The Spanish property market is in too much of a mess for a real BMV market to exist, according to agents specialising in distressed property in the country. Struggling developers, desperate homeowners and banks stocked with repossessions are all setting their prices according to how badly they want to sell, meaning a benchmark price is virtually impossible in many of the tourist hotspots. And without a standard to measure against, agents are left to secure whatever price they can for each situation. “Something is worth what someone else is prepared to pay for it and that’s that,” says Inez Rix, owner of Direct Auctions. “You have an open market price (not value), a bank valuation (upon which they base their lending), the offer price and the declared price at notary! No wonder there is no benchmarking for Spanish property .” The problem is so severe that one unit might be on sale for 50% less than the identical unit next door, says Darren Carter, owner of distressed agent Goldberg & Partners. “It all depends on the seller, the buyer and even the weather or what week it is as to what price will be agreed. A developer or bank might have sold three units at one price last week and not want to sell at the same price this week.” The ability to sell at a below market value is also hampered by the banks’ mortgage regulations. In Portugal, developers are offering units with 100% LTV mortgages by fixing prices at 80% of the lending bank’s valuation, effectively removing the need for a deposit. “In Spain this isn’t legal as the Bank of Spain ensures their normal lending criteria is adhered to,” says Rix. “In order to achieve a percentage of borrowing against the higher bank valuation, one now has to obtain a doctored purchase contract.” Carter says there are now better finance deals for buying bank product in Spain, “even 90 or 100% LTV on the price of the property but not including closing costs”, but the mortgage market has become too dynamic. “It feels like banks will offer one LTV one week and a different one next week once they’ve got their quota for the month.” Story from OPP (subscription)

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The Myth of BMV Spanish Property

Upward revision to fourth quarter economic data does sterling no favours. Germany and France consider a bailout for Greece but there are no details yet. A two-day honeymoon took sterling from €1.1350 to almost €1.1450 before it set off south. Thursday and Friday were a one-way street that took it down to €1.11 in time for London’s opening this morning. Robert Stheeman, the chap responsible for issuing UK government bonds, managed an upbeat tone when he addressed a conference in London. He said that ‘politicians of all colours are taking the [public sector debt] situation very seriously indeed. Investors derive a lot of comfort that there is agreement across the spectrum that the deficit needs to be brought under control.’ Mr Stheeman also suggested that a hung parliament might be ‘less disruptive’ than assumed. Unfortunately the market did not share his optimism and sterling spend most of the week on the slide. The rot started, as it so often does these days, with cautious words from Bank of England Governor Mervyn King to parliament’s Treasury Committee. He did not go out of his way to talk sterling lower but, by refusing to rule out the possibility of further quantitative easing, made it sound as though the Bank’s printing press is ticking over and ready for more action. The governor’s comments coincided with news that mortgage approvals had dropped sharply in January with the end of the stamp duty holiday. Sterling spent the rest of the week rolling from one punch after another as investors lightened their holdings. A sharp fall in business investment at the end of last year saw investment down by 24.1% for the full year. Consumer confidence improved by three points but at -14 it still had a minus sign in front of it. Nationwide reported a -1.0% monthly fall in house prices after nine months of improvement. Britain’s overall economic performance in the fourth quarter of 2009 was revised to show growth of +0.3% instead of the +0.1% previously reported but third quarter shrinkage was also revised, from -0.2% to -0.3%. Government spending in the fourth quarter was much higher than expected. Investors did not just ignore one part of the euro zone economic story, they ignored the lot. Industrial new orders grew in December by +0.8%, less than a third of the pace seen in November but the cumulative effect of several months of improvement took the annual increase to +9.5%. Confidence figures from Brussels had little to say; consumer and economic confidence were very slightly softer while industrial confidence edged higher. Euroland inflation was roughly in line with expectations. Prices fell by -0.8% in January but were still +1.0% higher than a year ago. Greece was again the main story for the euro. Even though no solid plans emerged last week, stories at the weekend suggested the emergence of a workable solution that would see the better-heeled euro zone members buying Greek government bonds. EU Economic Affairs Commissioner Olli Rehn is in Athens today, apparently to negotiate a deal whereby Greece would get the support it needs in return for taking painful decisions to reduce its budget deficit. Although Germany’s Chancellor Merkel still publicly maintains that Greece’s salvation lies in Athens, not Berlin, she and other European leaders are not looking for a Pyrrhic victory that would scupper the single currency. The six weeks that sterling spent between €1.13 and €1.16 have been consigned to history With opinion polls closing the gap between Labour and Conservative to almost nothing investors fear that even after the general election Britain’s government will be paralysed by indecision, unable or unwilling to tackle the budget gap. Buyers of the euro should hedge at least 50% of what they will need. If the money will be required in the near future they should consider covering the whole amount. Get the best foreign exchange rates with no bank fees or commission charges using your Moneycorp Privilege Card

