So you´ve seen that fabulous Spanish villa in the hills. You´ve been told that it was previously priced at €500,000 and you´re aware that it was ´recently´ valued at €450,000 It´s now on the market at €295,000 and the owners are desperate to sell. AN ABSOLUTE STEAL FOR THE PRICE! Too good to be true? Are we really about to buy a property in Spain for €295,000 that is actually worth €450,000? Possibly…..but highly unlikely. Before committing to the purchase and biting the hand off that convincing estate agent, let´s ask ourselves a few questions: -    When was it priced at €500,000? ANSWER: In 2007 (at the height of the Spanish property boom) -    When was the valuation done? ANSWER: In May 2008 (before the credit crunch and before prices began to crumble in Spain) Now that we have addressed those two issues, we have to work out what it is worth now – in today´s market. Clearly not €500,000 and nowhere near €450,000. Is it worth €400,000? Probably not. Is it worth €350,000? Tricky, but again it seems a little on the steep side. This is where it gets difficult. With prices going down, you have to assess how much the property is worth. To be honest, nobody is probably sure, so it rests with you to make that call – how much is that villa in Spain worth TO YOU? Maybe you think that €295,000 is a realistic asking price in today´s market, in which case can it really be called an ABSOLUTE STEAL? No…..it´s simply the right price for this particular property. So let´s stop getting excited about all this talk of discounts and bargain prices. It seems that the adjustments taking place in Spanish property pricing are simply leading us to a more sensible and accurate portrayal of a struggling market. Related Posts Easter Tradition in Spain – Prisoner Released in Holy Week The Spanish Christmas Lottery Saudi Yacht in Marbella - a true spectacle!

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The Sale of the Century in Spain….or maybe not!

