Economic figures released Thursday provided little evidence that the 16 countries that share the euro are enjoying a strong recovery from recession. Eurostat, the EU’s statistics office, confirmed that the eurozone’s economy grew by 0.4 percent in the July-September quarter from the previous three-month period - unrevised from its previous estimate - and that retail sales were flat in October from the previous month. According to Eurostat, Greece and Spain remained the only two eurozone countries in recession. Germany, the currency bloc’s biggest economy, posted quarterly growth of 0.7 percent. The third quarter rise was the first in six quarters and brought to an end Europe’s sharpest recession since World War II. Though the eurozone’s banks were not at the epicenter of the financial crisis that triggered the global economic downturn, the region suffered as demand for its high-value products fell off a cliff. The EU as a whole, which includes non-euro members such as Britain and Sweden, grew by 0.3 percent, just above the previous estimate of 0.2 percent, while retail sales rose 0.3 percent in October from the previous month. In addition to Greece and Spain, Estonia, Cyprus, Hungary, Romania and Britain continued to see output shrink during the quarter. The severity of the recession is evident in the annual comparisons - despite the modest third quarter growth, Eurostat said eurozone output was 4.1 percent lower than the year before while the EU’s GDP was down 4.3 percent. However, both were improvements on the 4.8 percent and 5.0 percent contractions recorded in the second quarter. Despite the modest third quarter improvement, growth is not expected to return to pre-crisis levels for a while yet, meaning the output lost during the recession will take years to be made up. Thursday’s data comes ahead of the latest policy statement from the European Central Bank. Analysts expect a number of significant decisions and announcements from the central bank for the 16 countries that share the euro - even though the benchmark rate will likely stay at the record low of 1 percent for months to come. In particular, they will be looking to see what President Jean-Claude Trichet says in his press conference about liquidity measures introduced to keep the banking system from collapse and to limit the scale of recession. Story from Forbes

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Eurostat: Spanish Economy Still Shrinking

News this week of new laws to help Spanish companies reduce employment costs may seem like a backward step for full employment, but it’s a necessary one if Spain is ever again to be competitive in Europe. At last, Zapatero’s government has conceded that they need to reform Spanish labour laws . I doubt these changes will be implemented quickly, or that they’ll be universally welcomed, but I’m glad to see Spain taking these first tentative steps towards being competitive within Europe. The main reason I look out for this kind of news article is that employment and the economy are inextricably linked. Full employment drives the economy upward while unemployment drives it down. Right now, with close to 20% unemployment in Spain, its economy and the Spanish property market are suffering - because people without jobs don’t buy houses. Personally, I believe that encouraging employers to hire again by revising the labour laws is the smartest thing Spain can do to revitalise its economy. Spain is also planning to increase its VAT rate from 16% to 18% in summer next year. The bill has not yet been passed and, again, this will be met with some resistance. In relation to ECB Will Exit Cautiously , I was surprised to read elsewhere that Spain has been given until 2013 to get its public deficit under the maximum allowable of 3%, while the UK has been given a year longer. That says quite a lot about the state of the UK’s finances and, Edward Harrison makes a good case for how ineffective Quantative Easing really is. Nick Snelling has some good advice in Spanish Property: How to Negotiate the Price . Nick writes with great authority and clarity about the Spanish property market because he lives and works in Spain, and he’s a published author. His new book, How to Move Safely to Spain is worth ten times its €12.75 cover price - and would make a great Christmas gift for anyone even remotely interested in moving here. Finally, despite the expectation that repossessed or otherwise distressed properties in Spain would offer the public the best deals, the reality has proved to somewhat different. We hinted at this last week in Spanish Banks Should be Better Estate Agents , but the truth is that they are not very good at it at all. We’ve just closed an advertising campaign for CAM Bank for this very reason, but we believe that key-ready properties might offer a viable alternative. These are mostly brand-new, fully legal properties that the developer is motivated to sell before the banks get their hands on them. You can find out more here . Martin Dell, Kyero.com

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Full Employment is Key to Spanish Economy