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Another week of Punishment for Sterling

Spain tries to hide under the smokescreen of an International conspiracy, TINSA is revealed as not-quite-so independent after all, and two pieces of good news for Spanish finances. In a bizarre twist this week, Spain hit out at English-language news agencies conspiring to bring down the Euro and the Spanish economy. As the writer of The Zapping of Zapatero in the Economist answered: “To this piffle the best retort is: grow up”. Mr Zapatero, however, continues to insist that Spanish economic recovery is near - something that economists outside the country have a hard time agreeing with because the Spanish government haven’t fleshed out their recovery plans. However, two pieces of good news for the Spanish economy broke this week - shoring up international confidence in the country. First, Spain enjoyed a strong bond issue - raising €5 Billion. A bond is basically an IOU from the Spanish government and, the fact that it sold out quickly is a very practical demonstration of how confident the world’s financial markets are of Spain’s ability to repay that debt. Second, the International Monetary Fund stated that Spain is not Greece . A spokesman said: “Spain has robust economic statistics and institutions with a solid history and credibility”. It seems that despite the constant news and rumour-mongering, investors are more than willing to continue investing in Spain - all conspiracy theories aside. Moving on from the world of Spanish politics and finances, please check out Nick Snelling’s new article: What the Spanish Coastal Law Really Means . If you are thinking of buying a Spanish property anywhere near the sea, it’s important to be ware of this fuzzy piece of legislation. Last week, I sang the praises of property valuations company, TINSA. Chartered surveyor, Campbell Ferguson was kind enough to email me this quote from Fuster Associates, a legal firm in Murcia: The biggest valuation companies, such as Tinsa and Tasamadrid, are connected with savings banks and the banking industry; “hence, every time they value a home at less than its former value, their own assets depreciate”. To put it another way, “to admit that homes have come down in price is tantamount to admitting that the assets which back up loans have fallen.” Hmm, so maybe my assertion that one of TINSA’s advantages is that they’re independent is suspect - that’s certainly true in the opinion of this Spanish commentator who said: “You trust the valuations of a company funded by more than 30 savings banks? Bad analysis.” I admit that the independence of TINSA may be questionable - but I do stand by the fact that their index trend is the only data series which tallies closely with what we have observed in practice. Moving on .. We started a new Kyero blog last week to let you know what we’re up to behind the scenes here. Some of the posts are quite technical, some aimed at estate agents, others at the general public. Some talk about functionality we’re developing, and others about problems we’re trying to fix. I hope you find the posts interesting and decide to comment and have your say if you feel strongly enough about a particular subject. Martin Dell, Kyero.com

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No Spanish Conspiracy Theory Required

