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Not a bad site this…
“2011/Q1 has been a disaster in terms of sales”
March 24, 2011The president of the Spanish consultancy RR de Acuña, Fernando Rodríguez Acuña, has been interviewed in cotizalia.com about the Spanish property market. It is a good interview with frank and honest answers to understand in brief what has happened and when the property crash will end.
There are surprising revelations and controversial points.
His point of view about the present market situation is clear: 2011/Q1 has been a disaster in terms of property transaction.
The end of the tax exemption for property buyers in 2011 meant that November and December 2010 had larger numbers of transactions. Also, according to Fernando Acuña, the lack of credit, the rise of the euribor (interest rate) and the increase of second-hand houses in the market and the large stock (1,5m according to Acuña – who seems to The Spanish Brick to be very conservative at this point) are points to be bear in mind in 2011.
The main problem is credit to acquire land
According to Fernando Acuña, the main problem of the banks with regard the property market is not the large credit conceded to buy properties but the credit granted to developers in order to acquire land. “We are talking about 130,000 million Euros invested in land that was overvalued. According to our calculations, urban land is devalued now by 65% whereas outside urban areas, land price depreciation is above 90%”.
The problem is that, during the property boom, speculation on land value became an easy way to generate money by developers. So, credit was given to developers in order to speculate with land rather than to develop, said Fernando Acuña during the interview.
“If the demand of properties in this decade is going to be one million and we have land to build up three million units, what is the value of land?” comments Fernando Acuña. “it is worth nothing… in many cases the land price is just symbolic”.
subprime property portfolio
Apart from land, the president of RR Acuña states that the biggest problem of Banks is the subprime property portfolio: “50% of the second-hand property portfolio of Banks is subprime… but there are prime properties in badly located areas”. It is taking too long to sell this sort of product even with 50% discounts.
During the interview, Acuña mentioned that the second-hand offer increased by 20% in the second half of 2010. In other words: “the stock is not being reduced”. Also, the pace of transactions is too slow; especially because of the credit shortage.
When will the activity improve?: “We will see an improvement in the property market and sales during the 2012/2nd half but it will be from 2015 when the market will become healthy as long as Banks’ stock is reduced. To reduce Banks’ stock involves lower prices”.
The logic process of recovery
During the interview, Fernando Acuña explains the logic process of recovery should be as follow:
1) Reduce the stock
2) Less stock will enlarge credit because the banks have eased their stock
3) More credit will allow new developments to be undertaken
4) The GDP will improve
5) The national demand will be normalised
Acuña added an extra factor that will help the market: “to bring back Tax exemption for property buyers”. The Spanish Brick strongly disagrees at this point with Acuña because to bring back tax exemption means to bring the property market to the front line of the economy when Spain needs alternative markets to rely on. Also, it will go against the natural growth of the rental market, which works very well in other countries and Spain needs to back.
What went wrong during the property boom?
Acuña says that the problem was, unlike the 80s and 90s crisis, the credit expansion and property over-evaluation during the boom. Property evaluation agencies were valuing properties at an average of €230k whilst the real value was €180k on average. What is the reason for that margin of €50k? According to Acuña: Black money, VAT tax evasion and asset transmission tax evasion. “Nobody wanted to see it and nothing has been done”.
Acuña consultancy is one of the leading and more relevant property consultants in Spain, having published for 25 years now an annual review of the property market which has always been a reference in the market.
Full interview in Spanish: cotizalia.com
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It is a realistic article and a refreshing change from a Spanish institution and I agree with most of what was said.
However he makes little or no reference to the influence and importance foreign buyers had in inflating values and creating an unsustainable bubble.
The cheap and easy credit situation in the principal markets of UK and Ireland pumped up demand with high unrealistic selling prices easily obtained by developers.
Those personal debt levels will take generations to repay. These owners, Spanish and foreign are in negative equity and cannot sell. That has a negative influence on market recovery.
New buyers cannot come to the market in any significant number until their own countries economy recovers and credit becomes available once more.
Recovery in 2015 looks a tad too optimistic to me but positive signals may begin to appear towards the end of that year. Reducing bank stock even with credit attached is difficult because any serious buyer recognises the risk and has a lack of confidence in economic improvement.
Insecurity in employment, economic prospects and commodity inflation in the near term across Europe require significant improvements before any market recovery can even begin. -
“However he makes little or no reference to the influence and importance foreign buyers had in inflating values and creating an unsustainable bubble.”
Perhaps, it was not his terms of reference. Whilst mostly agreeing with you, maybe the effect of prices, credit etc that was influenced by the foreignors was mainly on the Costas and we do not know the make up of the foreign & non foreign buyers once Spain as a whole is taken into account.
Madrid e.g did not have many foreign buyers. I would not consider people from Latin America who were living & working there as foreignors as they had become a part of the local community.
