The number of houses sold in Spain fell 0.3 percent in December from a year earlier, the 24th straight month of declines, the National Statistics Institute said on Wednesday. The drop compared to an annual fall of 2.6 percent in November and a record slide of 47.6 percent in April. The sale of homes fell 7.7 percent in December from November, the data showed. Spanish banks have been told by the Bank of Spain to devalue the housing assets on their books by 20 percent, El Mundo reported on Wednesday, citing sector sources. The Bank of Spain was not immediately available for comment. Spain’s banks hold an estimated 100 billion euros ($137.1 billion) worth of Spanish property , 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 percent 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. Story from Interactive Investor

View post: 
Two Years of Declining Spanish Property Sales

More than half of Spain’s landlords are dodging taxes as the rental market expands, depriving the financially strapped government of more revenue each year. Owners are asking for payment in cash from tenants to avoid tax on 2.5 billion euros ($3.5 billion) of earnings annually, the Gestha union of tax inspectors estimates. An increase in rental properties nationwide hasn’t generated any more tax revenue. The Spanish government, seeking to pull the country out of its deepest recession in 60 years, needs all the money it can get right now. The slump was triggered by a crash in the Spanish property market and has left Spain with the highest budget deficit since at least 1980. Taxes go unpaid on income equal to about a quarter of gross domestic product, Gestha estimates. “The deep economic crisis in which the country is submerged is once again making the hidden economy flourish,” said Juan Jose Figares, chief analyst at Link Securities in Madrid. “The government will be compelled to clamp down on rent fraud.” A drop in house prices starting in the second quarter of 2008 has forced many people who bought homes as investments to seek tenants for their properties rather than selling at a loss. At the same time, more Spaniards are trying to lease homes after they were priced out of the market in the years before the crash, making it easier for landlords to strike deals that don’t involve the taxman. The number of properties for rent increased 18 percent to 2.2 million units in 2008, according to data from Spain’s Housing Ministry. Rental income declared by landlords rose by just 0.1 percent over the same period, a report on the Web site of Spain’s tax office shows. The rental market has a lot of room to grow. At 13 percent, the proportion of renters to homeowners in Spain is still low compared with other European countries, where 40 percent to 60 percent of housing is rented, according to Madrid-based property consultant Aguirre Newman. Around 65 percent of Spaniards aged 25 to 29 live with their parents, compared with about 22 percent in France and the U.K., economic research institute Fedea estimates. “During the housing boom, the state was earning so much from home sales that it wasn’t worth chasing the odd landlord,” said Fernando Encinar, co-founder of Idealista.com, Spain’s largest real estate Web site. “Now, with the economic crisis, the government really does need the money and will make efforts to prosecute tax dodgers.” Encinar, whose company lists 360,000 properties for rent and purchase, said Gestha’s estimate that 54 percent of landlords are ducking taxes “falls short of the true figure, which is set to grow further.” The penalty for avoiding tax on rent is a fine equivalent to 150 percent of the unpaid amount, according to the Spanish tax office. The tax also must be repaid. There is no punishment for the tenant. The penalty is almost never applied because tax dodgers are not being investigated, Gestha General Secretary Jose Maria Mollinedo said. “As both the landlord and the tenant make an agreement not to declare tax or their residency, there is absolutely no way to prove that tax fraud is taking place and therefore no non- declaring landlords are brought to book,” Mollinedo said. A tax break adopted in 2008 accounts for part of the difference between rising rentals and the lack of tax revenue growth. It gives landlords a 100 percent tax break if they rent to tenants who are under 35, according to a spokesman for Spain’s tax office who declined to be identified by name, citing government policy. He didn’t provide information on how many landlords claimed the tax break. The incentive makes little difference because most leaseholders are over 35 and landlords worry that the break will be repealed in a couple of years, after they’re all registered with the state, Mollinedo said. Spain can ill afford to lose revenue it should be collecting. The country, which had a record budget surplus equal to 2 percent of GDP in 2006, will probably have an overall public-sector deficit of 9.8 percent this year, according to Finance Ministry data submitted to the European Commission today. Sellers pay 18 percent capital gains tax in Spain on any profit made from home sales. There were 106,273 transactions in the third quarter of 2009, according to the most recently published data from the housing ministry. That was 14 percent lower than a year earlier and 58 percent less than the market’s peak in the second quarter of 2006. Values decreased as much as 11 percent last year, Idealista.com said. Rent fraud is just the tip of the iceberg, with Spaniards avoiding tax on income of 240 billion euros, equivalent to 23 percent of the economy, according to Gestha. If Spain could reduce that figure 13 percent, the country generate another 25 billion euros of tax revenue annually, it said. Tenants, happy to find a place at all, aren’t likely to turn into whistleblowers. While rents fell 8.4 percent in Madrid and 12 percent in Barcelona during the first half of 2009, increases over the previous five years continue to squeeze budgets. Rent levels climbed 28 percent in the capital and 56 percent in Barcelona in the five-year period. Ruben Gonzalez, a 33-year-old Madrid resident, said he received 120 calls in four hours after placing an advertisement in Idealista.com for a 2-bedroom apartment on behalf of his current landlord. Then he turned his cell phone off. Gonzalez showed the first 30 callers around the 60-square- meter (645-square-foot) city center apartment, which has a broken refrigerator and faulty boiler, rising damp and peeling paint. “‘Everyone was fighting over the place because it’s better than a lot of what is out there and the owner is legal and insists on a contract.” Gonzalez said. “One couple even offered to pay more than the asking price and another offered a cash bribe to put them at the top of the list.” Story from Business Week

