Spanish Property News
+ Sunday Times Costa Azahar Supplement
+ The Great Spanish Property Podcast Debate
+ Property market roundup
+ European Commission takes Spain to court over ‘land grab’ laws
+ Damming Greenpeace report on Spain’s urban development model
+ Real estate agents in Spain to be regulated…..those that survive
+ Palma de Mallorca home to Spain’s most expensive street for property
+ Spanish mortgage news
In June The Sunday Times published a superb supplement on The Costa Azahar – the beautiful, undiscovered ‘Orange Blossom Coast’ of the Valencian region. For more information see my guide to property in the Costa Azahar.
Bringing together the collective knowledge and experience of three top Spanish property experts, this online debate puts the record straight on what the future holds for buyers of property in Spain.
As part of Nubricks second overseas property podcast series, this hour long Spanish podcast contains information that buyers and owners of Spanish Property both need to hear. “Our podcastees are professionals who have an impartial, bird’s eye view of the Spanish property market,” explained host Adam Samuel Nubricks resident podcaster. “The Sunday Times resident ‘Spanish Property Doctor’ Mark Stucklin’s wealth of Spanish property knowledge, Kyero.com Martin Dell’s attention to Spanish property search statistical detail and the weight of Aguirre Newman’s Wynn Williamson’s market analyst forecasts, combine to offer three unique perspectives on the business of Spanish property and whether Spanish Property will boom or bust in 2007.
The Spanish property market has reached a crossroads after its decade-long boom. The signals coming from the market are mixed, and the question as to what will happen next has been a popular topic in the Spanish and international press during June.
First of all, some myths to dismiss. The market has not crashed, and articles in the British press in April and May announcing the end of the Spanish property market were premature, to say the least. Far from hitting a wall, the Spanish economy notched up 4% growth in the first quarter, and the Madrid stock market hit new highs in June. An article in the FT on 20 June entitled ‘No cigar for the doomsayers’ suggests that Spain might avoid a property crash, citing new report from the investment bank JP Morgan that forecasts an economic slowdown whilst avoiding an economic crisis.
The Spanish property market’s obituary may have been written prematurely, but much of the news coming from the market is far from reassuring. Figures from Spain’s property registry reveal that property transactions fell by 11.5% in the first quarter of the year, and a new report from consultants RR. de Acuña y Asociados forecasts a fall in transactions of 10% for the whole year, after last year’s fall of 9.8%. According to an article in ‘Expansion’ – a financial daily – sales of holiday properties on the Costa del Sol have fallen by 50%, due to a cocktail of high prices, rising interest rates, and increasing competition from alternative destinations such as Morocco, Mexico, and Bulgaria.
You would expect falling sales rates and rising stock of unsold property to mean longer sales times, and you would not be wrong. A new report from the consultants ‘Grupo i’ finds that it now takes 20 months on average to sell an apartment on the Spanish coast, compared to 11.5 months in 2004. The same report forecasts that 140,000 new holiday homes will be built on the Spanish costas this year, but only 90,000 of them will be sold, resulting in a surplus of 50,000 units in 2007 alone. Oversupply is expected to be highest in Catalonia and the Valencian Region, and Catalonia is the region with the highest percentage of holiday homes being built – 57.3% of all new builds – compared to 37.5% in Cantabria and 25% in Galicia. Despite lengthening sales times and a rising stock of unsold properties, the report expects property prices to continue rising by over 6% in areas such as Galicia, Asturias, Huelva, Castellon and Murcia, compared to 1.1% in Barcelona, 2.8% in Malaga, and 1.2% in Santa Cruz de Tenerife.
Most experts agree that Spain’s real estate boom is coming to an end, that too many new homes are being built, and that Spain’s economy is too dependent on the real estate sector for economic growth (with some 18% of Spain’s GDP being housing related), but opinions differ as to what will happen to property prices in Spain.
Gonzalo Bernardos, professor of economics at the University of Barcelona, is quoted in the Spanish business paper ‘La Gaceta’ as saying that “property prices are already falling unofficially”. Everything I am hearing from the market also points towards falling prices in many areas, including around cities like Barcelona, where prices appear to be down by 5 to 10%. But according to the official figures published by the Spanish government, property prices are still rising – by 7.2% in the first quarter. And figures from Sociedad de Tasación – one of Spain’s largest appraisal companies – show that new build prices in provincial capitals rose by 7.4% over 12 months to the end of June. So official figures show property prices still rising, but there is plenty of reason to suspect that prices, especially in costal areas with lots of holiday homes, are actually falling.