Unfortunately, negotiating the purchase price of your intended property in Spain is not always simple. This is because the seller may have two sale ‘prices’ The declared price. This is the sale price that will be placed upon the Escritura (deeds) and that will be the price upon which you will pay purchase tax (7%) and upon which the seller will pay any Capital Gains Tax (18%). The real price. This may be different from the declared price and include a proportion of ‘black’ money. So, for example, you may agree to buy a property for 300,000 Euros but only declare the sale price as 275,000 Euros. In this case, the Escritura will state 275,000 Euros and you will pay 7% purchase tax (and the seller any CGT on profit made) on the 275,000 Euro value - rather than the ‘real’ value of 300,000 Euros. The 25,000 Euros difference will be paid by you to the seller in undeclared cash. Clearly, both you and he will have saved money by not being taxed at the correct amount. Two ‘sale’ prices can certainly make life complicated. So, for example, both you and the seller may agree a sale price of 300,000 Euros for your desired Spanish property . However, you and your seller may not be able to come to an agreement as to the ‘black’ money element - and therefore the price to be ‘declared’ on the new Escritura. Your seller may, for example, want a ‘dangerous’ amount (say 100,000 Euros) of ‘black’ money. Wisely, you may refuse to pay this amount as its proportion with regard to a Spanish property with a fair market value of 300,000 Euros is very considerable. Without doubt, a discrepancy of a third could alert the tax authorities and result in a heavy subsequent fine – which you (not the seller) would have to pay! Alternatively, you may refuse (rightly) to pay any ‘black’ money at all or simply be unable to do so because you have a high mortgage requirement. In the latter case, paying any ‘black’ money may be academic. Your mortgage provider, for example, will, obviously, only bring a cheque or banker’s draft for the seller at the signing of the Escritura. So, if your mortgage is very high then you may never have any cash with which to pay a seller in any event. Of course, your seller is well within his rights to refuse to sell you his property - albeit that the only reason is his desire for a certain amount of ‘black’ money which you refuse to pay. Indeed, to your chagrin, you may find ‘your’ seller agrees with another buyer to reduce his ‘real’ sale price if that buyer offers him a really substantial amount of ‘black’ money! In reality, the Spanish authorities and the ever tighter European regulations concerning money laundering are making ‘black’ money deals ever more difficult. Indeed, I would strongly advise you to avoid any ‘black’ money deal and make sure that the declared value on any Escritura is the ‘proper’ sale price. Certainly, you should bear in mind that if ever you re-sell then your buyer may be someone who needs a large mortgage. If this is the case then he may be unable to pay you any ‘black’ money at all. In this case, you may have to agree to a declared value that represents the proper sale price of the property despite your Escritura value being artificially low. Obviously, you will then have to bear a potentially far greater Capital Gains Tax burden than ever you intended! Finally, if a ‘black’ element to your purchase price is unavoidable then be extremely wary of paying too much. Crudely, within the Spanish property ‘industry’, 10% -15% of the ‘real’ purchase price is now considered (informally!) around the viable maximum to pay. However always, always try to avoid any ‘black’ deal regardless of the amount. It is dishonest, illegal, invariably troublesome, can lead to a very unwelcome fine and significant complications when you come to resell your Spanish property. From Nick Snelling’s latest book: How to Move Safely to Spain

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Spanish Property: How to Negotiate the Price