Even in this dreadful recession, it is hard to imagine that the desire for apartments in Spain from North Europeans will subside. It is one type of Spanish property that will always be popular. Certainly, few things are more more desirable than owning a low maintenance, low cost (and safe) holiday home. Indeed, to have somewhere convenient and familar for breaks away in the sun is, surely, one of life’s ultimate luxuries? The problem, as everyone knows, is that the Spanish property market is in crisis, which has been largely due to massive overbuilding. This is true of every sector – not least that of new apartments in Spain. So, what makes one apartment in Spain better than another? How should you assess what you are buying - and how can you purchase something that will retain its value or (over time) become a sound investment? Of course, ensuring absolute legality is one of the most fundamental aspects to buying a Spanish property and this is as true of apartments in Spain as it is of the more problem prone sector encompassing villas in Spain. However, apartments in Spain have their own particular danger and this revolves around the 1988 Coastal Law (Ley de Costas). The Coastal Law was designed to protect the integrity of the Spanish coastline – and in particular the beach area and the first 100 metres from the nearest point reached by the sea. The Coastal Law ‘divides’ the coastline into two areas of protection. The first is the ‘public domain’ which is, crudely, the area between the sea and the furthest point which the sea has touched in the worst known storm. This includes all areas of sand, shale and pebbles. The second area of protection is divided into: The Protection Zone. This is the first hundred metres inland from the public domain (although this area can be extended a further hundred metres by the Spanish state, autonomous region or local town hall). No building of any nature whatsover is allowed within this area. The Zone of Influence. This area extends for 400 metres inland from the Protection Zone. Building is allowed - however restrictions are applied on a reducing scale of severity as you move inland from the sea. Obviously, some properties in Spain were built within 100 metres of the sea prior to the Ley de Costas being passed. These can be subject to a ‘concession’ meaning that they can avoid demolition. However, any ‘concession’ must be treated with the very greatest possible care and should be subject to expert, independent advice from a Spanish land law specialist. Needless to say, the Coastal Law has been erratically enforced over the years. This has resulted in the construction of Spanish property that oftenly blatantly transgress the law. To put it mildly, this type of puchase could be disastrous - should the authorities decide (as they occasionally say they will) to enforce the law and demolish the offending buildings… My point is that you must be very wary of buying an apartment in Spain that is too close to the sea and that could be deemed to come under the Coastal Law restrictions. Of course, typically, the best apartments in Spain to buy are those that are ‘front line’. Everyone wants an unobstructed ‘sea view’ and quick, trouble-free access straight to the beach. As a consequence, it is these properties that are most in demand - and it is these that have retained their value and are excellent investments for the future. This is particularly the case if a ‘front line’ apartment in Spain is within easy walking distance of a lively area with shops, bars and other amenities. Certainly, the importance of proximity to amenities should never be underestimated, if you want your apartment in Spain to be a sound investment (and to be able to really maximise its use). The Spanish coastline is long and there are countless coastal apartment blocks stretching for miles away from any coastal town or village. However, many are often far from any real amenities and (normally) cannot be compared in value or desirability to those reasonably close to a pretty, lively and permanently lived-in area. A ‘permanently lived-in’ area is especially important, not least because many coastal apartment blocks are virtually ‘closed down’ out of season. Worse still, this is also true of the one or two surrounding bars or shops that are often open only during the Easter or summer period. Without doubt, the glory of Spain is the all-year round, excellent climate and few things are more depressing than taking a winter sun holiday in an area that is almost completely ‘dead’ out of season. A canny buyer will always recognise this point and ensure that any apartment in Spain he buys - is not dangerously compromised for most of the year. This affects not only personal enjoyment of the property but also, obviously, its re-saleability and potential investment value. From Nick Snelling’s latest book: How to Move Safely to Spain

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What the Spanish Coastal Law Really Means