The economist, John Maynard Keynes, once argued it would be preferable to pay workers to dig holes in the ground, and fill them in again, rather than allowing them to stand idle and deprive the economy of the multiplier effect of their wages. Moving a 17-meter monument to Christopher Columbus 100 meters down the road is how the Spanish government is interpreting that advice. So Spain’s government is paying for the return of the concrete-based monument, topped by a three-meter marble statue of the Italian explorer, to a roundabout in the middle of Madrid’s Plaza Colon - exactly where it had stood for almost 100 years until 1973. Plan E (Spanish Plan for Economic Stimulus and Employment) is part of Spain’s equivalent to the “New Deal” U.S. President Franklin D. Roosevelt devised in response to The Great Depression, a plan partly drawn up by Keynes himself. Moving the Columbus monument will take 65 workers until the end of the year. For them, the project gives Spain a little time to find a longer-term solution to unemployment that is rising faster than in any other European Union country. “What will they do once the monument has been moved?” said one worker, surveying the chaos in the central Madrid plaza amid preparations for the move and another Plan E project, construction of a new underground car park. “Well, I guess they’ll have to hope for a Plan F, then a Plan G,” he said, on condition of anonymity as he was not authorized to speak to the media. The Socialist government has been enthusiastically Keynesian in its response to the steep downturn: many of Madrid’s major streets are now a labyrinth of roadworks, negotiated only with difficulty by pedestrians and traffic. But the scheme shows taxpayers and lenders subsidizing a job creation plan in the absence of a deeper overhaul of an outdated jobs market, as unions threaten a general strike if workers’ rights are tampered with. The stop-gap public works plan highlights Spain’s need to find new sources of jobs and growth after the global crisis snuffed out its decade-long Spanish property boom. The government says stimulus spending has begun to contain jobless numbers, which rose by more than 39,000 people in April after monthly increases above 100,000 since late 2008. The European Commission says unemployment is heading for 20.5 percent in 2010 after the end of the construction spree. At its 2007 peak, that saw Spain build and finance more homes than Germany, Italy and the United Kingdom combined. Spain’s 8 billion euro ($10.91 billion) public works scheme will give around 400,000 people work, albeit temporarily, and kick-start the economy with 30,000 projects from shuffling the street furniture in Madrid to laying bicycle paths in Galicia. The company charged with the Columbus work is blue-chip constructor OHL, which declined to comment on the project, but the site worker said the company had won the contract on condition it employ out-of-work builders. “Half our team has been taken from the unemployment office,” he said. G-20 nations - which account for over 80 percent of global gross national product — are spending an estimated $700 billion in 2009 to ward off the deepest slump since Roosevelt’s day. “The question is how to balance the short term ‘hole digging’ approach with investments which may not provide so much bang for the buck in the short term, but are good for long-term productivity,” said Eswar Prasad, Senior Professor of Trade Policy at Cornell University. “Everyone, from China to the United States is grappling for that balance.” Plan E does not address Spain’s structural problems, but may defer confrontation over them. Even during the economic boom, when Spain was growing far faster than its European peers, unemployment stood at over 8 percent. “The crisis is highlighting how badly the labor market runs,” said Jose Luis Escriva, head economist at BBVA. “The Plan E must not overlook these problems.” Prime Minister Jose Luis Rodriguez Zapatero sees a future of “more computers and fewer bricks” with technology-driven, green growth from sectors like wind power, which at present provides only 0.35 percent of gross domestic product. Before that can happen, economists say Spain needs to follow the route Germany took with structural economic reforms to raise competitiveness and compete globally. For example, costs of making a long-term employee redundant in Spain are among the highest in the world, according to the OECD: a disincentive to make permanent hires during the crisis. One third of workers are on temporary, low-protection contracts, the highest rate in the European Union: their jobs are often low-skilled and disposable during economic downturns. “At the edge of the abyss there are two reactions,” said Prasad. “Use this as a time for dramatic change or do whatever it takes … to get out of the hole and deal with the big problems later. “It does seem that many economies are taking the latter route,” Prasad said. Spain’s stimulus plan is worth nearly 5 percent of its gross domestic product and includes popular measures such as a 400-euro tax rebate for all taxpayers and the ‘Baby Check’ — 2,500 euros for each newborn. They have cost Spain 16.5 billion euros, but few economists believe they have done much to stoke demand. “These measures burned through the Spanish public accounts surplus … and 400 euros doesn’t buy you a car, nor pay your mortgage,” said Robert Tornabell, Professor of Finance at Barcelona business school ESADE. The short-term infrastructure and tax spending have helped turn a 2.2 percent public accounts surplus in 2007 to an expected 9.8 percent deficit by the end of 2010, according to the European Commission: the second-biggest fiscal deterioration of any euro zone country after Ireland. Rising public finance pressures led ratings agency Moodys in February to add Spain to its list of “vulnerable” nations with triple-A sovereign debt ratings and Standard and Poor’s downgraded Spain to “AA+” in January. Besides the higher cost of borrowing to fund the stimulus, there are concerns about the size of the plan and its slow implementation: “This plan is too little, too late. In the time they’ve taken to implement it, the economy’s destroyed more jobs than the plan hopes to create,” said Tornabell. Zapatero has insisted any labor reforms must be reached through talks between business lobby groups and unions. He faces pressure to lead, rather than administer talks, after unemployment almost doubled to 4 million in the first quarter from a year earlier and the opposition Popular Party — which has drawn ahead of the government in some opinion polls — calls for spending cuts, tax breaks and reforms. “If a system can’t bring unemployment down below 8 percent during strong economic growth, there must be a problem with the system,” head of Spain’s Chamber of Commerce Javier Gomez Navarro told a news conference this month. Story from Reuters

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Spanish Economy Plan E: Let Them Dig Holes