View post: 
Spain’s Tax-Dodging Landlords

Spanish house prices are still 55% above their fair value despite Spain’s property market crash, claimed a recent article in The Economist magazine that caused a stir in the Spanish press. But what nobody seemed to notice is that The Economist have got it wrong, for which we can blame the Spanish Government and it’s dodgy data. The Economist publishes a periodic round-up of global house prices based on official housing market statistics for a selection of countries, Spain included. The latest round-up finds there has been a rebound in prices in many countries, but not in Spain. “At least house prices are still falling in the Euros area’s overvalued markets, such as France, Spain, and Ireland,” says The Economist. How does The Economist decide what is overpriced? It calculates a fair-value measure for property based on the ratio of house prices to rents. According to The Economist “the gauge is much like the price/earnings ratio used by stock market analysts. Just as the worth of a share is determined by the present value of future earnings, house prices should reflect the expected value of benefits that come from home ownership. Shares are deemed pricey when the p/e ratio is above its long-run average. Similarly, homebuyers are likely to be overpaying for property when the price-to-rents ratio is higher than normal.” Using this measure The Economist finds that Spain is the most overvalued, by 55%, followed by Hong Kong (+53%), Australia (+50%), France (+40%), Sweden (+35%), Ireland (+30%), and Britain (+29%). The most undervalued property markets are Japan (-34%), Germany (-15%), Switzerland (-9%), and the US (-3%). The problem with this method is it’s based on official housing market price statistics, which in Spain’s case are detached from reality. Spanish property prices reduced by just 6pc in 2009, says the Government. Everyone else in Spain knows that the Ministry of Housing’s figures are baloney. There are no reliable figures for the Spanish property market, but I guess that prices are probably down by more than 10% on average last year, and by 30% or more since the peak. If The Economist used real transaction price figures it would find that Spanish housing prices are much closer to fair value than they think. Given how damaging it is for Spain to have international creditors read in a prestigious magazine like The Economist that Spanish property prices are the most overvalued in the world, you would think the Ministry of Housing would be racing to make its figures more accurate. That one step alone would do more good than all the ineffective initiatives produced by the Ministry of Housing in the last decade. To be fair, The Economists recognises several flaws in its measure, such as how it fails to capture important variables like the change in real interest between countries, and how far back the data goes for each country. But it misses the biggest flaw, which is that it is only as good as the official data it is based on. In Spain’s case, that data is almost meaningless, which makes the results for Spain meaningless too. The Economist concludes that “in spite of these blemishes, the price-to-rents gauge is a useful check on how puffed-up property markets are. That house prices in America are back in line with rents suggests that the worst of its correction is over. Europe’s housing correction, however, seems far from over.” Story from Mark Stucklin

Original post:
Economist: Spanish Property 55% Overpriced?