MPC member sets the ball rolling with talk of higher UK interest rates. Greece’s fiscal problems worry the euro. After a day’s hesitation in the vicinity of Monday’s €1.11 starting point the pound set off higher. It was not quite a straight-line advance (it almost never is) but sterling did not really come to a stop until it topped out at €1.13 on Friday. End of week profit-taking brought a brief setback but the pound was back up beyond €1.63 by the time London opened this morning. Sterling had a good week on almost every front. On the rare occasions it failed to make progress - and only the yen springs to mind - it was steady. There was not universal support in every case to start with but by Tuesday there was wind in every one of sterling’s sails. The pound owed its uncharacteristic advance to the Bank of England, specifically to Andrew Sentance, a member of the Monetary Policy Committee. He told The Guardian newspaper that ‘Threadneedle Street has done enough to lift Britain out of its deepest post-war slump and will need to consider raising interest rates this year if a recovering economy poses a threat to inflation.’ In his opinion the sixth consecutive quarter of falling output in the third quarter of 2009 presented ‘an excessively downbeat’ picture of the UK economy and he downplayed the risk of a double-dip recession. That argument received corroboration the following day. The National Institute for Economic and Social Research (’Britain’s longest established independent economic research institute’ according to its own blurb) reckons the economy grew by +0.3% in the fourth quarter, contracting by -4.8% in calendar 2009. That last figure was given added punch by simultaneous news that Germany’s economy shrank by -5.0% on the year. Although the NIESR is not responsible for the ‘official’ figures investors were happy to accept that the UK economy had finally returned to growth and they clung to that upbeat mood for the rest of the week. By contrast, investors did not have their usual disregard for factors detrimental to the euro. They have at last fallen in with the idea that Greece’s membership of the euro cuts both ways. Total public sector borrowing in Greece is set to reach 120% of gross domestic product this year and could be as high as 140% of GDP in a couple of years’ time. The Greek government says it intends to barrow this budget gap but its deeds have so far fallen short of its words. Some analysts have speculated that a possible solution is for Greece to abandon the euro and go back to issuing its own currency, a sort of Drachma II. At his press conference on Thursday the president of the European Central Bank made his position clear. First he said the idea of Greece leaving the euro was ‘absurd’. Then he went on to say the ECB would offer no special treatment to Greece. That means, following the downgrade of Greek credit ratings, that Greek government bonds will not be eligible as collateral at the ECB once it retightens its rules to pre-crisis standards. Yesterday’s Sunday Telegraph carried a piece entitled ‘ECB prepares legal ground for euro rupture as Greek crisis escalates’. The official ECB line seems to be that a) there is absolutely no chance of Greece leaving the euro and b) this is what will happen when it does. Investors are less than relaxed about the situation. The pound has spent most of the last three months between $1.58 and $1.68. It starts this week right at the top of that range and looking punchy. If it can consolidate its gains there is nothing to prevent it reaching €1.15 without too much effort. The uncertainty principle still points to a 50% hedge of any euro requirement but there might be better levels at which to make the transaction. Buyers of the euro who are not already hedged should use a stop order for protection in anticipation of this rally carrying further. Get the best foreign exchange rates with no bank fees or commission charges using your Moneycorp Privilege Card

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Broad Improvement For Sterling

