German magazine Bild (equivalent to The Sun in the UK) has ruffled Greek diplomatic feathers this week. In an open letter to the Greek PM during his trip to Germany, Bild pointed out some of the differences between the two countries: “Here, people work until they are 67 and there is no 14th-month salary for civil servants. Farmers don’t swindle EU subsidies with millions of non-existent olive trees.” Bild makes its point with characteristic Sun subtlety, but news of protests in Spain , Portugal and Greece against raising the retirement age to 67 reminded me how some citizens of those countries have yet to accept responsibility for their own futures. Spanish civil servants enjoy employment for life - it’s virtually impossible to get fired. They also enjoy a 13th month extra salary - (not performance-related) . Meanwhile, tax evasion is a national pastime and the tax-office (staffed by civil-servants, remember) only go after the easy targets - individuals and businesses who are already paying tax. Spain needs pension reform, employment reform and tax reform - but I doubt whether Zapatero has the stomach or backbone for very much of that. (Steps down from soapbox) Mark Stucklin reports on how the Spanish property market grew at the end of 2009 . It’s not a massive uptick, but it’s better than a further decline. Looking at the number of estate agents advertising on Kyero.com, we reached ‘bottom’ during September last year. Since then the number of advertisers has steadily increased - and we’re now back to the same number as this time last year. Regarding traffic to Kyero.com, we’re now over 50% up - a doubling of traffic in January and February this year compared to the same period last year. If what’s happening with Kyero is an early indicator of what’s happening in the Spanish property market (and I think it is), we can expect Q4 2009 to have marked the bottom of the Spanish property market - in terms of volume of transactions at least. The rest of this week’s news centred around the fragility of the Spanish economy and I’ve included the most enlightening articles this week. The best, I think is from the NY Times - a well reasoned and comprehensive explanation of the challenges facing Mr Zapatero. Martin Dell, Kyero.com

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We’re Past the Bottom of the Spanish Property Market

The overseas homes market may have already entered recovery in some parts of Spain as one developer has started putting its prices up. Key Mare in Almeria has seen sales rise by 30% in the last three months and now has more international customers than Spanish ones. The company raised prices across its seven resorts in the area by €3000 per property at the start of January. “Almeria is one of the up-and-coming areas of Spain so it’s not as overbuilt as other parts of the coast,” said the company’s head of international sales, Stefan Kdist. “The Spanish have always known this area but now more British and Scandinavian buyers are finding out about it.” Until now, the company has been following the line of many Spanish developers and offering discounts of up to 25%. Developers and banks have been under pressure to lower prices further to help shift the large amount of unsold Spanish property accumulated during the boom. This tactic has worked to some degree, with companies such as Taylor Woodrow seeing sales improve in the last three months by offering discounts of up to 40%. Kdist said Key Mare’s sales increase represented an improvement in confidence but he also hoped the price rise would encourage buyers to feel better about the market. “We wanted to give a signal to people that things are getting better and they should have faith in the situation. Today, people don’t feel there’s such a risk of losing their jobs as they did a year ago. Most economies are recovering and prices and interest rates are low.” With many agents and developers in Spain still suffering the effects of the economic downturn badly, Key Mare’s success emphasises how diverse the market has become. The latest data on the Spanish housing market paints a generally negative picture. Prices continued a steady fall in the fourth quarter of 2009, dropping 6.2% year-on-year, according the country’s housing ministry. The number of transactions also fell 2.6% year-on-year in November, although this was down from a 21% fall in October and transactions rose 5.3% between the two months, according to the National Statistics Institute (INE). But there was some good news in that the number of mortgages rose 1.8% year-on-year in November 2009, the first increase since April 2007, according to the INE. Story from OPP (Registration required)

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Spanish Developer Increases Prices

I know this defies logic, and I’ll understand if you decide that I’ve joined the pundits who only voice a positive spin on the Spanish property market - but, things do seem to be picking up in Spain. Ignore property asking prices and ignore the government data - they’re both misleading. Many vendors still have unrealistic expectations about what their property is worth today - and the government data has never accurately represented actual transaction prices. Speaking with estate agents over the past few weeks, more than a few have reported increased sales activity, and the number of estate agents paying to advertise on Kyero.com is at a 12 month high. Combine that with an overall 43% increase in activity on Kyero.com, and you’ll understand why I say that the Spanish property market seems to be picking up. It’s not just me either, several of this week’s news stories also paint the same picture. Learning from German Property Buyers in Spain speaks about how the German economy was one of the first out of recession - making the still-suppressed Spanish property market an ideal place for them to be investing right now. In Brits Buy As Pound Gains Against Euro , we read that as the Euro slides against Sterling, buyers from the UK might be following suit and looking at investing in Spain again. There are also signs that the domestic Spanish property market is picking up: New Mortgages Rise For First Time in 18 Months . Now, let’s be realistic about how you can find a competitively-priced property in Spain. Ignore the asking price and haggle hard Investigate new homes direct from the developer Always get independent legal advice The economy in Spain is still struggling - and will continue to do so for a while yet. Unemployment is still growing, Spain’s national debt is still worryingly large, and the country is still in recession. So, take your time and do your own research when buying in Spain. Martin Dell, Kyero.com