Spanish savings banks have begun selling off the large property portfolios they acquired as collateral from loan defaults, in an effort to improve solvency ratios, a move that risks further falls in property values that could impair the value of their asset books. In Spain, the global financial crisis that erupted in 2007 ended a real-estate and construction-based asset boom, plunging the country into a recession that has yet to end, even as many other European economies have returned to growth. As the unemployment rate has soared to more than 19%, residential-property buyers have defaulted on loans in massive numbers, as have property developers, overleveraged in a moribund market. As lenders have assumed the collateral on defaulted loans, local financial institutions—particularly unlisted savings banks—have collected properties valued at about €8.5 billion ($12.2 billion) over the past 12 months. So far the banks have held on to the vast majority of these properties, hoping an eventual economic recovery will allow the disposal of these assets at acceptable prices—a strategy they successfully adopted during a recession in the early 1990s. Accumulating properties also stopped a sharp drop in prices, avoiding the painful write-downs banks are required to book when the value of their assets falls. Until now the strategy has worked. Spanish property prices have been unusually resilient. Average prices have dropped by a modest 9% over the past 12 months. In the last five years of the housing bubble, average prices jumped 71%, according to Housing Ministry data. But now banks are facing new demands for liquidity that will force them to sell more property. They are drawing up sales strategies, creating real-estate management divisions and offering discounts in an effort to lure buyers. Solvency pressures on the banks come from several directions. First, the downturn has meant smaller inflows of cash held in deposits and bank accounts. Second, the Bank of Spain recently required local financial institutions to set aside more money to cushion potential losses from a drop in the value of repossessed properties. Banks must now set aside 20%–up from 10%–of the value of a property held on their books for more than one year. Finally, a big restructuring of the savings-bank sector is in the cards, for which banks need funds to clean up their loan books. Such incentives to liquidate property portfolios have banks looking to sell. “Three of the five real-estate companies that have sold the most properties this year are controlled by financial institutions,” says Manuel Romera, head of the Financial Sector Program at Spain’s IE Business School. Bank disclosure on property sales is limited. Unlisted savings bank Caja Madrid, Spain’s fourth-largest financial institution by assets, said it has sold 600 properties from January to September for about €100 million and estimates it has €1 billion in real-estate assets. The bank launched a Web site, set up a call center and will have desks at some branches to sell properties. Smaller rival Caixa Catalunya said it unloaded 800 properties from a total of 3,600 properties it reported owning as of May, while Banco Santander SA, the country’s largest bank by assets, said it unloaded some 1,000 properties from January to October. In April it reported owning some €4 billion in real-estate assets. However, banks “are realizing that unwinding real-estate assets is much more complicated than expected,” says José Luis Suárez, financial management professor at IESE Business School. “The short-term outlook isn’t positive.” In the absence of an active real-estate market, the process of price discovery could show market values of many properties are far lower than their book values. Analysts say that some banks and saving banks, particularly small ones, could suffer losses in the first half of 2010. They say banks with high levels of expenditure to income may be in trouble. “Growth and employment prospects for Spain are markedly more pessimistic and, together with falling support from immigration and foreign demand, it is difficult to argue in favor of any near-term housing market recovery, especially in the face of a massive supply overhang,” HSBC said. The research department of Spanish bank BBVA estimated in June that Spanish housing prices would fall by 10% in 2009 and by 12% in 2010. It envisioned a total 30% peak-to-trough drop. A new review in December didn’t change that forecast. According to the Bank of Spain, 70% of a total of €30 billion in real-estate assets owned by financial institutions is now in the hands of savings banks, many of which are comparatively small and regionally focused. Were BBVA’s estimate of the fall in house prices to prove accurate, the value of the €30 billion of real-estate assets held by banks could fall some €6.6 billion in the next two years. To avoid these losses from becoming a bigger problem–perhaps necessitating state intervention—the Bank of Spain is encouraging banks to look for merger partners. The central bank believes that fewer, bigger banks would improve efficiency and strengthen solvency. More than a dozen of the country’s 45 savings banks are now in tie-up talks. So far, only one Spanish financial institution, savings bank Caja Castilla-La Mancha, has needed a state bailout. But two other banks—the Andalusian savings bank CajaSur and the Catalonian savings bank Caixa Catalunya—have already run into trouble after seeing default levels increase far above the industry average because of their high exposure to real-estate development. As a result, both of the banks are now discussing mergers. Caixa Catalunya is talking with Caixa Tarragona and Caixa Manresa, which, if a deal goes ahead, would create the fourth-largest savings bank in Spain. CajaSur is talking with Unicaja and Caja Jaén, which would create the sixth-biggest savings bank in Spain by asset volume. Story from Wall Street Journal

