Spains Looming Bust Will Hurt the Rest of Europe

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  • #51921
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    Anonymous
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    Bloomberg suggest that the Spanish economy is in a perlious state.

    “Spain will boom ahead until it collapses under its own
    weight,” warned Charles Dumas, head of international research at
    the London-based consulting firm Lombard Street Research at a
    seminar last week. “When it will happen I don’t know, but it
    will be pretty unpleasant when it does.”

    http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_lynn&sid=amxKQh9WmdSI[/quote]

  • #62958
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    Anonymous
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    Good find Ponzi.

    I have to agree with most of that article. However, I’m not sure the result will be a meltdown. I think stagnation is also a possibility, with ‘real’ prices (inflation adjusted) falling significantly over a period of years.

    Anyway, wanna know just how astonishing the Spanish construction boom has been? Check out this table, which I’ve just put together:
    http://www.spanishpropertyinsight.com/spanish_housing_starts_vs_uk.htm

    Food for thought

    Mark

  • #62960
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    Anonymous
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    One reason for the growth spurt could be that I keep being told by my Spanish friends that Spaniards would rather pay 350,000 euros for a brand new house within spitting distance of the town rather than pay 95,000 for a bigger but older house 10 mins drive away…hence the need for new builds and the high number of empty properties..why buy those when you can spend more on a nice, new flat, paying a small amount each month to the constructors whilst waiting for you new flat/house to be built.

    And then add in older people moving from the countryside to the towns, leaving their houses empty and not even trying to sell them as “no one would buy it”.

    I have no idea about the influence of non- spaniards buying second homes here, I’m just repeating what I am frequently told whenever I show anyone Spanish a picture of my 200yr old house!!

    Have you data one which areas the biggest increases in new builds are Mark, that would be interesting too!

    Heather

  • #62988
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    Anonymous
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    Hi Mark

    I’m a firm believer in the income approach in accessing the true value of property. I think that if the Spanish and/or the global economies turn, the importance of a self financing yield will become evident and reassert itself as the prime consideration in property investment decisions.

    I am uneasy about the rational employed by many investment buyers in Spain and other hot spots. I have issues with the dependability of rental value figures, yields, occupancy rates and holding costs that are ‘produced’ by agents and developers.

    My own (admittedly anecdotal) evidence suggests that many investors performance expectations are not met in the market. My concern is that in the absence of a new stream of credulous entrants to the market, the support level offered by net rental yields would mean prices far below current valuations.

  • #62990
    Profile photo of katy
    katy
    Spectator

    Good post Ponzi. Some developers/agents are predicting 75% rental occupancy in Bulgarian ski resorts 😆 …and buyers are falling for it. In spain its been a bit like pyramid selling, the ones in at the beginning (1995 approx) made a profit and the last ones in a loss.

  • #63006
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    I think equally important as a fall in property prices would be the collapse of the Euro. Some would be in for a double Whammy if they are using Gbp to buy Euros at moment and that devalues by 20pct or so as well. A bit of protection would be to have a mortgage in Euros. I am sure there will be a decent correction on the speculative developments, but the Costas are a special case they are the California and Florida of Europe. If we see a sharp sell off in Euro/Gbp and property prices I can see those that missed the opportunity a few years back queing up to buy in Spain.

  • #63011
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    Anonymous
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    The Costas are a special case they are the California and Florida of Europe.

    http://biz.yahoo.com/prnews/060610/nysa012.html

    Florida and California are the two states currently experiencing difficulties in the US. Open market net yields are below self financing levels and the Fed is about to increase rates again soon. So so your assertion may be accurate Aidan

  • #63092
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    Fuengi (Andrew)
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    Average Spanish property prices increased by 12 percent in nominal terms over 12 months to the end of March 2006, according to the latest figures from the Spanish ministry of housing.

