EU. Home sales fell by more than a third in the 12 months through May, the latest government data show.

Rents in Madrid and Barcelona jumped 28 per cent and 56 per cent, respectively, in the five years to 2008, driven by a jump in house values. Home prices rose 120 per cent from 1997 to 2007, pricing many Spaniards out of the market.

This year, rents declined 4.2 per cent to 12.3 euros a square metre in Madrid and 8 per cent to 12.6 euros in Barcelona, Idealista reported.

After two years of trying to sell her 70 sq m air-conditioned apartment in Madrid, Ms Ibarra rented it after receiving just one offer of 162,273 euros, 33 per cent below her asking price.

‘The rent barely covers the mortgage, but doesn’t pay the council tax and maintenance,’ she said during an interview in Madrid. ‘It was the best price I could get and I can’t afford to sell at a loss or leave it empty.’

Owners of vacant homes also have to pay a yearly tax that is equal to 1-2 per cent of the property’s value.

Spaniards are not the only ones saddled with empty homes. The nation’s banks lent about 318 billion euros to domestic real estate companies and also were forced to accept billions of euros of real estate assets in exchange for cancelling debt with insolvent developers, according to Fernando Rodriguez de Acuna, president of RR de Acuna & Asociados, a Madrid-based industry research company founded in 1980.

‘Those assets are sterile, or constantly falling in value, so the banks have to get them off their books or else they will damage their balance sheets in coming years,’ Mr Acuna said.

Banco Santander SA, Spain’s biggest bank, together with its consumer unit Banco Espanol de Credito SA, has 4.1 billion euros of property assets after taking real estate from failing developers.

Santander put 1,800 homes up for sale in January and sold 500 of them as at May, a company spokesman said. He declined to provide a breakdown of the bank’s residential and commercial real estate assets.

Banco Bilbao Vizcaya Argentaria SA, the Spanish lender that bought 490 million euros of real estate in the first quarter, forecasts that the amount will will climb to one billion euros by the end of the year. Caja Madrid, the country’s second largest savings bank, has about 600 homes for rent and is offering as many as 1,500 for sale at discounts of as much as 40 per cent.

Mr Acuna estimated that the slump in the Spanish residential property market will last seven years, prolonging the recession until 2013.

‘Recovery is going to depend on when people can purchase homes again, which in turn depends on employment,’ he said during an interview at his office in Madrid.

Mr Acuna estimated that the economy will contract by 4 per cent in 2009 and 2010, by 2 per cent in 2011, and one per cent in 2012. Growth will be zero or minimal in 2013, he said.

The Spanish government has forecast that the economy will shrink by 3.6 per cent this year and 0.3 per cent in 2010, and then grow 1.8 per cent and 2.7 per cent in 2011 and 2012.

Unemployment in Spain may reach 20.5 per cent by the end of 2010, according to estimates from the European Commission.

‘Redundancy is having a huge impact on home sales, hence many people are turning to renting,’ said Ben May, an economist at Capital Economics Ltd in London. — Bloomberg

Source: Business Times, 23 July 2009