Here is the original post:
Spanish Banks Saddled With Property Debt

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

View post: 
Experts Disagree Over Spanish Property Market

Of course, there is no denying that the Spanish property market is in deep trouble. Indeed, the problems caused by the Spanish property crash are, undeniably, central to the ‘crisis’ in Spain. Quite simply (as everyone now knows) far too many properties in Spain were built during the boom years. To compound this fact, promoters were lent absurd amounts of money on projects that, at the best of times, would probably have been unworkable. Meanwhile ‘debt’ for the general public was easy to obtain and often based upon over-valued properties. All of this created a rampant Spanish property market that spiralled out of control and for which Spain is paying heavily now. However, for a foreign buyer to look upon the Spanish property market as a lethal area to avoid, at all costs, would be a mistake. The truth is that the Spanish property market has many different parts to it. It is far from being a one-dimensional market and still offers value for money to the careful foreign buyer - who is unlikely to be in the least interested in the vast majority of the housing in Spain for sale. Indeed, many of the Spanish properties for sale are flats, apartments and adosados (terraced houses) that were built not for ‘wealthy’ North Europeans but for the Spanish (or in-coming non-European immigrants) within towns and villages away from the coast. Of those that are on the coast many newly built properties are often too far from normal tourist amenities (bars, cafes, restaurants, clubs, international airport etc.) to be attractive to North European holiday buyers - let alone those wanting to move to Spain permanently. Of the properties remaining there are large complexes around golf courses and ‘ghetto’ estates specifically built for ‘wealthy’ foreigners. Some of these estates never were going to be sound buys and many would be discounted instantly by any wise buyer upon seeing the rows of almost identical new, or almost new, properties. These are often transparently poorly built and offer little obvious, long term value. This is not say that a Spanish property , for example, on a golf course is not a good value buy – but recognise the difference between a golf course complex built in the middle of no-where and a quality one that is part of an integral and workable infrastructure. As I have mentioned before, the secret to buying property in Spain is to know what is (and always has been and always will be) of long term value. As a very crude generality, when it comes to the foreign buying market there are two principle types of property that come within this definition (taking absolute legality for granted). Front line beach apartments close to amenities. These are always a good buy and tend to hold their value well. They are also surprisingly hard to find (a quality build with a panoramic sea view, pretty beach/bay, reasonably quiet road in front – or no road in front at all! - within walking distance of amenities etc.) ‘Character’ villas within 15 minutes of the beach on a quality estate with a full infrastructure close to a lively village. These are also tough to find (given that the ‘ideal’ specification for the build tends to be three bedrooms, two bathrooms, a flat plot, a swimming pool and some degree of privacy). Try finding a property in 1. and 2,. above and you will discover that it is far from easy – proof, if ever it was needed, of the importance of knowing exactly what to look for if you want to be assured of long term value. Indeed, 1. and 2. are as good a representation of the complexities of a ‘crashing property’ market as anything else. There is always value to be had (and a reasonable amount of it) if you know where to look and what to look for. Of course, 1. and 2. are a simplification. In Spain, some town houses and flats are, even now, excellent buys as are, occasionally, some new adosados. However, as I stress in my book guidelines exist to buying property as a sound investment even when a market (as in Spain) is badly damaged. Always there are properties of value – it is just vital to know exactly how to gauge that value objectively. No-one would deny that the Spanish property market is in long term trouble. However, know what you are doing and there is no reason why buying now in Spain should be anything but a positive action. In short, the Spanish property market is certainly in crisis - but this does not mean that the entire Spanish property market is defective. Far from it. Some sectors will always have long term desirability and be sound investments. Just be sure that what you buy into is the sector that has assured value and that you are not seduced by ‘bargain basement’ priced properties - in the wrong sector! From Nick Snelling’s latest book: How to Move Safely to Spain