Hines – the largest privately owned property developer in the world – is one of the few promoters operating in Spain to acknowledge that prices might fall in 2007. Hines forecast that demand for new homes will fall to 350,000 units, down from around 700,000 in recent years, and Spanish property prices will fall by 5% in 2007. According to John Gómez Hall, head of Hines in Spain, the sector will consolidate, with many small developers disappearing. “In Spain everyone is a developer, but the amateurs will start to disappear little by little,” Hall is quoted as saying. “Many speculators have already disappeared”. Despite concerns over the short-term outlook for the Spanish property market, Hines is optimistic about the long-term.
Deutsche Bank also forecast falling property prices in Spain, though not until 2008. In the bank’s latest ‘Iberian Navigator’ economic report, the bank talks of an “inevitable adjustment” in the Spanish real estate sector, with nominal property prices (before adjusting for inflation) falling by between 2% and 8% in 2008, followed by 4 to 5 years of stagnating prices, which in real terms means falls of between 20 and 25%.
BBVA – one of Spain’s largest banks – is slightly more optimistic. In its latest report on the Spanish real estate sector the bank expects prices to rise by 5.9% this year, 1.4% next year, and to stagnate in 2009 and beyond. However, the bank does not rule out falling prices in some costal provinces “where price increases have been excessive,” and in the holiday home market, which suffers from volatile demand and international competition. The bank expects housing start to fall from 911,000 in 2006 to 700,000 this year. Caja Madrid – a savings bank – expects housing starts to fall to 800,000 this year, and 600,000 next year, which would represent a 20% fall in construction activity. With regard to prices, Caja Madrid expects a small increase of 3 to 4% this year.
On the other hand Bankinter – another leading Spanish bank – has a more optimistic outlook. It expects average Spanish property prices to rise by between 6 and 8% this year, and the property market to undergo a gradual adjustment, rather than a crash. Demand for cheaper properties will increase, with prices rising by 10 to 12%, but the most expensive properties might fall in price by 5%.
Also in June, the French office of national statistics (insee) published a report arguing that Spain’s property sector and economy will slow down, but will avoid a ‘brutal correction’. On the other hand Miloon Kothari – the UN’s Special Rapporteur on Adequate Housing – has warned that Spain is “facing a serious property crisis” due to a lack of affordable housing, resulting in a significant part of the population spending over 40% of their income on mortgage payments. Kothari’s recommendations are more social housing, more intervention in the sector, the occupying of empty properties, and reducing the cost of social housing.
In conclusion, the certainties of Spain’s property boom are over, but what will takes its place – a soft landing or something less agreeable – is far from certain. Keep reading this bulletin to fine out how the market evolves.
As expected, the European Commission (EC) is taking Spain to the European Court of Justice over the so-called ‘land grab’ laws.
Various regions of Spain, such as Valencia and Andalusia, have adopted urban planning regulations (popularly known as ‘land grab’ laws) that enable developers, under certain circumstance, to force owners of rural property to give up some of their land for urbanisation, and contribute towards the cost of installing new infrastructure. The EC believes that these laws infringe EU public procurement procedures, whilst the Valencian government argues that the projects in question are private projects, and thus not subject to EU public tender laws.
Whilst the EC pursues the matter in the courts, the European Parliament has also made its disapproval clear, adopting a resolution (by 327 votes in favour, 222 against and 35 abstentions) condemning urban planning laws in the autonomous regions of Valencia, Andalusia, and Madrid that force owners to “cede legitimately acquired private property without due process and proper compensation, linked to the obligation to pay arbitrary costs for often unnecessary infrastructure development”.
The full statement from the European Parliament is as follows:
MEPs concerned about land law in Andalucia, Valencia and Madrid
Petitions – 21-06-2007 – 12:38
In adopting a resolution on the results of the fact-finding mission to Andalucia, Valencia and Madrid, MEPs consider that the obligation to cede legitimately acquired private property without due process and proper compensation, linked to the obligation to pay arbitrary costs for often unnecessary infrastructure development is a violation of an individual’s fundamental rights as determined by the European Convention and jurisprudence on Human Rights and as contained in the EU Treaty.
The House deeply regrets that such practices are widespread in various autonomous regions of Spain, in particular in the Valencia region and other parts of the Mediterranean coastal area, but also, for instance, in the Madrid region. The resolution was adopted with 327 votes in favour, 222 against and 35 abstentions.
The European Parliament expresses its severe condemnation of, and opposition to, massive urbanisation projects initiated by construction companies and real-estate developers which bear no relation to the real requirements of the towns and villages affected, are environmentally unsustainable and have a disastrous impact on the historical and cultural identity of the areas affected.
MEPs condemn the tacit approval by some town halls for building developments which are subsequently declared illegal and which as a result lead to the destruction, or threatened destruction, of property which had been bought in good faith by European citizens through regular commercial developers and sales agents.