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He makes some good points towards recovery of the market, but he forgets to mention that Spain should reduce it’s rather inflated/greedy costs of buying, should force all agents/developers to join a Gov’t only membership scheme that has punitive measures for the outlaws, and, sort out it’s absurdly lengthy Court procedures, and lastly, stop this crazy overdevelopment of it’s coastal and other areas.
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@shakeel wrote:
Perhaps, it was not his terms of reference. Whilst mostly agreeing with you, maybe the effect of prices, credit etc that was influenced by the foreignors was mainly on the Costas and we do not know the make up of the foreign & non foreign buyers once Spain as a whole is taken into account.
Madrid e.g did not have many foreign buyers. I would not consider people from Latin America who were living & working there as foreignors as they had become a part of the local community.
for Spain:
(% of total)
resident foreigners
non resident foreigners
2006
11.14
1.8
2007
10.42
1.09
2008
6.68
0.65
2009
5.29
0.52
2010
6.03
0.49the above figures are for all types of housing.
hope this helps
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Angie, The problem is a locals do not think it is inflated cost of buying. (You have not taken into account VAT ) As they know no different and also are not familiar with the related buying cost in other countries. In my experience the said cost i.e. VAT, duties, Notary etc are charges in France, Italy.
Spain also follows a lot of taxation & its inherant characteristics along with other socialist thinking of France.
France is getting away for the moment due to the fat that it has been carrying after years of recent & not to recent past exploitation of its colonies.
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@shakeel wrote:
Thanks, Fuengi. My understanding “resident foreigners” non idegnious people who have made Spain as their home. “non resident foreigners” people who have bought holiday home. On this basis where are the Spaniards ??? & the city/town demographics.
pretty much.
Spaniards? they make up the remainderI would also point out that just because a non-resident has bought does not automatically mean its a holiday home. But that does probably make up the majority.
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Fuengi I appreciate that you may not have all the information. However does that mean
resident foreigners
non resident foreigners Spaniards
2006
11.14
1.8 87.06
2007
10.42
1.09 88.49
2008
6.68
0.65 92.67
2009
5.29
0.52 94.19
2010
6.03
0.49 93.48If my above analysis are added & than substracted from 100. This sugguest the balance of the sales is made up by the Spaniards. This reflects an insignificant foreign buyers. God help us if 93.48% ( 2010 ) are Spaniards who are lowly paid & at all times atleast 20% unemployed the remaining on temporary contract.
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@shakeel wrote:
Fuengi I appreciate that you may not have all the information. However does that mean
resident foreigners
non resident foreigners Spaniards
2006
11.14
1.8 87.06
2007
10.42
1.09 88.49
2008
6.68
0.65 92.67
2009
5.29
0.52 94.19
2010
6.03
0.49 93.48If my above analysis are added & than substracted from 100. This sugguest the balance of the sales is made up by the Spaniards. Which sugguest an insignificant foreignor buyers. God help us if 93.48%
( 2010 ) are Spaniards who are lowly paid & at all times atleast 20% unemployed the remaining on temporary contract.yes your figures are correct
foreign buyers (non resident) have always been insignificant on a national scale in terms of direct transactions. Of course on a regional level (malaga province and other costal resorts) the level of foreigners (nr) was a higher figure. But we are still talking about foreign investment that helped stimulate the property boom.
In regards to you last sentence, (in general) banks will not lend to someone on a temporary salary. If you are self employed you need to supply a minimum of 3 years accounts. They will want the mortgage to make up no more than 30% of your income. If your applying with your local bank, they scrutinise the movement of money in and out of your account. Even then. If you can afford it, they will only give a maximum of 80% of of either the valuation or sale price (which ever is the lower figure). And if they think you are still a risk, they will ask you to supply a guarantor or asset (more property…) as guarantee.
So remove the unemployed and remove all those on temporary contracts.
All you have left is with those on fixed contracts. But except for those banks that were reckless lenders, CAM for example, many spanish banks only relaxed the above rules a bit (80% of valuation as long are you long a you could pay the purchase costs for example) back in 2006.
The situation in Spain is not good to say the least. The article talks about hte banks unsold stock and how price need to drop. Many of these urbanisations are located in substandard locations and built to cater specific markets. Many cannot be converted to VPOs due to size/quality/location/etc…. The only people who will buy them are long term investors willing to take quite a risk and even then at a vast reduction in price. Even if the banks do this (forced kicking a screaming) they will not suddenly flood the market, but painstakenly reduce hte stock over years.
And how many foreigners bought properties that would cater to the spanish market?
But its not all negative. Many home owners in Spain have multiple properties (one of the reasons for the high ownership stats). Many of these bought years/decades ago and are in the position that they have not debts on the property and can price it accordingly or wait till the market improves. Many buyers who were previously priced out of the market, now have options. and in the right locations there are those looking a buying a home in the sun.
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Thanks for clearing my doubts & assumptions. I am aware that temporary employment by its nature will rule them out. Thus my deduction of 20% unemployed and say another 30% temp leaves 30 % & they will not all be in the market to buy.
I agree that there is a very high owner occupancy in Spain & in large cases they have inherited these properties.
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