The European Central Bank is set to begin the delicate process of phasing out its financial crisis support on Thursday, backed by new staff forecasts which should show greater economic optimism. With markets still some way from normality, all 80 economists in the latest Reuters poll expect interest rates to be kept at 1 percent. Instead the focus will be on what ECB President Jean-Claude Trichet says about scaling back the emergency lending it has used to get the euro zone’s financial system through the credit crisis and limit the recession. Trichet has dropped a number of hints since the last policy meeting that this month’s handout of one-year loans will be the last, while he and other policymakers have stressed the ECB’s support will not be needed to the same degree going forward. “The ECB is set to confirm its decision to stop 12-month refinancing after December,” said Nomura economist Laurent Bilke. “Beyond that, we look for some limited restrictions to 6-month maturity operations, such as reducing their frequency.” The expected moves would bring an end to more than a year of rapid policy easing by the ECB and herald a change of direction. But policymakers will probably to want to avoid pushing a rapid exit plan at this stage with countries like Spain still in recession after their decade-long Spanish property boom, unemployment expected to rise further and an already-strong euro threatening to sap the fledgling recovery. Some central banks such as Australia’s and Norway’s have already begun to raise rates. But the U.S. Federal Reserve has stuck to its commitment to ultra-low interest rates while taking some small steps to wind down its emergency support, while the Bank of Japan this week offered to pump more funds at banks to lower longer-term money market rates. Bilke said markets are hoping to hear how long the ECB plans to keep uncapped lending in place, while the rate of interest it charges on the one-year funds will be seen as a key indication of its mood and future interest rates moves. It has the option of either leaving the cost of borrowing at its main interest rate or charging banks a little bit more. The latter would be taken by traders as a signal it intends to raise rates at some point next year, but another option that now appears under discussion would be to have the one-year rate track any future benchmark rate hikes. A new set of ECB staff forecasts on the economy are also due. For the first time they will stretch as far as 2011. Markets are expecting a hefty upgrade to 2010 growth given the euro zone’s emergence from recession in the third quarter. Inflation numbers should also be nudged up after a stronger than expected return to positive territory last month. “They will upgrade staff forecasts but remain relatively cautious,” said HSBC economist Janet Henry, who expects 2010 growth at a mid point of 0.8 to 0.9 percent compared with the 0.2 percent seen in the ECB’s last forecasts. She added 2011 numbers should show inflation — the ECB’s main focus — still well under its target of close to but just below 2 percent. “Looking at futures prices there is a very, very modest rise in oil prices so I think the mid-point of their inflation projections will be well below 2 percent,” she said, noting that would keep down chances of a rate hike before September. Trichet is again expected to try and push down the euro. He and other European officials failed last week to convince China to let its currency appreciate, but were he to sharpen his tone on the euro it could rattle the common currency. Story from Reuters

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ECB Will Exit Cautiously

The upward revision to UK third quarter GDP was smaller than many investors had hoped. Dubai World’s default was worrying for UK banks and businesses. The pound hovered around €1.11 until midweek, when it found itself heading lower. Support at €1.0950 was necessary on several occasions, including early this morning, and sterling opened in London at €1.0950. It was not a vintage week for economic statistics. In sterling’s case there was really only one that counted; the first revision to third quarter gross domestic product; GDP. Whilst it has become fashionable to argue that there are better ways of counting economic success, GDP measures the market value of all goods and services produced within a particular country and is still the one to which most economists turn when they want to quantify overall performance. Investors had been expecting the Office of National Statistics to make an upward revision to their first estimate of a -0.4% shrinkage to GDP during the third quarter of the year. They duly got their positive revision but were disappointed that it only went as far as -0.3%. Another negative factor for sterling was Bank of England Governor Mervyn King’s testimony to parliament’s Treasury Committee. He went there to talk about inflation but got sidetracked. The committee extracted from Dr King the admission that he had to inject a previously undisclosed £62 billion of liquidity into RBS and HBOS last autumn. The market could fully understand his need for secrecy at the time; goodness knows what the reaction would have been if it had become common knowledge that two of the country’s biggest banks were practically bust. Even so, a revelation like that was bound to raise question marks about what other skeletons might be lurking in the Bank’s closet. Thursday’s ham-fisted announcement from Dubai was another minus for the pound, at least initially. Government-sponsored Dubai World took advantage - or so it thought at the time - of a four-day Eid holiday in the Arab world to tell its creditors that they would not be receiving any repayments for six months. In the great scheme of things, Dubai World’s default is only a fraction of the size of Lehman Brothers but it was an unwelcome reminder that there could be yet more dominoes to fall in this global downturn. Britain’s banks and businesses, with their historic ties to the Gulf, could have more grief in store. Euroland’s connections with Dubai seemed not to bother it and the euro completed another week of low-profile inactivity. On Wednesday it looked as though it might crack the resistance at US$1.50 but the flight to safety on Thursday scuppered the rally. Ecostats from the euro zone were there or thereabouts: Purchasing managers’ indices for the manufacturing and services sectors showed slight improvements in November. Industrial new orders put in a healthy monthly increase of +1.5%, slowing the annual rate of decline from -23.2% to -16.5%. The only slightly jarring notes came with confidence measures at the end of the week. Industrial and consumer confidence were both lower by a couple of points in November at -19 and -17. In the last couple of months the pound has had an unpredictable ride between €1.15 and €1.05 but has become mired between €1.10 and €1.13 with no sense of direction. For several weeks now the conservative strategy has been to maintain a neutral stance on currency exposures. There is as yet no reason to modify this stance. Buyers of the euro should hedge half their requirement with a forward purchase. Those with a short time horizon who do not want to cover their whole exposure should protect themselves with a stop order. Get the best foreign exchange rates with no bank fees or commission charges using your Moneycorp Privilege Card