They may be commonplace in the UK, but interest-only mortgages in Spain are surprisingly hard to find. You have to remember that the mortgage market here in Spain is years behind the markets in the UK and US (maybe not a bad thing!). Up until recently, there were no interest-only mortgages in Spain , and even now, if you mention a fixed rate option to banks in Spain , the advisers look at you like you have landed from Mars. The Spanish tradition is to take a standard repayment mortgage and to pay off your debt over the term of the loan – not a bad idea as it goes! But during turbulent financial times, customers are understandably trying to secure more flexible products. It seems to me that people still want to buy Spanish properties , particularly while prices are falling through the floor and interest rates are at an all-time low (euribor is currently around 1.7%), but most people are also fearful about their job security. The solution for most would be to retain access to a lump sum of cash in the event of unemployment or other economically-driven woes, to borrow as much of the purchase price as possible, and to reduce their monthly mortgage repayments, at least until we have emerged from the other side of this crisis. The ideal product for this scenario is a Spanish interest-only mortgage to cover as much of the purchase price as possible. Most interest-only mortgages in Spain are only available with a loan to valuation ratio of between 60% and 70%. Some banks will lend a similar percentage of the purchase price, particularly in the case of an inflated valuation. Spanish banks will also load the interest rate for an interest-only mortgage, so while most Spanish repayment mortgages attract a rate of around 1% over euribor (equating to around 2.7%), you can expect to pay anything between 1.2% and 1.5% above euribor (around 3% to 3.5%) for an interest-only option. But also beware that most interest-only options will only last for a fixed opening term (usually between 2 years and 10 years), and that some banks will have a minimum rate that they will charge, often around 3.5%, making some of these ´great rates´ redundant. Check the small print! Related Posts Mortgages in Spain – What´s on Offer? The Spanish Mortgage Market Economic Recovery Predicted in Spain

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Interest Only Mortgages in Spain

According to the latest house price analysis from Knight Frank, the Spanish property market isn’t faring too badly compared to some other countries. Just focusing on countries which have experienced a year-on-year decline in house values, Spain is far from the worse affected. At the bottom of the chart are Dubai and Latvia, both with whopping 30+ percent annual decreases in house prices. Faring worse than Spain are Norway, Ireland, Denmark, Poland, Hong Kong, Estonia, UK, United States, Singapore, Dubai and Latvia with annual decreases between 9% and 36%. Spain’s modest loss of almost 7% is nothing to shout about - except that, looking at some of its neighbours - it could be a lot worse. Even though the Knight Frank report sees little reason to be cheerful, countries such as Israel and the Czech Republic actually managed a 10% increase in house prices comparing Q1 2009 with Q1 2008. The bad news for Brits wanting to buy property in Spain is that over the last 12 months, UK house prices have slumped 10% more in the UK than in Spain. To make matters worse, Sterling is now worth 16% less in Euros than it was at the start of 2008. A year ago, selling a UK home for £200,000 to buy a property in Spain would have yielded approximately €270,000 of buying power in Spain. Today, that same home would sell for 16% less - £168,000 - and translate to just €190,000. However, due to the fact that Spanish property also reduced by 6% in value over the same period, that €190,000 would have a purchasing power of €201,000 when compared to 2008. Even so, that represents a drop in real terms of €70,000 or approximately 26% in just 12 months. Knight Frank Global House Price Index, Quarter 1 2009 Country Year on year (% change) South Africa -0.3% Sweden -0.6% Finland -0.7% Thailand -1.0% Philippines -1.0% Germany -1.5% Greece -1.5% Cyprus -2.2% Ukraine -2.3% Canada -2.4% Luxembourg -2.4% Slovenia -3.1% China -3.9% New Zealand -4.0% Croatia -4.5% Malta -5.6% France -5.7% Portugal -5.9% Australia -6.7% Spain -6.8% Norway -9.4% Ireland -10.0% Denmark -11.6% Poland -13.0% Hong Kong -15.7% Estonia -16.2% UK -16.5% United States -16.9% Singapore -23.8% Dubai -32.0% Latvia -36.0% Data from Knight Frank

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Spanish Property: Not So Bad by Comparison

