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

Sterling proved to be slightly less fireproof than it had been the previous week, losing the half- cent between €1.11 and €1.1050. The low came at €1.0950 on Wednesday and sterling was staring at that same level as things got under way in London this morning. In a dull week for hard data the British economy did not have a whole lot to say for itself and what it did manage to scrabble together was not particularly edifying. Two house price indices, one from the Royal Institute of Chartered Surveyors and the other from estate agents’ website Rightmove, damned the property market with faint praise. The RCIS house price balance, which compares the number of members reporting higher prices with those reporting lower ones, fell from 32% to 17%; still positive but more reservedly so. Rightmove’s index of asking prices went up by 0.1%; positive buy only by a technicality. UK industrial production figures were a bigger disappointment and took sterling to the lows of the week. Production (manufacturing, mining and energy lumped together) fell by -0.4% in January. Manufacturing alone was down by -0.9%. January’s trade deficit was £8 billion, the biggest since August 2008. Between August ‘08 and January ‘10 Sterling’s trade-weighted value became 23% weaker yet imports were up and exports were down. The significantly more competitive currency is still not having any positive effect on the balance of trade. Sterling also had to contend with unhelpful comments from several quarters. Credit ratings agency Fitch was ‘uncomfortable with the fiscal adjustment path set out by UK authorities’ and looked for ‘more credible and stronger fiscal consolidation plans during 2010. Credit Suisse anticipated that UK banks, collectively, would have to reduce their balance sheets by more than £500 billion over the next three or four years in order to meet new regulations. The prime minister reassured investors that Britain’s AAA credit rating was solid but not all of them were convinced, especially the researchers at UniCredit Bank who predicted that the government would have problems selling all the bonds they need to shift to finance the budget deficit. Euroland was just as starved as Britain when it came to useful statistical guidance. Investor confidence improved from -8.2 to -7.5 but the figure was still negative. It was only really euro zone industrial production that counted for anything. The +1.7% increase in January was way better than Britain’s anaemic performance, even if it did only represent a +1.7% improvement over the same month last year. More salutary than that were Germany’s trade figures. In the same month that the UK made an £8 billion loss, Germany turned a profit of almost the same amount. It did so despite what the authorities in Berlin and Paris describe as an overvalued euro. Underlying everything to do with the euro was still the co-ordinated (or not) bailout programme for Greece. Another week went by without any sign of final sign-off for the €25 billion (or thereabouts) mix of loans and guarantees that the Greek prime minister spent half the week travelling the world to engineer. As things presently stand there are several schools of thought. One believes that Greece will be able to work its own salvation, if only because it must. Another has it that Germany and France will eventually get off their high horse and put their hands in their pockets. Yet another argument is that, with or without Germany’s co-operation, Brussels cannot afford to see the economy of a euro member crumble for lack of cash. The market’s point of view, for the moment at least, is Micawberesque; ’something will turn up’. Investors are not sweating too much as long as nothing explodes. Sterling surprised many with another refusal to lie down last week despite a string of potentially damaging developments and data. However, as long as the opinion polls continue to indicate a hung parliament investors will continue to fear that even after a general election Britain’s government will be unable or unwilling to tackle the budget gap. Buyers of the euro should hedge 50% of what they will need. If the money is 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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Sterling Rides Most of the Blows