Last week I mentioned that 2010 had started briskly for Kyero.com. Comparing the first week of 2010 with that of 2009, we’ve seen substantial increases across all metrics. Overall page views up by 46% Unique visitors up by 63% Property page views up by 47% Property enquiries up by 34% Clicks to estate agent web sites up by 41% What is going on? We would normally expect to see some growth each year - because, for six years now, the vast majority of the advertising revenue we generate goes straight back into developing Kyero.com. However, no amount of software development can compensate for a tricky world economy and a suppressed property market in Spain. I suspect that property-related search has boomed in general, and I suspect that this is particularly true in Spain and other ‘laggard countries’ in Europe. I believe that two of this week’s news article explain the surge in interest in Spanish property . Spain: One of the Best Real Estate Investments in 2010 explains why investors are re-assessing the region, and The Real McCoy on Spanish House Prices explains the rationale behind them expecting substantial discounts. (Incidentally, for these same reasons I see key-ready Spanish property as offering the best combination of price, risk and value at the moment.) Currently, the strength of the Euro against the British pound means that Spanish property is of most appeal to buyers in the stronger Eurozone countries: France, Germany and Holland. However, as detailed in: Worst Not Over Yet For Europe , the Euro’s foundations are shaky due to the uncertainty surrounding the finances of Greece. Accordingly, foreign-exchange traders are forecasting a sinking Euro, a rising US dollar - and a rise in Sterling. It might not be long before Spanish property becomes even better value to UK buyers too. Whatever kind of property you are looking for in Spain, you will no doubt have been rattled by the news of yet more property demolitions in Almeria. It amazes me that this is still happening in Spain but Nick Snelling’s article: Another Nail in the Coffin for Spanish Property puts things into perspective. A related article from the Telegraph can be found here - worth a read for the comments alone. If you’re as disgusted as I am that this is still happening anywhere in ‘civilised’ Europe, please take 2 minutes to add your signature to this petition. Just before Christmas, I wrote about Spanish banks and their charges . Now, there’s some good news from Santander as reported by This is Money and Which . It looks as though Abbey current account customers can now get withdrawals from Santander’s 4,300 ATM’s in Spain - without any charges at all. From a personal perspective, I’ve found Barclays in Spain to be the best (in terms of charges) for personal and business banking. Martin Dell, Kyero.com

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Spanish Property Popularity Rising - Why?

Something’s wrong with the Spanish property market, writes S. McCoy in a recent article at Cotizalia.com, a financial news website. His analysis points towards a big and desirable fall in house prices – up to 50% by 2011 says McCoy. However, there is no sign of this in the “imaginary” official figures, nor in any of the reports produced by the sector. On top of which the government and some banks are already claiming that the market has touched bottom. So what is wrong with the market, and why haven’t prices fallen more? asks McCoy. Supply and demand With a glut variously estimated between 800,000 and 2,000,000 unsold homes, and sales of around 200,000 homes a year, it’s going to take 4 years to liquidate the glut, in the best case, points out McCoy for starters. You would expect prices to be tumbling. House prices to income A good way to judge the level of property prices is the ratio of Spanish property prices over annual disposable income, which ignores mortgage financing issues. This rose to over 7 years at the height of the boom, and has now fallen back to 6.5 years because, although house prices have fallen somewhat, so have incomes. But that is a long way off the historical average of 4, suggesting price falls still have a long way to go. Rental yields Another way to judge property prices is the relationship between rental income and prices (rental yields), a type of inverted price earnings ratio. Higher yields mean better value. Gross rental yields fell to 2% during the boom, below even interest rates. Now that house prices are falling rental yields should be going up, right? Wrong. The property glut is driving down yields, as more owners try to rent out property they can’t sell. Yields tell us that, at present prices, property is a bad investment, so you would expect prices to fall more. But they aren’t. So why aren’t prices falling more? McCoy gives 3 reasons: Because interest rates are so low. That gives borrowers some breathing space, and allows developers to limp along as zombies for longer. Low financing costs mean banks can avoid selling at a loss, by not selling at all. Because borrowers in Spain are liable for negative equity, which gives them a big incentive to do everything they can to avoid foreclosure. Borrowers may be in a lot of financial distress, but this keeps some of it from reaching the market. Because unemployment benefits and the black economy mean that many of the unemployed have managed to keep paying the mortgage, until now at least. If the economic recession continues for much longer, and if interest rates rise, the distress in the system will reach breaking point, then prices will tumble, warns McCoy. But the sooner the better, he says. “That’s the only way to bring about Schumpeter’s creative destruction, so necessary for this country.” I should point out, however, that McCoy is talking about the wider market, including all that speculative primary housing built around cities like Madrid and Barcelona. The situation may be even worse for speculative holiday homes in subprime locations, but it’s probably a lot better for prime and A grade property in the best holiday home locations. The market for A+ property in the best locations is international, and not so exposed to the economic situation in Spain. Story from Mark Stucklin

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The Real McCoy on Spanish House Prices

