January 2008 Spanish property news review

Spanish Property News

+ Annual Spanish property market report (2007/2008)
+ Bullet points news roundup 
+ Property downturn to hit Spanish coast hardest says Citigroup
+ ECB prevents ‘Northern Rock’ in Spain
+ Construction output falls heavily in Spain
+ Spain’s property crisis puts close to 350,000 jobs at risk
+ Spanish real estate agents closing in droves
+ Developer share prices fall heavily in January
+ Spanish Mortgage News
+ Earn while you own at Alanda Flamingos
+ Hacienda del Alamo named International Golf Resort of the Year
+ Solchannel’s new look website


Annual Spanish Property Market Report

The Spanish Property Insight annual report on Spain’s real estate market is now online. You can read it by click this link: Annual Spanish property market report (2007/2008)

Bullet points news roundup

  • In response to falling demand, many Spanish developers are said to be offering discounts of between 1% and 15%, though in most cases these are hidden discounts like mortgage holidays and fee parking spaces. (From El Pais)
  • Spanish unemployment rose by 5.27% to 2,129,000 people out of work at the end of 2007. Of the 35,000 job losses in December 2007, 32,000 of them (94%) were in the construction sector.
  • Spanish landlords win eviction proceedings against tenants in 94% of cases, but it takes more than a year on average to get delinquent tenants out.
  • A new report reveals that the municipal council of the Costa Blanca town of Torrevieja ignores 90% of court orders to demolish illegally built properties. 50% of Torrevieja’s residents are foreigners, the biggest group being British, and the mayor is under investigation for corruption.
  • The after tax cost of buying a home in Spain rose to 37% of gross household income in 2007, up from 29.9% in 2006. (Bank of Spain).
  • 63% of Spaniards believe that property offers the best investment returns, compared to just 20% of Portuguese, and 30% of Belgians. (Organisation of Consumers and Users – OCU).
  • Spanish investment in property outside Spain rose by 53.6% to 2.7 billion Euros in the first 10 months of 2007. Foreign investment in Spanish property rose by 22.9% in the same period.
  • 45% of real estate agents in Spain closed down in 2007, with a further 14% expected to close in 2008. (Network of Property Experts – REI).
  • In recent days rumours have circulated in the Spanish press that the Spanish government will not allow a major Spanish developer to go bust before the national elections in March.
    The share prices of Spanish developers quoted on the Madrid stock exchange have continued to fall in January.
  • Falling demand means that two thirds of Spanish developers are likely to go bust in the next 2 to 3 years, according to José Luis Miguel Belenguer, director of the Valencian property fair Urbe Desarollo, and head of the developer Onofre-Miguel. “There is nothing mild about this crisis,” Miguel Belenguer is quoted as saying in the regional daily ‘Levante’. “The crisis will cause a big initial slump that few developers will survive.” On the other hand Miguel Belenguer does not expect prices to fall significantly. “Some people expect prices to fall 30%, but that’s impossible,” he says.

Property downturn to hit Spanish coast hardest says Citigroup

A new report entitled ‘The Pain in Spain’ from the global bank Citigroup identifies the Spanish Mediterranean coast as most at risk from a downturn in the Spanish property market.

A property and credit crisis is already a reality for Spain, but Andalucia, Murcia, and the Autonomous Region of Valencia are expected to bear the brunt of the pain, followed by Castilla La Mancha and La Rioja. The regions the bank expects to suffer the least from a property downturn are Madrid, The Basque Country, and Navarra.

Many regional savings banks are highly exposed to Spain’s real estate sector through heavy lending to developers, constructors, and mortgage borrowers. Local savings banks in Spain’s Mediterranean coastal areas are the least diversified, and therefore the most at risk of suffering financial problems in the current real estate downturn.

Citigroup identifies 7 savings banks as particularly vulnerable; 6 of them in Andalucia – San Fernando, Granada, Cajasur, Cajasol, Unicaja y Jaén- and one in Murcia – Caja Murcia.