    This raises the average cost of property in Spain to EUR 1,888 per square metre, up from EUR 1,685 per square metre at the end of March 2005. With inflation in Spain running at 3.9 percent, the real increase in Spanish property prices over the latest 12-month period was 8.1 percent.
    http://www.expatica.com/source/site_article.asp?subchannel_id=87&story_id=30810&name=Don%27t+believe+estate+agents%3A+Expert+advice+on+the+Spanish+property+market

  • #76795
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    Anonymous
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    @Ponzi wrote:

    Bloomberg suggest that the Spanish economy is in a perlious state.

    “Spain will boom ahead until it collapses under its own
    weight,” warned Charles Dumas, head of international research at
    the London-based consulting firm Lombard Street Research at a
    seminar last week. “When it will happen I don’t know, but it
    will be pretty unpleasant when it does.”

    http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_lynn&sid=amxKQh9WmdSI

    Has Dumas’s prediction come to pass?

  • #76797
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    Anonymous
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    Ponzi 😉
    I may be wrong but is this not the same guy that predicted the crash of the Euro currency 3 or 4 years ago 😯
    Is this is the same Bloomberg mag that some of the experts predicted the F.T.S.E would finish the year at 7,000 or above. 😉
    Is this the same Bloomberg mag that changes areas in the world to invest or not invest in almost every month?
    For anyone looking for the reality check on SPANISH PROPERTY ? (Spanish Property Insight )would be well advised to get it from floor level.
    Mark Stucklins final quarter 2007 video report tells it as it is, perfectly balances the overstatements by those that need to talk the market up with the over reactive reports from newpapers to sell news and to make interesting and often one sided content for debate on forums.
    Dont get me wrong Spain may suffer like many others including the U.K, just like the ones that are at the moment and added this to my posting before the head in the sand comments start 😉

    Frank 8)

  • #76798
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    Anonymous
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    Polaris World will buight the fourth greatest city of Murcia:

    http://www.eleconomista.es/empresas-finanzas/noticias/336572/12/07/Polaris-desafia-la-crisis-y-construira-25000-casas-en-la-region-de-Murcia.html

    25.000 new homes in 10 years in only one place with scarce resources of water.

    Really mad, isn’t it?

  • #76799
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    Anonymous
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    Bloomberg is eminent in the field of business journalism and that is why the professionals pay over £1000 a month for a terminal. In order to be so highly regarded it neccessarily contains articles of differing views; those of optimists and pessimists on any topic.
    To discredit Bloomberg on the basis that it published a prediction that did not come to fruition is wide of the mark.
    You continue to knock well written articles from reputable sources Just Frank -I would suggest to you that it is your (over)reaction that is the more telling.

  • #76800
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    Anonymous
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    My personal opinion is that the property market needs cooling. There can’t be boom, boom, boom, forever. Historically there has always been a property “cycle”, which helps control spending.
    At present, there are many so called investors, who are there just because money has been available and cheap and if they make a few bucks first time, they feel it is easy and want more, until such time there is a collapse. No experience, no knowledge and no backup funds. These are not true investors, just people who want and think the property market is easy….such ignorance.
    The above do not recognise or appreciate the expert opinions or forecasts.
    Not really worth trying to convince or educate.

  • #76801
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    Anonymous
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    Forest Fire 🙂
    £10 per month or £1,000.00 per month/ fund managers on 200k+ a year they still make the wrong calls and they are the experts. 🙄
    Tend now to not beleive everything I read and mags like Bloomberg are very informative but take it as PART of trying to get a balanced view as it avoids over reacting to a posting pointing out these facts. 😉
    As was pointed out by Mark Stucklin too many builds,to much corruption,world credit problems,combined with less than accurate information from government and over reactive negative news from paper, mag media needs balancing at times with some points of view from the shop floor which is exactly the result of the video. 🙂
    mg .When your a player I would welcome your opinion until then carry on reading the newspapers and sitting on the fence 😉
    QUOTE mg .I think that this “lark” in investing in overseas property is a farce.