This week, the article concerning the relative optimism voiced by OCED chief, Angel Gurria, stands in stark contrast to the pessimistic forecast expressed by Moody’s - which, in turn seems to conflict with the article entitled ‘Spanish Bad Debt Abating’. In fact, all three stories describe the same picture - but from different angles and considering different time frames. In Spanish Bad Debt Abating , we read this comparatively sunny outlook: “Spanish bad debt rose at the slowest rate in 15 months in March .. in the latest sign the country’s recession may be finding a floor.” However, bad debt is still increasing in Spain, and the rate of increase has only slowed because banks are now even more cautious about lending. Plus, the government has taken steps to underpin mortgage defaults for the growing number of Spanish people out of work. This article looks to the longer term and interprets the latest bad debt data to support: “The European Commission expects Spain .. to exit recession, probably in 2011″. In Spanish Building Society Downgrade Risk , we read: “Moody’s put half of Spain’s regional savings and loans institutions on notice of possible downgrades because it expects asset quality to deteriorate further during the country’s deep recession.” In the short term, Moody’s sees the bad debt problem in Spain increasing and spreading to other sectors of the economy. This is, of course, consistent with the time frame of the previous article. Even though the rate of increase of bad debt is slowing, total bad debt is still growing. Both articles agree about this. Moody’s is concerned with the short term effects of the growth in bad debt, while the first article interprets the deceleration in bad debt as a positive sign for the longer term. OECD: Global Recovery by Year-end deals with a much broader perspective and interprets a number of worldwide economic signals in a positive light. In terms of time frame, this article is actually looking at the longer term, but has chosen to describe it as a short-term event: Global recovery by year-end. In fact, both this and the first article use the same logic: Things are still getting worse But they’re getting worse more slowly than before This means we’re nearing the bottom of the curve After reaching the bottom, the only way is up Whether you prefer short term pessimism, long term optimism or a combination of both, we are still a long way away from things getting back to ‘normal’ in Spain, and elsewhere in Europe. Finally, I hope that the fact that Spain continues to suffer will not deter the European Parliament from imposing financial sanctions on the country. In MEPs Wave Financial Stick at Spain we learn that the only leverage MEPs have over Spain is financial. Their only method of coaxing Spain to reform its draconian laws about property ownership and demolition is to withhold European funding. The fact that the Spanish property market is already struggling means that reforming these shoddy laws could be achieved with minimal negative impact - if undertaken in the near future. I hope that the MEP’s involved are smart enough to press the advantage while they have it, and force Spain to clean up their property laws. Who knows? in doing so they might even accelerate the recovery of the Spanish property market - stranger things have happened. Martin Dell, Kyero.com

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Same Spanish Data - Different Stories

I noticed during a recent trip to England that you could barely travel a mile down the road without the intrusion of a speed camera. Speed cameras are relatively unused in Spain, although 2 were recently installed on the main coastal highway A7 on the Costa del Sol . For those planning a holiday on the Costa del Sol this summer, it may be handy for you to know that the first is located on the eastbound carriageway between the turnings for Puerto Banus and Nagueles (just before the tunnel), and the other is positioned on the eastbound carriageway just before the exit for La Cala de Mijas . What struck me most about the location of these speed cameras is that they are both on stretches of road on which it really takes some effort (or a VERY fast car) to actually reach the speed limit of 120kmh. In addition, there is also a warning sign about 500 metres before the camera, giving you at least an opportunity to slow down. I think these points highlight the key difference in how these cameras are used in Spain and in the UK. In Spain, they are clearly meant as a deterrent, whereas in the UK, their proliferation smacks of a money-making exercise. In fact, I am convinced that many accidents must be caused by anxious drivers looking out for speed cameras in the UK, and braking violently to avoid being zapped. Related Posts Speed Cameras in Spain England - the place gets worse! Travelling by Train in Spain