The savings banks with a ‘medium-high’ risk are: Onteniente, La Rioja and CAM, whilst ‘medium’ risk savings banks are: Bancaja, Ibercaja, General de Canarias, Asturias, Baleares, CAI, Cantabria, Canarias, Extremadura, Badajoz, Guadalajara y Pollença.

Turning to Spain’s banks, the report finds that none of them are as exposed as the savings banks, but risks are not entirely absent. The Bank of Valencia is the most exposed to the real estate downturn, with 73% of its lending concentrated in the Valencian Region and Murcia. Of the big national banks, the Banco Popular has the most exposure to the problem areas of the Spanish Mediterranean coast, followed by Banesto, BBVA, Santander, and Bankinter.

ECB prevents ‘Northern Rock’ in Spain

A recent article in The Telegraph by Ambrose Evans-Pritchard points out that Spanish banks have been borrowing vast sums from the European Central Bank window in return for mortgage-backed securities that the market won’t touch in the light of the credit crunch.

“Reliance on the ECB window appears to have kept the mortgage sector afloat despite the sharp slowdown in the Spanish property market and the de facto closure of the capital markets for this type of business, allowing Spain to avoid the sort of mishap suffered by Northern Rock in Britain and Countrywide in the US,” writes Evans-Pritchard. “It may equal the taxpayer rescue of Northern Rock in Britain, and possibly exceed it in proportion to the overall size of Spain’s economy.”

The article quotes David Owen of Dresdner Kleinwort, who thinks that Spain could face serious difficulties this year as the excesses of a decade-long boom finally catch up with the country.

“The size of the Spanish corporate sectors financial deficit is truly is really scary. It rose to 14.5% of GDP in the third quarter of 2007 from 10% in the first quarter. This must be a record for a relatively large economy. Clearly this is not sustainable. Cost imbalances have a nasty habit of unwinding, quickly and very painfully,” says Owen.

If Evans-Pritchard is right, it follows that there might have been several ‘Northern Rocks’ in Spain were it not for the ECB’s window. By the same token, Northern Rock itself might not be where it is now had it had the same access to cheap funds in return for mortgage-backed securities.

Construction output falls heavily in Spain

New figures from Eurostat show that Spain’s construction sector output fell by 3.9% in November 2007, compared to an EU average fall of 0.2%. Spain’s was the highest monthly fall in the EU, followed by Portugal (-2.8%) and Slovenia (-2.6%). Output rose in Poland (2.3%), Romania (1.8%), and Sweden (1.6%).

On an annual basis (compared to November 2006), Spain’s construction output fell by 6.2%, just behind Germany and Slovenia on 6.3%. In contrast, Romania’s construction output was up by 32.6% over 12 months, and Poland by 11.1%.

So what do these figures mean? They show that construction activity in Spain fell further than any other EU country in November, and suggest that Spain is heading for choppy economic waters given its reliance on the construction sector for economic growth. As reported elsewhere in this bulletin, unemployment in the construction sector is already rising fast.

Spain’s property crisis puts close to 350,000 jobs at risk

The Spanish government has admitted that close to 350,000 jobs could be lost in a real estate downturn already under way.

According to David Taguas, director of the Spanish president’s economic unit, every house built in Spain supports 2.3 jobs. “At the top of the cycle there were 700,000 housing starts, and now demand has fallen to 500,000, so do the sums yourself,” Taguas is quoted as saying at a conference organised by Asprima – Madrid’s association of builders. If housing starts fall by 150,000 units in 2008, that implies a loss of around 345,000 housing sector jobs.

Tagus was quick to add that overall employment levels will not fall because other sectors, like industry and tourism, are still creating jobs. However, I find it difficult to believe that immigrant brickies will find it easy to find new jobs as waiters and machine tool operators. It is more likely that an increase in unemployment in the construction sector will lead to social problems.