    Frank 8)

  • #76804
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    Anonymous
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    A “player”, no, just a person who has his own (internally funded) investment company.
    I am not in property to “play”, like so many are.

  • #76805
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    Anonymous
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    Just back from a week in Nerja/Frigiliana.

    No sign in any slow down in construction thereabouts.

    Advertised prices of apartments seem to be lower than a couple of years ago. However, based on the holiday rental yields i have achieved over the last 4 years, prices would have to be 30% lower before i would achieve the post tax income to make it worthwhile buying more.

    Say, €100,000 for a fully furnished and equipped 2 bed apartment – I could make a nice return at that kind of price.

  • #76807
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    Anonymous
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    Ponzi,

    Let’s assume the Bloomberg writer meant a bad recession, not a collapse in the literal sense. This hasn’t yet materialised, but that’s not to say it won’t, and every day brings more evidence that the economy is heading for choppy waters. He may yet be proved right – it’s still too early to tell. He made the forecast in June 07, and didn’t give a deadline. What do you say we give it until June 08 to make a judgement?

    Mark

  • #76808
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    Anonymous
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    Just Frank: At times it appears that you are rubbishing an entire media source when they do not agree with your view. I agree much more with your last statement that these media should be used as a part of forming one’s view.
    As you say, the so called experts do get it wrong at times, and I too enjoy highlighting their shortcomings. However, one should take into account there are two qualities that are important in a successful career in finance. 1) Being right most (not all) of the time. 2) Being able to change one’s opinion rapidly when new data / fundamentals present themselves.
    The doom and gloom and overreaction as you call it Frank, should be taken seriously. Not because it is the most likely scenario, rather because in a highly unpredictable world, it is one of the more plausible theses.

  • #76809
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    “there are two qualities that are important in a successful career in finance”. My God, if that were only true. Just 2 qualities needed?

    Forecasts, statistics, report are all “tools” of the property/finance world.

  • #76810
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    Anonymous
    Participant

    Obviously there are more than two neccesary qualities mg; apologies if that was badly written.

  • #76811
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    Anonymous
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    In any feild the experts will have differening views. The fact that half full glass or half empty glass are both correct in their analysis.

    For, a non expert in the relevent feild, it is important to read views of as many as possible and take a view on them. At least this view would be an educated and informed one.

    The most important quality is prudence and that is what the investor has to apply. As it is their capital.

    The so called experts will live to right another article and irrespective of their forecast/s of the past it is no surety that they will be correct in the future.

  • #76812
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    Anonymous
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    You mention “As it is their capital”, but in many, many instances, where funded by the likes of banks, it is their debt and not their capital. This is the contibuting factor with the sub prime loans.
    If it were their own money that people has used to buy the “Dream in the Sun”, the problem would not be so great as it is, but as said often, so many have borrowed to purchase, often using ther main home to raise funds and need a rental income to service the loan. If the rental income disappears or prices drop to what is a realistic value, this is when the problem comes to light.

    “For, a non expert in the relevent feild, it is important to read views of as many as possible and take a view on them. At least this view would be an educated and informed one.” Surely this applies to the “expert” also. There is nobody who cannot learn further.

  • #76813
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    Anonymous
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    Forest Fire
    You have taken the point the point I was making.(Shakeel summed it up far better that I,no suprise there :oops:)
    mg .You consider that the overseas property market is a lark and a farce and now consider many are playing with it. 😕
    Let me assure you that none of us are playing and many use the forums for genuine help and support, perhaps you may remember this when posting on a forum that you appear to have little experience,understanding or interest in other that to try to impress us just how much you know about the big wide world of investment.

    Frank 8)

  • #76814
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    Anonymous
    Participant

    “You mention “As it is their capital”, but in many, many instances, where funded by the likes of banks, it is their debt and not their capital. This is the contributing factor with the sub prime loans.