Investors should avoid Spain’s bonds as the euro region’s highest levels of joblessness stifle the country’s ability to cut its budget deficit, according to Invesco Ltd. and Bank of America Corp.’s Merrill Lynch unit. Spanish debt isn’t yielding enough to compensate investors for buying the bonds of a country with the euro region’s third- largest budget deficit, according to Axel Blase, a fund manager in Frankfurt at Invesco. Investors receive a 69 basis-point yield premium for holding Spanish 10-year bonds rather than German bunds, compared with 313 basis points for Greek debt. “It’s not a time to increase exposure to Spain,” said Blase, who helps oversee the company’s $423 billion in assets. “The country is in rather serious difficulties and the risk premium on Spanish bonds isn’t that attractive.” Concern that Europe’s most recession-battered nations aren’t doing enough to contain their deficits sent Greek bond yields to the highest in more than a decade, and helped push the euro 4.6 percent lower against the dollar this year. While attention focused initially on Greece, Spain may take years to recover from the recession, according to Johan Jooste, a strategist at Merrill Lynch Wealth Management in London. “It’s going to take a very long time — half a generation — for them to fix the structural issues they have,” Jooste said. “Rather than a spectacular short-term blow up, a more likely outcome is a death-by-a-thousand-cuts-type scenario.” The country’s economy, which is more than four times the size of Greece, has been contracting since the second quarter of 2008. The deficit reached 11.4 percent last year, almost four times the EU’s 3 percent limit, compared with 12.7 percent for Greece. Optimistic Forecast Standard & Poor’s said Feb. 26 the Spanish government’s growth forecasts may be too optimistic, predicting average gross domestic product expansion of 0.6 percent through 2013, compared with the 1.5 percent upon which lawmakers are basing budget measures. The public debt burden will rise above 80 percent of GDP by 2012, compared with 40 percent in 2008, S&P said. While Invesco and Merrill Lynch are shunning Spanish debt, Greece is enticing DWS Investment GmbH. Germany’s biggest mutual fund manager said it’s buying Greek bonds as the highest yields in the euro area and the prospect of support from European partners trump concern the country will struggle to reduce spending. Too Tempting “Although we still think challenges ahead for Greece are significant, the values offered by current spreads are too tempting,” Johannes Mueller, a portfolio manager at the company in Frankfurt, said last week. Greece’s 10-year yield reached 7.16 percent on Jan. 28. The yield on 10-year Spanish bonds climbed to a seven-month high of 4.2 percent the same day. Spain’s 10-year bond yield rose 3 basis points to 3.87 percent as of 4:37 p.m. in London today. It will climb to 4.61 percent by mid-2011, according to the median of three analyst estimates compiled by Bloomberg. Spain offered investors a 12 basis-point yield premium over existing debt in a 5 billion-euro ($6.8 billion) sale of new 15- year bonds on Feb. 17. Prime Minister Jose Luis Rodriguez Zapatero’s government plans to sell a net 76.8 billion euros of debt this year. The country, which was responsible for more than half of all new jobs in the euro region in the five years through 2006, posted a budget surplus between 2005 and 2007. Deep-Rooted “Spain came into this crisis with actually very, very good debt-to-GDP statistics,” said Jamie Stuttard, head of European and U.K. fixed income at Schroders Plc in London. “Nevertheless Spain has deep-rooted economic problems.” The unemployment rate is the highest in the euro area at 18.8 percent, and the country accounted for more than half the region’s 4.3 million job losses over the last two years, according to data from the European Union’s statistics office. The pace of decline in Spanish tax revenues is a “concern,” Fitch Ratings analysts Paul Rawkins and Chris Pryce said in a presentation in London two days ago. “Labour market inflexibilities could prolong economic adjustment,” they said. Spanish bonds have returned 1.5 percent this year, compared with 2.2 percent for German debt and a loss of 0.8 percent for Greek securities, according to Bloomberg/EFFAS indexes. Story from Business Week

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Investors Urged to Avoid Spanish Bonds

A Foreign Office minister warned Spain on Sunday that knocking down British expatriates’ houses was hurting its economy. Chris Bryant, Minister for Europe, said that the country was undermining efforts to create a recovery in its beleaguered housing market. He was speaking yesterday during a visit to south-eastern Spain to meet British expatriates who have been told that their homes will be bulldozed after Spanish authorities declared their construction illegal. The authorities there have been waging a campaign against former officials accused of allowing overdevelopment of coastal regions. Local governments issued building licences for the properties, but these were later nullified following court action instigated by a higher regional government. Mr Bryant cautioned: “The Spanish property market is not going to recover quickly if pictures of bulldozers knocking down expats’ homes are appearing in British newspapers. Everyone I’ve spoken to in Spain says they want to find a solution but wanting a solution and getting one are two different things. He said: “Obviously it’s not for the British Government to tell the Spanish what to do. But I’m pushing the message hard at all government levels that I meet here that they have got to put political willpower into these problems, whether it’s an amnesty, whether it’s a change in the law, whatever the solution is that is needed. That is the point I am pushing. I have to say also that there is an enormous difference between the Britons who just make a cursory legal deal – that is always ill advised – and those who have done everything they should or could have done but still find themselves in deep trouble. Mr Bryant spent the weekend advising expatriates in Andalucia on issues ranging from property rights to health care. He visited Torrevieja, the fastest-growing town on the Costa Blanca, Malaga, the capital of the Costa del Sol, and the town of Albox, where eight British families are fighting demolition orders issued at the end of last year. John and Muriel Burns were among the first to receive the demolition orders in Albox. The pensioners emigrated to Spain in 2001. “They did everything to dot the ‘I’s and cross the ‘T’s that they possibly could have to obtain the permission they required” to build their dream house, Mr Bryant said. But it turns out that the permission should not have been given. That was no fault of theirs whatsoever – but now they face the prospect of having their home demolished. After hearing that his home would be bulldozed, Mr Burns declared that he and his wife would chain themselves to the house. “If this building comes down, then we will be underneath it,” he said. Mr Bryant said he was able to tell worried Britons that the Andalusian regional government was appointing a full-time official to deal with the concerns of British expatriates. The official will provide advice on property regulations, health care and residence requirements. Mr Bryant warned: People buying property anywhere abroad, not just in Spain, have to take at least twice as much trouble as they do at home to make sure everything is legal. It is so easy to go to a lawyer because he’s cheaper. Then later you find out that he wasn’t an independent lawyer at all, but was working all the time on behalf of the land developer and you are really stuffed. Story from The Telegraph