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Moneycorp: Sterling Struggles with Skeletons but Survives

Demonised by agents for keeping prices artificially high to avoid losses, or making it harder for agents to access distressed deals, many now feel that Spanish banks must become better estate agents if the market is to recover. Ian Waudby, chairman of investment consultancy Crest Group International, observes that the companies set up by banks are slowly making it easier for foreign buyers and agents to access stock; but he stressed that buyers need a quicker response from these companies and a faster sales process. “The properties need to be packaged with mortgages,” he told OPP. “The websites aren’t bad but if you try to make an offer you won’t hear anything back. CAM is the most organised at the moment but by the middle of next year they’ll all be offering the same thing.” The price is wrong Discounting is central to the current bank-owned property stalemate, with agents saying they’re either not big enough, or only available for too short a period of time – Banesto, for example, is offering 40% discounts but only for November. “There isn’t enough desirable Spanish property at the distressed prices that people want,” said Inez Rix, owner of Direct Auctions. “The demand is there but even if people see their ideal property they aren’t prepared to pay for it if it isn’t cheap. “We don’t bother with the banks because their prices are higher than those of the private sellers and they also charge high legal fees. If they’d knock €20,000 off their prices we’d sell their property right away – they are keeping prices artificially high and are being extremely unrealistic.” Mortgage obstacle Mortgages are still a major barrier, with banks either reserving the best products for their own stock or not making them available at all. “It’s hard to get mortgages still and bank-owned properties need cash buyers,” said Bob Callan of prime Marbella agent Callan Developments. “A lot of people expect a bargain from the bank but can often get a better deal from an individual distressed seller.” Pro-active banks that price realistically will see more profit than those who wait out the market, according to Rix. “I think the market will force them to lower prices eventually,” she said. “Everything’s about two years behind what it should be and I expect they’re sitting on an awful lot of stock. The big banks such as Santander could probably sit on it for 20 or 30 years but the smaller ones can’t. There aren’t enough buyers at the moment and they may have to bite the bullet and get rid of their properties.” Most agents OPP spoke to agree that the sooner the banks bite the bullet, the sooner the Spanish homes market will recover. Story from OPP (registration required)

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Spanish Banks Should be Better ‘Estate Agents’