    MG: Mine was a generic example. As most of the topics discussed on the forum are generic. If we are talking about a situation where one’s 100% capital is not involved. Yes there is a debt being created and yes the borrower is responsible for the repayment of the debt and related interest. He /she should be well aware of the consequences in the case of a default.

    We, all can point finger at lenders sub prime or not! They are in business to lend and they have taken a statistical view of how many loans could turn into bad debts or not. The responsibility is ultimately of the borrower to know under his/her set of circumstances as to what they are borrowing for and under what personal scenarios they would be expected to service/refund the amount borrowed.

    Borrowing for the right reasons and the right % is highly useful in terms of cash flow, tax planning etc. In conclusion whether you invest with your funds or you borrow. The situation remains i.e. read all you can, don’t take any of it as gospel and take your own views.

  • #76816
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    Anonymous
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    Just Frank said. “many use the forums for genuine help and support”,

    I fully agree with you and sadly some are in dire straits. Financially and emotionally.

    Naively, I assume that all of us on the forum are grown up, mature and don’t need their ego to massaged by trying to impress others.

    The people on the forum come across from various walks of life and professions their collective wisdom, knowledge views points are a treasure of wealth which they share for free and as a result should be respected and if applicable be utilized.

  • #76879
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    Inez
    Participant

    mg – even if it is their own capital, which is mainly used for the deposit anyway, the sheer fact people agreed to pay such huge sums is the major factor of the problem we see here today.

    Prices and demand has been driven up on paper, not just by the actual practise of money changing hands. It will still affect figures and forcasts this year as people who ‘bought’ several years ago are now completing – it is the completion figure that goes into the pot, not the reality of only current new purchases and which distorts the true view.

    One would have to be in the business at ground level to feel the true vibrations of the market.

    As I write, the banks have ssued many new directives which will rule out many people wanting to buy in Spain, unless they have money to spend, and so will end the reign of the speculator and to some degree the investor!

    The main people buying will be for second homes, retirees or permenant movers and I suspect many will be put off for a while until there is stability worldwide in the markets

    A tough year for sure.

  • #76882
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    Anonymous
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    “As I write, the banks have ssued many new directives which will rule out many people wanting to buy in Spain”
    Not only in Spain, but UK, America, etc., etc.,

    “unless they have money to spend, and so will end the reign of the speculator and to some degree the investor!”

    Most certainly the so called “investor”, who maybe may a few quick bucks and thought, that is simple, we will borrow more and do again, making no allowances for when things go wrong. Much like the so called “property developers” in UK. Bought a house, made a few punds and thought…………..

    Just wonder how many will lose their homes in UK through sheer stupidity of borrowing to the hilt, to fund their place in the sun.
    We will soon find out when we hear the sob stories and allegations of everyone else is at fault, except themselves.
    If you do not have the money and you choose to risk all for an overseas property, then it is you who are to blame.

  • #76884
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    Anonymous
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    Just wonder how many will lose their homes in UK through sheer stupidity of borrowing to the hilt, to fund their place in the sun.

    It’s so easy to be wise after the event!

  • #76885
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    Inez
    Participant

    Yes thats true – they are having to tighten up all over. Investor wise I am really talking about the ones who know what they are doing and whilst they may use others money, they still have capital to cover any problems or shortfalls. The buyto letters in the UK are in dire straights as well, although there will not now ne a shortgage of rentors as people lose their homes.!

    Yes I agree there will be many in the UK and other countries losing everything and more – one issue I have raised a few times is that while non residents are finding it easier to walk away at the moment, I am sure the EC will allow more freedom of information and banks will be forced to follow defaulters back to their country of residence to claim back any deficit between the proeprty’s sale price and the outstanding mortgage!

    It is very worrying that mortgages at 70% of ‘valuation’ are in reality 100% of what anyone will pay for it now – likely to fall from that this year at least!