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Spanish Property Bouncing Back?

Spanish property developers’ debts with banks at the end of September were worth around a third of the country’s gross domestic product, the Spanish Mortgage Association said on Monday. A spokeswoman said data up to the end of the third quarter showed hard hit property developers owed 324 billion euros ($458 billion) as a property crisis continued to worsen. Property promoters have faced a torrid time since a property bubble burst in 2007. The mortgage association said many property developers could not pay back their debts and that, in turn, was affecting the credit rating of Spanish banks which have largely emerged unscathed from a severe recession and credit crisis. Spanish property prices fell just over six percent last year but many analysts still say the market has further to fall and data may underestimate the true scale of the slide so far. Story from XE.com

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Spanish Property Developer Debt Totals €324B

The likelihood of a defeat for Labour is positive for the pound. Euro zone economic data are uninspiring but not harmful to the euro. Monday’s €1.1250 opening proved to be too rich for sterling’s blood and it quickly began to retreat. It traded below €1.11 on Tuesday, rebounded to €1.12 on Wednesday, fell back below €1.11 on Thursday and bounced yet again to €1.12 on Friday before retracing its steps downwards to open at €1.11 in London this morning. The UK economy delivered some decently positive data. Two purchasing managers’ indices, one for the manufacturing sector, the other for services, extended their progress into the ‘expansion zone’ above 50. The manufacturing PMI came in at 54.6, taking second place to the equivalent US measure. Services, with a score of 56.8, led the international field. The Halifax house price index added 1% in December, putting it 1.1% higher than it was at the end of 2008. Factory gate prices went up by 3.5% last year, squeezing manufacturers who had to cope with costs rising twice as quickly over the same period. But it was not the economic data that shaped sterling’s performance, it was politics. News of an attempt to oust prime minister Brown sent the pound lower; confirmation that the coup had failed sent it back up again. Investors believe that a solution to Britain’s spending gap requires a change of government. As long as it looks as though Labour will be out of office by June they are inclined to be patient with sterling. And as long as Gordon Brown is leading his party into the general election they are confident that will happen. The euro zone economy did not have much to shout about. Inflation ticked higher again, rising to +0.9% but still leaving it at less than half the target rate. Unemployment was up too, reaching double figures at 10% in November, its highest level for a dozen years. Spain was one of the biggest culprits on the unemployment front with one in five out of work and 40% of young people looking for a job. Euro zone retail sales fell by a disappointing -1.2% in November after a less than inspiring +0.2% increase the previous month. Sales were down by -4% compared with a year earlier. The second and final revision to third quarter gross domestic product confirmed that Euroland’s economy grew by +0.4% in the third quarter of last year. Investors will be keen, as ever, to hear what the European Central Bank has to say after its first meeting of the year on Thursday. No change is expected to its 1.0% Refinancing Rate but ECB President Jean-Claude Trichet will doubtless vouch an opinion about what might lie ahead for the euro zone economy. Although he never predicts where monetary policy is going he frequently drops hints. The pound has spent most of the last three months between €1.09 and €1.13. It starts this week comfortably within that range and showing no sign of wanting to escape. We therefore stick to the existing risk management strategy: Buyers of the euro should stick to a hedged position, locking into a rate for half the money they will need. Get the best foreign exchange rates with no bank fees or commission charges using your Moneycorp Privilege Card