Mikel Echavarren, head of Irea, a Spanish real estate consultancy, talking about the state of the real estate sector in Spain. As an experienced professional in touch with many different companies in the sector it is worth listening to what he has to say. Here is a selection of comments from his Q&A with Idealista News, the news section of the property portal Idealista. Do you think there are any good investment opportunities in Spanish real estate today? I think so but they are risky. In three years we’ll probably be kicking ourselves for not advising investors to invest now. There aren’t many opportunities in commercial real estate because there isn’t much product and rents haven’t yet adjusted. In residential, on the other hand, the correction has been very strong and fast. The ideal profile now is an opportunistic investor buying properties off banks by taking on the existing debt, a type of real estate venture capital. So you think there are opportunities in a residential sector because the adjustment has already taken place? There are hundreds of thousands of possible Spanish property transactions, but not many genuine opportunities. What there is not is any financing, so anyone who wants to take advantage of this market has to take the debt with the asset, but there are still very few people prepared to do that today. Has the price of housing and land touched bottom? House prices touched bottom some time ago, they have already fallen all they had to fall. And the price of land has fallen faster than house prices although it could even fall a bit more. We have been saying at the top of our lungs that the price statistics published by the government are worthless, and damaging to the sector because they give international analysts the impression we are a country of idiots. In the US and the UK prices have fallen around 20% from the peak whilst here we have only fallen by 8%. We work with close to 28 property companies that have been restructured, and you see that valuations are down 30% in 2 years, and then banks buy those assets with discounts of 10-15% off valuations. What’s wrong with the official statistics? They are based on valuations. One has to look at real property transactions and a survey of developers to see not only their asking prices but how far they are prepared to drop prices to sell. Do you think there is any residential property that will never sell? What there is is a stock of land that will never be sold, at least not in 10 years. There are areas of Spain where the town plans look like they were designed for an invasion of extraterrestrials, parts of Almeria, Murcia and Alicante. There is an overdose of land that will lie in the warehouses of banks for many years. On the other hand, the stock of finished property will be absorbed sooner. Is there any real demand for housing at the moment? Yes, quite a few homes are being sold. We would have to place it at more than 200,000 homes a year. What is not selling is off-plan, as there you take the risk of the developer or builder going bankrupt. It’s a good time to buy newly built homes with Euribor at 1.24%. They won’t be any cheaper next year. And when prices start to rise they will do so at a rate of 10% per year. How does one get the Spanish property sector to recover? The residential sector is already recovering, just not the developers, who won’t see the light at the end of the tunnel for three years; it is very bleak for them. Clients of ours tell us they have sold a lot this summer, and some banks tell us that they have had more mortgage requests this summer than in all 2009. Furthermore, we believe that developers have dropped their prices to the minimum. There is mortgage financing available, not much, but there wasn’t any at all in 2008, and now there is. Mortgage costs are low, and it appears that the future is not going to get any worse. The recovery is underway, although this won’t show up in the official statistics until the first half of 2010. As soon as there is a general perception that things are getting better, house prices will stop falling and start rising. Story from Mark Stucklin

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Spanish Property Recovery Already Underway?

The technical end to recession in Europe makes both Spain and the UK look a little sick, although it also represents an opportunity for Spanish growth. If the country also deals with the systematic corruption of its Town Halls - maybe there really are blue skies ahead? The big news last week was that Recession Ends Across Europe - except in Spain and the UK. In Spain, however, we read that Deflation Concerns Subsiding , while an article calling Britain the economic sick man of Europe concluded: “Of the five largest European economies, only Britain and Spain are still in recession, and even the stricken Spanish economy is performing marginally better than the UK.” For Spain, at least, the prospect of a general European recovery is very good news indeed. In European Recovery is the Best News for Spain we learn that 70 per cent of Spain’s exports go to the eurozone. If Spain’s European neighbours now have more disposable income available for Spanish products, that will become a significant factor in returning the Spanish economy to positive growth. As I’ve been predicting for quite a while now, this definitely applies to the Spanish property market too. In Mallorca - a Taste of Things to Come in Spain , Mark Stucklin highlights the fact that foreign buyers are ready and waiting to snap up prime Mallorca property - because while the Spanish economy is still frail, property prices are temporarily suppressed. On a related note, there’s more good news in Finally, Spain Wakes up to Corruption . It seems that Spaniards are now willing to accept that the property boom also brought about massive municipal corruption. Aside from being miffed about these criminals lining their own pockets, it’s starting to dawn on them how Spain’s international status has also been badly damaged. We can only hope that when our economies return to ‘normal’ that the Spanish property market will emerge with greater transparency and a little less prone to the excesses of boom and corruption. There’s a new and very useful article from Peter Christian for those of you keen to speak Spanish as the locals do. In Tasty Phrases To Help You Enjoy Delicious Food in Spain , Peter provides some surprising examples. My favourite phrase translates literally as: it smells of death whereas in Spanish the meaning is quite the opposite - good to know. Last, your response to last week’s article about the upcoming Spanish Property Auction was huge. Download the catalogue to see which lots are for sale and also to read some very professional background advice. Martin Dell, Kyero.com

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Blue Skies Ahead for Spanish Property?