  • #76887
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    Anonymous
    Participant
    Claire wrote:
    Quote:
    Just wonder how many will lose their homes in UK through sheer stupidity of borrowing to the hilt, to fund their place in the sun.

    It’s so easy to be wise after the event!

    Lots and lots of people warned long time ago about the upcoming crash and advised potential buyers to wait.

    But no, people kept on MEW-ing their UK houses and then ran to the property porn exhibits to “invest” in warm countries.

    It is just normal that some will now lose both their houses in UK and the ones in the Sun.

    The good news is that they will be able to rent for very cheap till they gather the money to restart the buying process.

  • #76888
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    Anonymous
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    Lots and lots of people warned long time ago about the upcoming crash and advised potential buyers to wait.

    That’s very true ralita. Some people on this forum “poo-pood” the idea as being media hype from gloom and doom merchants. 😉 The truth comes out at the end of the day though. It’s a worrying time for many people.

  • #76893
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    Anonymous
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    “It’s so easy to be wise after the event!”
    And obviously many found it easy to be stupid before the event and buy something they couldn’t really afford.

  • #76894
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    Anonymous
    Participant

    @mg wrote:

    “And obviously many found it easy to be stupid before the event and buy something they couldn’t really afford.

    Gosh! If we were not all so stupid we could be as boring as you mg! 😆

  • #76895
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    Anonymous
    Participant

    “The buyto letters in the UK are in dire straights as well, although there will not now ne a shortgage of rentors as people lose their homes”

    Inez, I have not come across one buy to letters who is in dire straits. The buy to letters are experienced investors and know what they are doing.
    A recent survey carried out by Mortgage Express revealed that buy to letters has an average borrowing of below 65% LTV. Their rent adequately covers the mortgage and as the interest rates are now on the way down the are in a very position in terms of rental yields and equity.

    I am sure that there are people who have not done their ground work and bought gleaming new build over priced properties. The demand & supply in the area is not allowing them to charge a rent which gives them decent yield.

    I am concerned some of the large developers may off load a large chunk of units to housing associations/portfolio investors thus affecting the value of individual buyer/investors in places like Manchester, Liverpool or Leeds.

  • #76896
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    Anonymous
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    Hindsight is indeed a wonderful thing, but the problems in the US and Spain, especially the Florida and the Costa boom markets favoured by us Brits, were telegraphed back in late 2004, a full 3 years ago.

    In my sphere of neighbours, friends and associates there are at least 7 couples who have mew’d equity in the last 5 years (taken on 25 year Stirling debts in their late 30’s to mid 50’s) out of their UK homes, to put a substantial deposits down, on Spanish/Floridian investuholiday homes. Indeed two of them thought it such a good idea they bought two! Effectively this means that they have bought using 100% borrowed money (meaning with the cost of buying, running and exiting the market they have substantial negative equity from day one, even before the price falls are calculated).

    Now with running costs going up and property prices falling in Florida, Spain and the UK they are set for difficult times ahead.

    With Global inflation starting to take off, economic growth forecast to slow, unemployment rising and the credit crunch just getting started (as asset/property prices fall this will become a solvency crisis as opposed to a liquidity one), tens of thousands will end up in real trouble.

    The last four years were a great time to be paying down and restructuring debt, as opposed to borrowing to buy in Bulgaria, Dubai and Cape Verde; or mew out the last few years frothy ephemeral ‘here today gone tomorrow’ ‘equity’ on ‘lifestyle’ purchasers, such as hot tubs, 4 x 4, a boob job and Caribbean cruise!

    But enough about us, some actually mewed and wasted the money, which they’ll still be paying interest on for the next 25 years!!!

  • #76903
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    Anonymous
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    Buy to let has not been good in the UK for many years I am getting the same rental for properties today that I was getting seven years ago and the value of the properties have more than doubled, but then again maybe we were getting too much seven years ago.

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