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Politics Drives Sterling

Generally speaking, Spanish property prices have fallen by less than you would expect given Spain’s economic crisis, high unemployment, and monumental housing glut (especially holiday homes on the coast). I say generally speaking, because some people who have done their homework and have funds in place ready to pounce are finding bargains from distressed sellers with a lot of equity to sacrifice. In these cases, prices have fallen enough. After all, if something sells, it means the price is right. But putting those exceptions aside, anyone house hunting in Spain today may well conclude that Spanish property prices have not fallen as much as they should have, certainly compared to the US and UK. Why is that? Partly because of Spain’s banks and savings banks (cajas) who control the market through their own property portfolios, and through the owners and developers they have financed. It appears that these guys are only reducing prices to the extent that they can afford to write off losses without damaging their capital ratios. That also helps explain why transactions are so depressed; if prices were lower, there would be more sales A few months ago the Bank of Spain announced plans to introduced a new rule forcing banks to write off an additional 10% of the value of any repossession they have owned for a year or more, on top of the 10% they have to write off when they first repossess. This might give banks an incentive to drop prices, as banks can either drop their prices by 10% in the hope of a sale, or lose it anyway through provisions. We will have to wait and see. All we know for sure is that, at present, banks do not appear to be serious about selling their stocks of holiday homes. If they were, they would be priced to sell, which they are plainly not. I predict that this will start to change in 2010. Story from Mark Stucklin

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Spanish Property Not Priced to Sell - Yet

The latest services PMI data suggests that the Spanish economy remains on a downward trajectory. The fact that variables such as activity, new orders and employment all fell at sharper rates during November is real cause for concern, with the prospects for 2010 becoming increasingly gloomy According to Spanish Prime Minister José Luis Rodriguez Zapatero Spain’s government is firmly committed to reducing its fiscal deficit, and is intent on lowering it as requested by the EU Commission by 1.5% of GDP annually, until it finally brings it within the EU 3 per cent of gross domestic product limit by 2013 at the latest. What’s more he is quite explicit about how this is going to be possible: Spain is right now, and even as I write, on the verge of emerging from the long night of recession in whose grip it has been for the last several quarters. As such it will soon resume its old and normal path onwards down the highway of high speed growth. There is only one snag here: few external observers are prepared to share Mr Zapatero’s optimism. “The return to growth and the expected fiscal consolidation will allow us to reach the stability pact objectives by 2013,” Mr Zapatero said in a speech last week, using a rhetoric by which few outside Spain are now convinced, and indeed only the day before the credit rating agency Standard & Poor’s had revised its outlook for Kingdom of Spain sovereign debt to negative from stable. The decision followed their earlier move last January to downgrade Spanish debt by revising their long term rating from AAA to AA+. S&Ps justified their latest decision by stating that they now believe Spain will experience a more pronounced and persistent deterioration in its public finances and a more prolonged period of economic weakness versus its peers than looked probable at the start of the year. So things have been getting worse and not better, and indeed, the EU Commission themsleves seem to take a similar view, since while they have lifted their immediate excess deficit procedure in the short term their longer term worries have only grown. Standard and Poor’s feel that reducing Spain’s sizable fiscal and economic imbalances requires strong policy actions, actions which have yet to materialize, and the EU Commission and just about everyone else agree, and the only people who seem to take the view that the current policy mix is “just fine” are José Luis Zapatero, and the political party that maintains him in office. As Standard and Poor’s stressed, their decision to revise the Spanish sovereign outlook to negative reflected the perceived risk of a further downgrade within the next two years in the absence of more aggressive actions by the authorities to tackle fiscal and external imbalances. It is the continuing silence which surrounds this absence which is so ominous, and makes the concerns of the EU Commission and the various ratings agencies at this point more than understandable. Story from Spain Economy Watch

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Standard & Poor’s Worry About Spanish Finances