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Speed Cameras in Spain

Bad debt problems at Spanish banks and cajas, the regional savings and loans institutions, have triggered at least one skipped interest payment on a mortgage-backed bond this week and prompted new warnings of imminent downgrades by credit rating agencies. Caja Madrid, Spain’s fourth biggest financial institution, on Wednesday confirmed that a deterioration of the underlying mortgages had caused the automatic cancellation of more than €1m ($1.4m) in interest owed to junior holders of mortgage-backed securities issued in 2006 and 2007 by special purpose vehicles. However, Caja Madrid, the originator of the mortgages packaged in the relevant securities, said no outside bondholders were affected since it had kept the junior tranches for itself and only the triple A paper had been sold. Senior holders will be affected only if more underlying mortgage holders default. “It’s happened before in Spain. It’s happened before in other jurisdictions,” said one Caja Madrid executive. Moody’s, the credit rating agency, meanwhile put half of Spain’s banks and unlisted cajas, the regional savings and loans institutions, on notice of possible credit downgrades because it expects asset quality to deteriorate further during the country’s deep recession. Moody’s said it had placed 36 banks and cajas on review for possible downgrades of their bank financial strength ratings – including all the listed banks. Of the banks reviewed, 34 were likely to face downgrades for their deposit and senior debt ratings and 22 for their subordinated or hybrid securities. The agency also warned it might downgrade the triple A ratings of seven Spanish programmes of mortgage covered bonds, four public sector covered bond programmes and 57 series of multi-issuer covered bonds. So far, most Spanish banks have remained relatively robust during the global financial crisis, in part because of “generic” loan loss provisions they were obliged to make in previous years by the Bank of Spain. However, the proportion of non-performing loans has risen sharply in recent months to reach 4.27 per cent of the Spanish banking system’s assets in March. Even that figure has been flattered by corporate debt restructurings organised by the banks to keep some of their large Spanish property and construction clients afloat. Moody’s expressed concern that the bad loan problem was now spreading from property to other sectors of the economy. The agency expected most of the senior debt downgrades to be limited to one or possibly two notches, and none was likely to fall below Baa3, the agency’s lowest investment grade. Story from Financial Times

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Spanish Building Society Downgrade Risk

I´m currently in the throes of obtaining a Spanish mortgage …..and what a tortuous process it is proving! I have approached several banks in Spain , and let me tell you, every single one will talk a good mortgage and promise the earth, but when it comes to the crunch, there´s not a lot of action. Like most things in life, success can often be dependent on the person that you are dealing with at the Spanish bank . My advice is to try to establish a good relationship with the representative from the bank. Most branches have thresholds that they can lend up to – for instance for residents in Spain, the branch lending threshold tends to be around €300,000 – also bear in mind that the first quote you receive won´t necessarily be the best. Don´t be afraid of negotiating better terms, and chipping away at the rate to try to secure a better mortgage in Spain . Also, if you have something to bring to the table, such as personal banking, deposit accounts etc, the bank is going to be far more likely to entertain you as a mortgage client. I found that most of the banks were offering me Spanish mortgages of up to 30 years, with interest rates varying between Euribor + 0.75 and Euribor + 1.45, depending if I acquired other bank products such as life insurance and payment protection etc. The higher end of the spectrum is usually reserved for interest-only mortgages in Spain , which are rare to find. I´m looking for a 60% loan to valuation (LTV), ideally interest-only for the first 3 years. I have cash savings, but would rather hang on to these reserves and lower my monthly outgoings, rather than lower my debt ratio and spend cash that may be needed during the current recession. Solbank have been the most helpful – there is a guy in the Elviria branch, Bernardo, who has been very good – switched on and commercially minded. Unfortunately, Solbank do not offer an interest-only facility, so I´ve also been looking at options with Lloyds TSB , who have a good product with an interest only option for the first 3 years, one of the very few banks to offer this facility. I´ll let you know which option I go for. Related Posts The Spanish Mortgage Market The Weak Pound – Tips for UK Buyers of Spanish Property – Part 2 Mortgages in Spain - Part 2

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Mortgages in Spain – What´s on Offer?