MEPs recognise the Commission’s efforts to ensure the compliance of Spain with the directives on public procurement, but considers that the Commission should pay special attention to the documented cases of infringements of directives on the environment, water and consumer policy issues.
The House calls upon the Spanish authorities and regional governments, in particular the Valencian Government, which are under an obligation to respect and apply the provisions of the EU Treaty and EU laws, to recognise the individual’s legitimate right to his legally acquired property and to establish in law more precisely defined criteria regarding the application of Article 33 of the Spanish Constitution concerning the public interest, in order to prevent and forbid the abuse of people’s property rights by decisions of local and regional authorities.
The House calls into question the methods of designation of, and frequently excessive powers given in practice to, urbanisers and property developers by certain local authorities at the expense of local communities and the citizens who have their homes and legally acquired property there.
MEPs strongly condemn the covert practice of certain property developers of undermining by subterfuge the legitimate ownership of property by European citizens by interfering with land registration, and calls upon local authorities to establish proper legal safeguards against this practice.
The House calls upon regional authorities to establish special administrative commissions involving local ombudsmen, to which independent investigation services should report, which should have powers of arbitration in relation to disputes concerning urbanisation projects, and which should be accessible free of charge to those directly affected by urbanisation programmes, including those who are victims of illegal property deals concerning unauthorised urban development.
Finally, MEPs call on the Commission to initiate an information campaign directed at European citizens buying real estate in a Member State other than their own.
Michael Cashman (PES, UK, Labour West Midlands) one of the authors of the report said: “It saddens me to have to take the floor once again on this issue. More than 18 months after the adoption of the Fourtou Report in December 2005 by an overwhelming majority of this House, we are still debating the same issues, and nothing has changed. The Council is absent – that is shameful!
Citizens from many Member States, including my own, but also Spain, Germany, Holland and Belgium, are having their legally acquired lands taken by local authorities without due process, which I am convinced is in breach of EU law. Moreover, they are being forced to pay large sums of money – tens of thousands of euros – to pay for new infrastructure and new developments that they do not want and which are on their land.
The situation I am describing sounds unimaginable in the 21st century EU but it is a sad reality for thousands of citizens in Spain. People have bought land or property in good faith only to see it taken away by what can only be described as, at best, administrative incompetence or, at worst, criminal negligence and corruption.
This issue was brought to the attention of the Committee on Petitions in 2003. Back then, 15 000 citizens wrote to us asking for help. What have we done? Well, we have adopted the Fourtou report, which brought forward a series of recommendations to the Valencian Government. The Valencian Government brought forward minor changes in the LUV, which do not address the key problems of land grab. It is worth mentioning that large numbers of projects in Valencia were rushed through prior to the entry into force of the new law. This is a clear sign that constructors and developers wanted to continue to exploit the loopholes of the previous law.
We have now sent three fact-finding missions. The last came under shameful attacks from the Partido Popular, which were attacks upon the integrity of this House. It saddens me to say that the President of this House, Mr Pöttering, remains indifferent to the attacks upon the integrity of this House.
The Partido Popular politicians say that the petitions in Valencia have been imagined. The pain is real, the pain is desperate, and that is why people have looked to us.
The Commission is unhappy. It believes that possible infringements of EU law are under way. Therefore, I say this: to do nothing is not an option, we have exhausted what we can do in this House and this will be resolved in the Court of Justice or before the European Court of Human Rights in Strasbourg, and it will be to the shame of the Partido Popular in Spain.”
Greenpeace has slammed Spain’s urban development model in its annual report on Spain’s coastal environment entitled ‘Destruction at all co(a)sts’.
The report reveals that the construction sector takes over the equivalent of 140 football fields each day, 3 of them on the Spanish coast.
According to the report, “The urban model imposed on our territory is based on three pillars: supply, a product that generates enormous capital gains since those responsible for its management have allowed agricultural land to be bought by promoters as if it were developable land even before being reclassified; demand, composed of a very wide range of people who have often used housing more as an investment than as a response to their genuine need for shelter; and, lastly, a restricted market, which is growing more and more monopolistic and opaque and which offers few alternatives. With the mix of these three ingredients coming to a boil before the complete negligence of the Autonomous Communities who have been charged with the guardianship of the territory, results in revealing the current situation.”
The report also reveals that planning approval has been granted for another 3 million properties on the Spanish coast – double the amount last year – along with 316 golf courses and 112 marinas. The report points out that Spain has already accumulated 4 million empty properties.
What the report doesn’t say is that the impending downturn in the Spanish property sector will probably put paid to plans to build so many new properties, though perhaps not before a few hundred thousand more unwanted apartments in unattractive blocks of flats have been built.