Here is the original post:
The Complexities of the Spanish Property Market

After 15 years, Spaniards are finally seeing the rampant corruption beneath all the uncontrollable property speculation. Fifteen years of frenzied real estate speculation in Spain is being replaced by a wave of political corruption that is angering many Spaniards already suffering from the economic crisis. “After getting drunk on speculation, we are waking up to a corruption hangover,” said Gaspar Llamazares, the leader of the United Left coalition. Barely a week goes by without some town or region embroiled in a new corruption scandal, the backdrop to which is usually the collapse of the Spanish property market in 2008. And Spaniards, already hit by economic recession and soaring unemployment, are taking notice. A recent opinion poll released by the CIS institute said “politicians and political parties” has climbed two places to be the fourth most important concern for voters, ahead of Basque separatist violence but behind economic issues and immigration. The conservative opposition Popular Party has been in the forefront of the scandals, with its members in the Valencia and Madrid regions being investigated for allegedly taking bribes for public contracts. But in early November, a new case emerged in the northeastern region of Catalonia involving a Socialist legislator and former nationalists, showing that no party has a monopoly on virtue. “We are seeing the consequences of the housing bubble. The economic crisis is like a wave withdrawing from the beach revealing cigarette butts” in the sand, said the PP’s deputy secretary of communications, Esteban Gonzalez Pons. The centre-right daily El Mundo estimated that EUR 4.1 billion has been embezzled in Spain in the last 10 years, “the equivalent of 50 modern hospitals.” And it based that figure just on cases that are being investigated or are already closed. Some police believe that corruption has generated more money than drug trafficking, which is already big business in Spain. Most of the cases concern reclassifications by mayors of rural zones into constructible land through commissions paid by contractors. Some contractors “have become multi-millionaires without lifting a finger, through an administrative decision,” said Gonzalez Pons. And some elected officials appear to have become wealthier with their villas, luxury cars, expensive works of art or race horses. This was seen in 2006 in the huge corruption scandal in southern resort of Marbella, a paradise of the jet-set and organised crime. “Many politicians have lost all shame and ask you for cash without intermediaries,” one contractor told ABC newspaper. “They ask you for EUR 100,000 up to 10 million if it’s a big reclassification operation.” Most of the corruption is along the Mediterranean coast, the Balearic Islands, the Canary Islands and in the Madrid region. Spanish media says more than 300 people — elected officials or contractors — will be tried for corruption and influence peddling in 2010. Political parties, aware that the public is judging them, have vowed to address the issue, considering tougher prison sentences or moves to force politicians to publish their assets. “Either we firmly contain … corruption or the democratic capital that has been earned” since death of dictator Francisco Franco in 1975 “will go down the drain,” ABC warned in an editorial written by its director, pointing to the risk of “a enormous increase of abstention in the elections.” Story from Expatica