The European Parliament has called on Spain to reform planning laws that have allowed developers to acquire private land below market rates and forced homeowners from their properties, with some even having their homes demolished. But the conflict raises questions about how much power MEPs actually have. When Len and Helen Prior moved from the UK into their Spanish retirement home, it had all they wanted - a swimming pool for keeping fit, a plot of land where they could indulge their mutual love of gardening, and a warm climate to help improve their health. But within a few years the house had been bulldozed, and the Priors had joined the thousands of expatriate homeowners who have fallen foul of Spanish regional planning laws. Their friend Lennox Napier, a local newspaper editor, has lived in Spain for 41 years. He runs AULAN, (Abusos Urbanisticos Levante Almeriense, No!), an organisation which helps residents protect their properties from planning abuses relating to Spanish property . Mr Napier says British MEPs have at least responded to the problems, unlike their Spanish counterparts. “It’s clear they’re trying to help”, he says. “Some of the British MEPs have been out here to visit for a fact finding mission, offending the Spanish hosts but encouraging those of us who’ve come here to live to think that there is a voice for us in Brussels.” Besieged by complaints, the European Parliament’s Petitions Committee conducted an investigation into alleged dubious practices. In some Spanish regions, planning authorities had been re-designating private land for urban use and rubber-stamping planning applications submitted by developers, it found. Developers were subsequently able to demand that home-owners sell their properties at prices well below the market rate. If they refused to sell, they risked having their houses demolished. The committee’s report called on Spain to protect the rights of EU citizens. But while MEPs can coax and cajole, they cannot force a national government to take action. The report’s author, Danish Green Party MEP Magrete Auken, says their only actual power is that of veto over the funds Spain receives from the EU. “The real power is money,” she says. “Of course we also really hope that more pressure from the press will mean it’s very bad for the Spanish reputation, and therefore this highlights people’s cases.” “But we have no formal power except money.” And so, in March this year, the European Parliament voted overwhelmingly in favour of the report, and threatened to freeze hundreds of millions of euros in funding if Spain did not act. The Priors had bought land near Almeria, on the south coast of Spain, and built their home in accordance with what they believed were the correct regulations. But local planners decided their villa might trigger yet more development, and secretly obtained a court order to have it torn down. In April 2009, Spain’s Constitutional Court ruled that the planners’ actions had been illegal. But it was too late. All that remains on the site is a concrete slab where their dream home once stood. The Priors have moved into the garage and are seeking compensation. Mr Prior is defiant. He says they are not budging. “If we go back to England it seems to me as if they’ve won”, he says. “So we’re going to stay here. People have offered us a house to live in and we both turned around and said no, we want to stay here and fight them.” Mrs Prior has gone down many roads in her quest firstly to block the demolition, and subsequently in pursuit of compensation, but they all led back to the same place. “Most people reply and say: ‘We’re very sorry, there’s nothing we can do - this is a civic problem’,” she says. “They say you’ll have to go to your local town hall. I sent it up to the MEPs, but they referred it to someone else and it came back with that same message.” No-one managed to save the Priors’ home and they are too late to benefit even if the MEPs’ demands for reform are met. But Mrs Prior believes one day they will move back into a beautiful Spanish home. “We’ll carry on fighting until it happens,” she insists. Story from The BBC

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MEPs Wave Financial Stick at Spain

Spanish bad debt rose at the slowest rate in 15 months in March as savings banks reined in lending and cut defaults, Bank of Spain data showed on Monday in the latest sign the country’s recession may be finding a floor. The volume of bad debt rose by 769 million euros ($1.04 billion) in March, the least since December 2007 and a fraction of monthly increases of up to 9 billion euros in the first months of 2009. The ratio of bad loans to total outstanding debt for banks and financing co-operatives, excluding retail credit cards, rose to 4.17 percent in March, up from 4.14 percent the previous month. Bad loans for all lending institutions in Spain, including credit cards from retail outlets which don’t hold deposit accounts, rose to 4.27 percent, the highest level since December 1996 and up from 4.18 percent in February. March’s rise was well below past monthly increases of up to half a percentage point that caused the rate to quadruple in the 12 months to February. The bad loans data mirrored recent indicators ranging from consumer confidence to house sales that fell at slower rates in past months. Other activities such as industrial production, air traffic and energy demand are still declining at record rates. The European Commission expects Spain to be the last country in the European Union to exit recession, probably in 2011, as it suffers the twin blows of the global economic crisis and the collapse of a decade-long housing boom. The slowdown in Spanish debt defaults is being driven by savings banks, which have the highest exposure to the country’s troubled property market. Banking leaders say government aid for unemployed mortgage holders facing default has also tempered the rise in bad loans. For the fourth month running, the savings banks cut total outstanding credit as they put restrictions on who they would lend to after unemployed swelled to 17.4 percent or over 4 million in March. In doing so, the savings banks managed to cut their level of bad debt by 645 million euros or 0.06 of a percentage point to 4.78 percent in March. In Spain’s other banks, bad debts rose by 1.25 billion euros in March to a default rate of 3.58 percent from 3.45 percent in February, the Bank of Spain reported. Story from The Guardian

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Spanish Bad Debt Abating