I really wish I could close 2009 on a brighter note regarding Spanish property - but no amount of positive thinking can make the current situation look bright. Spanish Banks Prefer ‘No Sale’ Above Paper Loss gives us a first-hand account of why repossessed properties via Spanish banks are almost always such poor deals. We also found this out the hard way - and I’m now hopeful that key-ready Spanish properties are currently the best route to finding realistically priced properties. The difference is that these properties are available direct from the developer - who need sales to prevent the banks from taking possession. Unlike the banks, developers can act more quickly and negotiate from a more realistic property valuation. Remember I told you about a Spanish property auction organised by A Place In The Sun? Unfortunately, that met with little interest. A report in Overseas Property Professional magazine concluded: .. Bidders were only interested in the two ‘no-reserve’ properties, which received offers of around €100,000, said auctioneer Jonathan Ross of Barnet Ross. It suggests that to offer Spanish property to a UK audience they need to be ‘no-reserve’ or at a substantially lower price than the market perceives it to be worth. Thankfully, Peter Christian has something a little more cheery in Drink To A Happy Holiday . Finally, I was recently asked by the International Property Journal for my 2010 predictions for the overseas property market. Here’s what I said: The differing pace of economic recovery between nations will create activity between buyers and sellers. In Europe, the stronger German, French and Dutch economies will allow buyers from those nations to seek and aggressively negotiate property deals in the slower-to-recover European countries - Portugal, Italy, Ireland, Greece and Spain. Even though there is no currency exchange advantage for these buyers, one Euro is worth a lot more property in these PIIGS countries in 2010 compared to 2009. If the US economy continues to improve and the US dollar increases in strength against the Euro, we could also see opportunistic US buyers sniffing out deals in those slower-to-recover countries. This buyer activity is already happening at the top end of the market in the UK where foreign buyers are taking advantage of the devalued pound, a slow moving property market (tipped to get slower in 2010) and a stalled economy. Expect more of the same for the UK and the phenomenon to extend to more countries in 2010. I hope you have a great holiday break and that you’ll join me again in January to see how the Spanish property market starts shaping up in 2010. Martin Dell, Kyero.com

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Optimism for Spanish Property in 2010?

Residential property in Spain is still 27% over-valued, despite the property market crash, claims a new report from Aguirre Newman, a real estate consultancy. A big part of the problem is Spain’s glut of unsold homes, argues the report. Aguirre Newman estimate there are 1.5 million homes on the market today, including resale properties and homes that have been newly built or are close to completion. According to BBVA, Spain’s second largest bank, Spanish property prices were 30% over-valued, but have only fallen 10% so far. Ergo they have to fall another 20% before the correction is over. But prices won’t lurch down by 20% in one go, which would be the best thing for the market. Nope, the pain will be dragged out over the next 2 to 3 years. Prices will fall by 7% this year, 8% next year, and 5% the year after that. Prices won’t stabilise until 2012. Even by historical standards today’s correction in prices is less than half way through, points out BBVA. After the last property crash in the early 90s, property prices fell in real terms for 21 consecutive quarters. This time around prices have only been falling for 6 quarters. If the past is any guide then we still have some way to go, at least another 8 quarters according to BBVA. BBVA mentions another key reason why the fall in prices is far from over, namely the high level of house prices to annual disposable income (something I wrote about here last week). This ratio (house prices / annual disposable income) rose to 7.7 years at the height of the boom, and has now fallen back to 6.6 years. But that is a long way off the historical average of 4, not to mention the 3.5 it has fallen to in the US. The biggest price falls will come where they built the most, where there are lots of unsold homes. That means around Madrid and Mediterranean provinces like Malaga (Costa del Sol), Castellon (Costa Azahar), and Tarragona (Costa Dorada). In contrast prices will fall the least in Orense (Galicia), Navarra, and The Balearics. Meanwhile, and new report from BNP Paribas Real Estate, the real estate arm of French bank BNP Paribas, argues that banks in Spain will start having to offer discounts of 50% in 2010 to shift some of their stock of property. Banks are now Spain’s biggest property companies, having repossessed property as loans went bad. They claim to be offering discounts to buyers but BNP Paribas Real Estate says not big enough to make sales. Story from Mark Stucklin Find key-ready Spanish properties at 40% off 2007 peak prices

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Spanish Property Still Overpriced

The hockey-stick effect is still very much in evidence in TINSA’s latest report on Spanish house prices. But wait, there’s a catch. You can download the latest TINSa report (pdf format) on Spanish house prices by clicking on either of the graphs below. The first of TINSA’s graphs makes for a very encouraging looking trend line - until you remember that they’ve plotted the percentage change in house prices on an annual basis. Unfortunately, in a rapidly changing market, this comparison is all but meaningless. All you can conclude from this first graph is that the decrease in house prices in Spain is slowing. To find out the true picture, you need to refer to the second of TINSA’s graphs which plots the actual value of their index over time. As you can see from this graph, Spanish property prices are still declining - although at a much slower pace than has been the case since the turning point in 2007. House prices in Spain, according to TINSa, are now at the same level as they were in 2005. According to the charts, that represents a 14% decrease from their peak in 2007. While I agree with the overall trends that TINSA produces, we have to remember that their index is based on their own estimates - not actual sales prices. While their estimating methodology may be consistently applied over the years and based on sound principles, that bears little relation to what actually happens in a boom to bust market cycle. Still, better this data than the garbage that the Spanish government continues to produce. Martin Dell, Kyero.com

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TINSA: Spanish House Price Trends November 2009