Spanish real estate agents closing in droves

Real estate agent numbers in Spain were decimated in 2007, according to a recent article in the Spanish daily ‘El Pais’.

Half the 80,000 estate agents in business at the beginning of 2007 were closed by the end of the year, confirming that the property market was already in big trouble last year. 9,000 out of 20,000 estate agents closed in Madrid alone, and more than 100,000 people are thought to have lost their jobs as a consequence.

The majority of closures are thought to have been small operations and opportunists that sprung up to take advantage of the boom. “The opportunists, the ones who came to the business for easy money have closed,” says Santiago Baena, president of the API association of qualified estate agents. “In fact, the number of API registered agents has even risen slightly to 20,000.”

Nevertheless, many of the big API registered agents are also suffering, and many have had to close offices and shed staff. “There is more cleaning out to come,” says Baena. “The adjustment in the next three or four months will be even tougher.”

Developer share prices fall heavily in January

The share prices of Spanish developers quoted on the Madrid stock exchange continued to fall in January.

Colonial was down 9.6% in January, despite a recent rise of close to 30% from its January low due to takeover interest from General Electric and a sovereign wealth fund from Dubai. Colonial is down 71% from its 52wk high.

Astroc, that speculative little stock that reflects the worst elements of the Spanish property boom, was down 45% in January, and 96% from its 52wk high.

Renta Corporacion, a developer that claims to have a unique business model (it buys buildings, does them up in a hurry, then tries to sell on fast, so clearly a very unique model that nobody has ever thought of before ), was down 27% in January, and 72% from its 52wk high.

Spanish Mortgage News

Euribor – the interest rate most commonly used to calculate mortgage payments in Spain – fell in January to 4.498% (to be confirmed by the Bank of Spain).

Though just a fall of 29 basis points, it represents a fall of 6% compared to the high of 4.792% in December 2008. This is the largest monthly fall in 4 years.

Euribor rates are falling on expectations that the European Central Bank will lower base rates from the current level of 4%, following the lead of the Feb, which has dropped rates by 75 basis points since the start of the year, with more reductions expected. According to a study by pricewaterhousecoopers, experts expect the ECB to lower rates during the first quarter. Nevertheless, the ECB decided to leave base rates unchanged in February, citing inflation risks.

Euribor may have started falling, but that doesn’t immediate relief for mortgage borrowers. Euribor is still 10.7% higher than it was a year ago, so borrowers with mortgages resetting annually in January will see their monthly repayments go up, not down.

And a falling Euribor will bring little joy to people hoping to take out a mortgage. Spanish lenders have dramatically tightened up lending criteria, and increased their fees, making it now harder and more expensive to get a mortgage than it has been in recent years. This all thanks to the credit crunch.

Demand for Spanish mortgages fell significantly in the last quarter of 2007, and the average Spanish mortgage term is now 28 years, up from 10 years in 1990.

Earn while you own at Alanda Flamingos

Alanda Homes are offering purchasers at the stunning Alanda Flamingos development a 2 Year Rental Guarantee at 5%, which means they earn a handsome sum of a minimum of 25,000€ over an 18 month period. + more

Hacienda del Alamo named International Golf Resort of the Year

The spectacular new resort in Murcia, Spain beat off hot competition from around the world to win the top award at a ceremony in Dublin on Tuesday November 27th at the Four Seasons Hotel. + more

Solchannel’s new look website – online video guides to Spain

Solchannel, the first online video guide to Spain and Andalucia, has just launched its newlook website. It’s fun, funky, and fantastic. This really is a must visit website if you are interested in Spain. www.solchannel.com


© Mark Stucklin (Spanish Property Insight)

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About Mark Stücklin

Mark Stücklin is a Barcelona-based property market analyst and consultant, and author of the 'Spanish Property Doctor' column in the Sunday Times (2005 - 2008). He can be reached by email on ms@spanishpropertyinsight.com.