View original here: 
Finally, Spain Wakes up to Corruption Hangover

Spain’s housing market is broken and urgently needs fixing, argue a group of top-flight economists from Fedea, one of Spain’s leading economic policy think tanks. In a new report just released, ‘For a Housing Market that Works: A Proposal for Structural Reform’, a group of economists at Fadea, including Pol Antràs of Harvard University, Luis Garicano of the LSE, and Javier Díaz-Giménez of IESE Business School, explain how and why Spain’s housing market should be fixed to reduce social problems and help the economy recover. The report identifies a dysfunctional rental market as lying at the heart of the problem, causing serious economic and social consequences such as a bloated real estate sector, low productivity, over-indebted families, unaffordable housing, and low labour mobility. Just 13% of Spanish households live in rented accommodation, compared to > 40% in Germany and France, and around 30% in the UK. The report blames Spain’s regulatory framework and calls for immediate changes to liberalise the market. For example, the law restricts rental contracts, which makes it difficult for landlords and rental clients to agree conditions that might suit both parties. Even the Governor of the Bank of Spain is critical. “It’s ridiculous that the law prevents landlords from renting their properties for less than 5 years, even if tenants agree,” he told the Spanish press. Low labour mobility, reduced access to housing, high levels of unsatisfied demand for housing (especially amongst the young, as 65% of Spaniards between 25-29 live at home with parents, compared to 20% in France, Holland and the UK), and a glut of empty homes are all consequences of Spain’s small rental market. To encourage renting over buying, and address other structural problems in the housing market, the report recommends 4 urgent policy steps: Liberalise rental contracts and give landlords better legal protection. Remove all fiscal incentives that encourage buying over renting. Stop selling social housing and offer it for rent instead. Reduce or do away with taxes on property sales such as VAT and transfer tax. These steps should help mop up Spain’s housing glut, rebalance the market, improve access to housing, increase the incomes of small landlords, reduce the impact of the economic crisis on household budgets, and help reduce unemployment, argue the economists from Fadea. When experts of this calibre call for immediate action to solve a serious problem the government should sit up and listen. Sadly, the signs don’t look good. The Fadea report included some housing market statistics that can be summarised as follows: 1 million empty properties in Spain, the equivalent of 3 years of sales, compared to just 9 months of sales in USA. 16% of Spain’s housing stock lies empty, an exceptionally high level compared to other countries. 65% of Spaniards between 25-29 live at home with parents, compared to 20% in France, Holland and the UK. Just 13% of Spanish households live in rental accommodation rent, compared to > 40% in Germany and France, and around 30% in the UK. Spanish property prices doubled in real terms between 1999 and 2007, only comparable to the UK. Spain accounted for two thirds of all the homes built in the EU between 1999 and 2007. The average home in Spain cost 7.7 x average disposable household income in 2007, compared to just 3.6 x a decade earlier. 95% of Spanish mortgages are variable rate Story from Mark Stucklin