Anyone interested in property in Andalucía, or Spain for that matter, should read this annual report on the market by Barbara Wood of The Property Finders, a buyer’s agent. It turns out the quality end of the market is alive and well and delivering great opportunities for buyers. I totally agree with Barbara’s comments about the lack of reliable house price data in Spain: “The official Ministry of Housing figures are distorted by under-declarations of the sale price in the past, while the oft-quoted TINSA stats are based on subjective market appraisals.” Unfortunately, I’d include our own Spanish house price index in that category of ‘unreliable’ data too. We’ve just published an update for Q4 2009 but this catalogue of property asking prices bears no relation to actual transaction prices. Again, as Barbara states: “If the owner has no urgent reason to sell and the asking price remains at a 2007 level, even in a prime location it won’t find a buyer. It may well happen that they eventually do get their price but that will be because it converges with a rising market. Much of what’s currently on offer in Spain at the moment falls into that category. As evidenced by our own price index, asking prices haven’t fallen sufficiently to reflect the reduced prices buyers are now willing to pay. Unfortunately, even pricing property competitively isn’t enough to ensure a sale - it also must be a ‘quality’ property. One more quote from Barbara’s article: “.. There are no buyers for second-rate positions. Buyers are able to pick and choose like never before and things overlooked in the boom will be flagged as a problem now.” If you’re at all interested in buying Spanish property in 2010, make sure you read the complete article here . Aside from continuing to sift through the mountain of news stories over the break, we also launched a new Spanish current affairs blog. It’s updated several times a day from mostly Spanish-language news sources and translated into English for you. Here are a few articles which caught my eye: New Year Spanish Tax Hikes Spanish EU Presidency Begins Tax Evasion on Rental Properties in Spain Spanish Minimum Wage Rises We’ll also be experimenting with some non-English language blogs during January and, with our Portal47 hat on, we’ll be blogging for other countries too. Here are our early efforts at collecting news stories related to French property and property in Portugal . Kyero.com certainly has a lot on its plate in 2010 - and it seems that you are also revving up for a busy year. On Sunday, January 3rd we recorded our busiest day ever for Spanish properties viewed on Kyero.com. Our statistics for December 2009 also showed increases of around 80% over the same period in 2008. It looks like 2010 is set to be a lively year. Martin Dell, Kyero.com

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2010: A Lively Start for Spanish Property

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

Unless it turns out to be a false dawn, the housing markets in the UK and the US may be seeing the light at the end of the tunnel. Can the same be said for Spain? Spanish housing market experts can’t agree on the answer, according to an article online at the Spanish news site elconfidencial.com. Some say there are still big price falls in the pipeline, whilst others say prices are set to stabilise. Real Estate Consultants Aguirre Newman say that Spanish property prices are still over-valued by 27%. International investment bank Morgan Stanley say prices are still 10% over-valued, perhaps more considering that, by some measures, prices should fall by 58% from the peak. When you compare property prices to income and rents, Spanish property prices “should fall much more than in the US or the UK to return to adequate levels,” they argue. And this week BBVA, Spain’s second largest bank, published a new report arguing that Spanish property prices will fall another 20% over the next couple of years. Spanish savings bank Caixa Catalunya argues that the market is at or near its inflection point, with prices already starting to rise in some areas. Caixa Catalunya has many reasons to wish prices to rise, having been caught out more than most lenders by Spain’s property crash. Global bank HSBC are also mildly optimistic that the worst is over. They point out that price falls are starting to decelerate (based on official figures that I would consider worthless) and that mortgage lending has picked up slightly. But they also note that other indicators like transactions are still highly negative, suggesting a shaky recovery at best. Who’s right? Only time will tell. I, for one, am still in the bear camp when it comes to the overall market. But if you are talking about prime and A grade property, I’m not so sure. 2010 might be the year to pick up prime and A grade Spanish property at a great price. But to do so you’ll have to do your homework, and know your Spanish property segments. Story from Mark Stucklin

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Experts Disagree Over Spanish Property Market