“You need more qualifications to sell a lettuce in Spain than a property, and that won’t do,” says María Antonia Trujillo – Spain’s minister for housing – to justify her plans to regulate estate agents in Spain.
The previous government, run by the conservative People’s Party (Partido Popular), liberalised the property intermediation business in 2000. Before then only the 8,000 registered and qualified estate agents, or APIs, could legally intermediate in property transactions in Spain. The liberalisation did away with qualifications and registration, and now anyone can sell property in Spain, regardless of how ill-prepared they are to do so.
The new rules for estate agents are expected to include minimum qualifications, a professional register, professional indemnity, and an office open to the public. People with a criminal record will be bared from the business.
The new regulations are still very much in draft. No date has been given for the introduction of new legislation, though the housing minister has indicated her desire to do so before the end of the present parliament in 2008.
If new regulations are introduced in 2008, they will only apply to the estate agents that have managed to survive the downturn in the Spanish property market.
Given the present state of the property market, most estate agents in Spain will be more worried about going out of business than draft regulations with no date for introduction.
An article in the Spanish daily ‘La Vanguardia’ describes the present downturn as having a “devastating” effect on real estate agents. More than 1,000 agents have closed in Catalonia alone, some 20% of the agents in the region , according to data from the professional association of estate agents (Colegio Oficial de Agentes de la Propieada Inmobiliaria – API).
Joan Ollé, president of the association in Barcelona, is quoted as saying that the “tsunami” hitting the sector is far from over. According to Ollé, “60% of agents will close,” primarily the least consolidated and professional.
A new study from the appraisal company Tasamadrid reveals that the most expensive street for property in Spain is the Paseo Dalt Murada, in the historic quarter of Palma de Mallorca (Balearics), where prices average 15,000 Euros/m2 for refurbished properties in period buildings with views of the sea and the port. Prices for penthouse apartments in the same area can rise to 20,000 Euros/m2.
Prices of 15,000 Euros/m2 can also be found in Madrid, in some of the new promotions of the Paseo de la Habana. But prices on the most expensive streets in Madrid, around the Retiro and the Paseo de la Castellana, are now between 10,000 and 15,000 Euros/m2. Property on the most expensive streets of Barcelona costs around 13,000 Euros/m2, but can go as high as 18,000 Euros/m2 on the Paseo de Gracia.
Euribor – the interest rate most commonly used to calculate mortgage payments in Spain – rose again last month to 4.506% (to be confirmed by the Bank of Spain). This will push up the cost of financing a Spanish property purchase with a mortgage from a lender in Spain.
There have now been 21 consecutive monthly increases in Euribor, pushing it up to its highest level since May 2000. Euribor is now 32.5% higher than it was a year ago, and 114% higher than in June 2004.
Rising Spanish property prices are forcing Spanish property buyers to take on longer-term mortgages. According to the Spanish Mortgage Association (AHE) the average new mortgage now has a lifetime of 27 years, compared to an average of 25 years.
According to the AHE, the average Spanish variable-rate mortgage of 147.268 Euros over 26 years will now cost 863 Euros per month to repay, compared to 768 Euros per month a year ago. This makes the average Spanish mortgage 95 Euros per month, and 1,140 Euros per year more expensive.
It appears that Spanish mortgage lenders are taking advantage of rising interest rates to increase other mortgage costs, such as opening fees, and other administrative fees. According to the Bank of Spain, administration fees are up by 16% and opening fees by 4.47%. Rising fees are slowing the growth in mortgage lending, which was 21.7% higher in March than a year earlier, the lowest annual increase since 2003.
Mortgage delinquency (default) rates are also on the rise, though still not far off historic lows. Delinquency rates rose to 0.462% in the first quarter of the year, from 0.385% in the same period of 2006. This is the highest level since December 2002, when it reached 0.430%.
But rising interest rates will have no negative impact on the finances of 65% of Spanish households, according to a new report from the international consultancy Deloitte. The report argues that Spanish household wealth has risen dramatically in recent years, in line with rising property prices, so rising interest rates will not have a dramatic effect on household indebtedness, and 65% of Spaniards with mortgages will not have to have to sacrifice “any activity from daily life.”
Euribor is derived from the Eurozone base rate set by the governing council of the ECB during monthly meetings presided over by Jean Claude Trichet – President of the ECB. The ECB raised base rates from 3.5% to 3.75% in March, and then by a further quarter point to 4% on 6 June. BBVA – one of Spain’s largest banks – expects base rates to rise to 4.5% by the end of the year, and Spanish property prices to fall in 2008 as a consequence. UK and US interest rates stand at 5.5% and 5.25% respectively, both higher than rates in the Eurozone.
© Mark Stucklin (Spanish Property Insight)