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Bulldozing Expat Homes is Hurting Spanish Economy

Positive economic signs from the UK economy allow a near-miraculous recovery for sterling after a sharp fall. Investors are more relaxed about the Greek budget problems. Sterling fell sharply last Monday, losing nearly two cents before lunch. The remainder of the week was devoted to the slow and tedious process of recovery. Although it seemed an impossible ambition last Monday afternoon sterling opened in London this morning at €1.11, unchanged on the week. At the beginning of the week the non-domiciled tax status of Baron Ashcroft dominated the media. Allegedly, the noble lord had bought his way into a peerage by making large donations to the Conservative party. For some reason this old tradition had become suddenly improper. It would be an exaggeration to blame sterling’s sharp fall on Lord Ashcroft alone but the story will certainly have unnerved investors who were already nervous about the Tories failing to win a majority at the forthcoming general election. From there it was uphill all the way but at least sterling managed to make it up the hill with the assistance of some positive news. On Tuesday the government held a successful auction of 30-year gilts which attracted bids for nearly twice that much. The last five auctions of 30-year stock have achieved an average of 1.63 times cover so, whatever misgivings they may have about sterling’s short-term future, there is a degree of confidence among investors the current problems will be short-lived. Having ignored Monday’s manufacturing purchasing managers’ index (their minds were on other things) investors took a great deal of interest in Wednesday’s services sector PMI. At 58.4 the services PMI was more than three points better than predicted, scoring a three-year high. It blew America’s 53.0 and Euroland’s 51.8 into the weeds. Coming hard on the heels of a ten-point jump in consumer confidence it was another reminder to the market that not everything to do with Britain’s economy is in a state of collapse. There was more reassurance from the Bank of England when the Monetary Policy Committee voted to keep interest rates unchanged for a 13th month and to leave quantitative easing on hold. A rash of data provided no coherent picture of the euro zone economy. The manufacturing and services PMIs were both a little softer on the month but not far adrift from what the analysts had forecast. Consumer and producer price inflation were roughly in line with the market’s expectations but had no immediate implications for euro interest rates. A -0.3% monthly fall for retail sales was better than the expected -0.5% decline but still not exactly positive. The revision to fourth quarter GDP showed the Euroland economy growing by +0.1%. The European Central Bank tightened monetary policy on Thursday with an end to the cheap three-month loans it had been offering to commercial banks. They will still be able to borrow one-week money at 1% but the three-month rate will depend in future on market rates. The ECB had nothing to offer the Athens government and said it would oppose any attempt to approach the IMF for assistance. Nevertheless, Greece did manage to find buyers for a €5 billion bond issue. By the end of the weekend it had become clear that, although Germany would not put its hand in its pocket for a Greek bailout, the EU had an emergency plan if push came to shove. At least for the moment investors are comfortable, if not deliriously happy, about the situation but their next question will be whether France and Germany will be able to carry the euro zone economy ahead on their own if the economies of Greece, Spain, Portugal, Ireland and Italy are to be weighed down by austerity measures of one sort or another. Whilst sterling’s recovery last week might be seen as a sign that there is life in the old dog yet, it is still hard to see the British currency as anything other than a dog. Opinion polls continue to indicate a hung parliament and 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 50% of what they will need. If the money is 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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Lucky Escape for Sterling