Read more from the original source: 
Spain’s Rental Market in Need of Reform

Spanish house prices fell at a record rate on the year in the second quarter and economists said prices are unlikely to have hit bottom due to massive stocks and expectations of a prolonged recession. House prices plunged 7.7 percent year on year in the second quarter, official data showed on Wednesday, marking a year of sliding prices and compared to a previous record 7.6 percent drop between January and March. Second quarter house prices fell 0.4 percent on a quarter-on-quarter basis compared with a 2.7 percent fall in the first quarter, the National Statistics Institute said. The price of new homes fell 3.9 percent year-on-year, the second consecutive quarter of falls, while existing house prices fell 11.2 percent, easing from a previous drop of 12.5 in the first quarter, the INE reported. Expectations of a deep, drawn out recession, an unemployment rate more than double the European average and new-home stock piles which rival much larger economies mean the Spanish property market will remain in a slump for some time, analysts said. ‘Just through the laws of supply and demand, I can’t believe the drop in house values has reached a bottom yet,’ said economist at Renta4 Natalia Aguirre. The government estimates there is a stock of around a million new unsold homes in Spain, similar to that reported in the United States which has a population more than six times the size. Real estate values have been hit by sliding mortgage lending, which dropped 33.9 percent in July, and house sales, 20.3 percent lower in the same month year on year. Before the property market crash, the Bank of Spain had warned that the boom in the housing sector, fuelled by cheap credit, had left property 20-30 percent overvalued. Spain’s economy is expected to contract 3.6 percent this year and the government doesn’t expect quarter-on-quarter growth before the second quarter next year. Meanwhile, banks are tightening lending conditions, stung by rising bad loans and deteriorating asset quality. ‘The state of the economy and worsening financing conditions mean further, and deeper, price falls can be expected in the next few quarters,’ said consultant at international financial analysts AFI Maria Romero. The failure by the banks to pass on record low reference rates to borrowers will also help dampen the recovery in the housing market, Romero said. The Bank of Spain said on Wednesday the average interest rate offered by banks to acquire homes in July stood at 3.07 percent. The reference Euribor rate in comparison was 1.4 percent in the same month. Story from Forbes

Here is the original post:
Spanish Property Prices Not Yet at Bottom

There is increasing talk in the Spanish press about an incipient recovery in the housing market, largely based on some statistics suggesting the collapse in sales might be bottoming out. Beatriz Corredor, Spain’s Minister of Housing, says you can now buy with “no worries”. Is she right? First of all, what evidence is there the market has touched bottom? Spanish property prices are bottoming out, suggesting that the market is approaching a corner, according to the latest report from Tinsa, an appraisal company. The problem is, do you believe this data? It smells fishy. According to Pedro Pérez, president of the G-14 group of Spain’s biggest developers, new sales contracts (pre-sales) stabilised in the second quarter, after 2 years of continuous falls. Pre-sales “could have touched bottom” says Pérez, but he also concedes that sales are still feeble. That said Metrovacesa, one of Spain’s biggest developers, and a member of the G-14, reports pre-sales up 82% in the first 6 months of this year compared to the same period last year. Good news? Yes, but in revenue terms results were almost the same as last year’s low, thanks to declining prices. Other developers in the G14 report that sales are being made (which, in itself, is a big improvement on last year), mainly thanks to discounting. The collapse in Spanish property sales appears to be running out of steam, according to the latest monthly sales figures from the National Institute of Statistics (INE). There were 33,694 home sales in July (not including social housing), the biggest monthly sales figure this year, and only 19.6% lower than the same time last year. And according to figures from the Ministry of Housing, home sales in the second quarter were 8% higher than in the first, as the market display signs of life. “The impression we have of the property market is one of paralysis, but in the last 12 months almost half a million homes have been sold,” Corredor is quoted as saying. Corredor also argues that, thanks to lower property prices and lower interest rates, housing affordability has improved dramatically in the last year, meaning that people can now go ahead and buy “tranquilamente”, which I would translate as “with no worries”. Housing affordability has improved from 40% of gross household income in the second quarter of last year to 31% now, according to figures from the Bank of Spain, reported in the Spanish press. “With low interest rates and mortgages that allow them to live comfortably, without stress at the end of the month, families can now go ahead and buy a home without any worries,” was how Corredor put it (my translation). But The Spanish Mortgage Association (AHE) says it’s “still too soon to talk of a recovery” in a new report just released. Whilst noting a recent upturn in sales, which it attributes to improving housing affordability driven by lower interest rates , the report worries that the improvement in affordability may run out of steam, as interest rates are now almost as low as they can go. That means, looking forward, greater housing affordability will have to come from a “prolongation in the adjustment in prices” and an economic recovery that creates jobs and lifts consumer confidence. But right now, Spain’s economic recovery is still just a twinkle in Prime Minister Zapatero’s eye. Story from Mark Stucklin

Continued here:
Spain: Too Soon to Talk of Economic Recovery