Europe’s deepest recession since World War II officially ended when the world’s biggest single trading bloc joined Japan and the United States in returning to growth. Both the 16-nation eurozone and the 27-nation European Union as a whole, home to half a billion people, posted growth — of 0.4 percent in the mainstay single currency area and 0.2 for the whole EU in the third quarter. But after five quarters running of economic retreat, the fact that key pillar Britain still lags behind its main trading partners — with a 0.4 percent contraction — underlined the fragility of recovery. Analysts said that the improvement is unlikely to be robust enough to change broad economic policy lines. The question for the political leaders is whether and when the withdrawal of massive state support for economic rebuilding works can be withdrawn without derailing the recovery which is struggling with high and rising unemployment. Growth of 0.7 percent in Germany, Europe’s most powerful economy, and 0.3 percent in France, lay behind the improvement across the eurozone. The eurozone economy had shrunk by 0.2 percent between April and June after a record collapse of 2.5 percent in the first three months of the year. However, Britain’s results and Spain, suffering from the bust of a Spanish property bubble, with a 0.3 percent decline, contributed to the figures released by the EU’s data agency Eurostat being pulled down for the bloc as a whole. The European figures compare with a 0.9 percent improvement in third-quarter economic output in the United States. Japan already exited from recession in the second quarter with 0.6 percent growth. Chief IHS Global Insight economist Howard Archer poured some cold water on the news when he said the the emergence into daylight came “at a trot rather than a canter.” In the same period of 2008, the eurozone economy shrank by 4.1 percent with the EU as a whole trailing even further behind. Cautioning that “consumer spending likely saw little or no growth,” Archer also warned that the recovery “could well lose momentum for a time in 2010 before growth starts to gradually pick up again.” But he tipped overall eurozone growth of one percent in 2010. Clemente De Lucia of BNP-Paribas said the rebound was due mainly to the industrial sector and warned that the recovery “might fade next year” once the impact of the ‘cash-for-clunkers’ scheme to boost new car sales and other incentive measures are fully withdrawn. He also pointed to high unemployment, running at more than 22 million at the last count across the EU, acting as a brake on expansion for some time yet — as well as a weak dollar. While exchange rates are boosting exports from global competitors, nervous consumers meanwhile fear a double-whammy of rising repayments on loans and rising prices when the drip-feed of state economic support is eventually scaled back. The global credit crisis forced EU governments to plough trillions of dollars into faltering banking systems and other direct stimulus programmes in a bid to drive the economy forward. Brussels released figures drawing on national input from 17 EU nations, with 10 showing growth and seven still contracting. France and Germany had already returned to growth of 0.3 percent each between April and June. Among the remaining leading nations, Italy experienced third-quarter growth of 0.6 percent with Poland — which had already shown expansion of 0.7 percent in the second quarter and 0.1 percent between January and March — yet to release its figures. The Baltic former Soviet republic of Lithuania recorded the biggest upturn at 6.0 percent — a massive swing from a 7.7 percent contraction. Neighbouring Estonia was the bloc’s poor relation with a 2.8 percent decline Story from AFP

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Recession Ends Across Europe

A mixed bag of cheery items from this week’s news - each affecting the Spanish property market. In a month’s time, A Place in the Sun will be holding an auction for 60 lots of key-ready properties on the Costa Blanca, Costa del Sol and Costa Calida. They will be discounted by up to 50% and in some cases they will have no minimum price at all. The catalogue is a very comprehensive document and contains some great information about how the auction process works together with information about the individual properties. Personally, I believe these type of key-ready properties are likely to be the best Spanish property buys at the moment. If you are serious about buying in Spain, make sure you put the auction in your diary. In the news this week was the proposed consolidation of British Airways and Iberia - Spain’s largest carrier. It’s early days yet, but perhaps their combined forces might increase the number and choice of flights to Spain in the future. More information about the deal from Expatica . Another item caught my eye this week. Hands up who knew that Spain was pioneering the way in Wind-power? Sure, I’ve seen lots of windmills everywhere - particularly in the foothills of Granada - but I had no idea Spain’s capacity for wind-generated-power was quite so impressive. According to this article , over 50% of Spain’s power needs could be supplied by windmills working at their peak capacity. Trailing only the USA and Germany in capacity, Spain seems to have found something it can be world-class at. Remember my strange article of a few weeks ago? Perhaps Spain could divert its labour subsidies away from digging up roads to creating employment related to clean energy production? Just a thought. Back to the Spanish property market, I wrote a quick summary of the latest TINSA report and why it’s heartening for a couple of reasons. Martin Dell, Kyero.com

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Spanish Property Auctions, Flights & Wind Power