Spanish Banks are slowly relaxing their lending criteria with one or two offering more attractive deals and higher LTV’s. However, banks are still being cautious when it comes to assessing a client’s affordability. Most banks use a debt / income ratio of either 35% or 40%, although we work with one bank that uses 50%. This really helps those clients who struggle to get mortgages elsewhere due to having a higher ratio of regular outgoings on mortgages, loans, credit cards etc. to net disposable income (the “debt / income ratio”). The eurozone base rate has remained at 1% for some time now, meaning that borrowing in Spain is still cheap. With the recovery in Germany faltering and ongoing problems in the so-called PIIGS group of countries (Portugal, Italy, Ireland, Greece and Spain), it is very unlikely that there will be a sudden hike in rates. With regards to the exchange rate, this is more or less the same as last month. Dual-currency mortgages are available, which allows clients to pay the mortgage in pounds sterling and avoid any currency fluctuations. If you are buying a property for your main residence, we can offer 80% of the bank valuation. This means that if the valuation is higher than the purchase price, it is possible to borrow up to 100% of the purchase price, which is something that has been impossible during the recession. The interest rate is as low as Euribor (annual) + 0,66% (the lowest we have come across to date), with 0,5% bank opening commission and 0% redemption penalty for partial redemption. Another attractive option is that you can have up to 2 years’ interest-only. This bank also offers remortgage products. Terms are available up to age 75 with a maximum 45-year duration. The only disadvantages with this product appear to be the compulsory insurances and that the client’s income needs to be paid into an account with the bank. More information from Mortgage Direct

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Spanish Mortgage News

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

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We’re Past the Bottom of the Spanish Property Market

There was a small uptick in Spanish housing sales during the fourth quarter of last year, according to data released today by the Ministry of Housing. Small, maybe, but enough for the Government to get excited about. “The transactions in the fourth quarter represent a rise of 4.1% with respect to the same period last year, this being the first year-on-year rise since the fourth quarter of 2006,” goes the first sentence, in bold, of the Ministry’s press release. In fact, if you just look at the ordinary housing market, the uptick was even better. Excluding social housing there were 116,664 house sales in Q4, a rise of 5.5%. Regrettably, that’s where the good news ends. Take the year as a whole, there 413,112 transactions last year, a fall of 19% compared to the previous year, and a whopping 46% down on 2007. Even the Q4 was down 33% compared to 2 years ago. Some regions did better than others. Looking at a selection of regions popular with holiday home buyers, the inland province of Teruel suffered the most in 2009, down 36%, followed by Las Palmas in The Canaries, down 32%. At the other end of the scale, Spain’s two big cities did the best, down just 1.7% in Madrid and 3.9% in Barcelona. The small national uptick in Q4 that got the Ministry excited was almost entirely driven by big increases in Catalonia and Madrid (Barcelona +35%, Madrid +41%). Why the big surge in home sales in those two cities in the last quarter of 2009? I don’t know. But I wouldn’t be surprised if it had more to do with banks shifting Spanish property around their balance sheets than families buying homes to live in. Story from Mark Stucklin

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Spanish Property Market Grew Q4 2009

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

There were two chinks of light permeating the same old economic gloom in this week’s Spanish property news. First, even though Spain is still officially in recession, consumption in Spanish households increased for the first time in two years. This is still a far cry from a booming economy - but at least it’s a move in the right direction. Second, Despite the news that mortgage lending is down 34% , news of competitive 100% mortgages could be just what the market needs to catalyse Spanish property buying again. One other piece of news which I’ll stick my neck out and interpret as ‘good’ is that the Spanish protests organised against raising the retirement age by two years have been poorly supported . I have no particular feelings either way about the wisdom of this pension reform - but I do feel strongly that striking is the very worst thing for Spain’s fragile economy. Yes, the politicians messed up. Yes, they should be held accountable. Yes, they should find workable solutions to revitalise Spain’s economy and reverse the spiralling unemployment rate. But striking won’t make those things happen - it will only delay them. For their part, Spain’s politicians are playing ‘fast and loose’ with the media. When speaking to international journalists and investors, they emphasise the austerity of the country’s economic plans - in an attempt to sooth investor nerves and cement Spain’s line of affordable international credit. Meanwhile in Spain, these same politicians are emphasising how it’s ‘business as normal’ and that there will be no significant cuts in public spending and no erosion of benefits. The upshot of this - since we live in an age of Google translate and the Internet - is that neither foreign investors, nor the Spanish people have any faith in anything the government says. They’re clearly ‘bending the truth’ at least 50% of the time, if not 100%. Over on the Kyero blog, we’ve discovered a way of getting Google to send you property alerts - even when the web site you’re using doesn’t offer that functionality. We apologise for annoying you with our signup forms, and we ask whether translating property descriptions really makes sense? If you have an opinion about these topics, please leave a comment and join in the conversation. Martin Dell, Kyero.com

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Spain: Two or Three Reasons to be Cheerful