Five years after the burst of the real estate bubble, 2013 presents itself as a key year for the sector. The situation, even though there have been five years of downfall, does not seem to be stable and the bad performance of the real estate business in 2012 makes this a difficult year.
The experts within the sector highlight 13 challenges which will be in the real estate forefront during the next twelve months.
- Situation of the economy and the employment. The year has started with a relaxation of the risk premium and with the phantom of the rescue fund turning away from the Spanish economy. Nevertheless, while the perception of the international markets seems to improve, the same cannot be applied to the unemployment. With such high figure of unemployment and the uncertainty of those who are still working, experts believe that the pace of the acquisition of properties will continue to be very slow. “The unemployment is the first indicator, as it has a double effect: not only on the one who has lost his/her job, but also the fear it generates on those who are still working”, Luis Corral indicates, executive manager of Foro Consultores. “The employment and the trust in keeping it is vital for the sector. As long as no jobs are generated, housing prices will not reach a stability”, Juan Fernandez Aceytuno assures, general director of Sociedad de Tasacion.
- Housing prices. This will be one of the key factors in the real estate sector in 2013. According to Sociedad de Tasación, the price of the square meter in new construction dropped an average 6,9% last year. If we compare it with the maximum levels in 2007, this downfall is of 24%, and of 33% if the inflation effect is deducted. There is room for further drops in prices this year, specially in those areas with a surplus offer. “In Spain, there have been three cycles: an upward one between 1983 and 1992, eight years of descent until 1999, and after that a boom which lasted until 2007”, Aceytuno points out. “Following these cycles, we should reach the bottom in 2015, although before that there will be sustainable and balance prices”, he adds.
- End of the tax benefit and increase of the VAT. Most of the agents in the sector believe that there is still room for a drop in prices, not only because just half of the increase of prices during the last decade has been absorbed, but also because of the impact of the end of the aid to the purchase of homes and the increase of the VAT from 4% to 10%. “The sales figures in the first quarter of 2013 will be very negative due to both measures”, Angel Serrano, from Aguirre Newman, declares. Fernandez Aceytuno follows that same line, thinking that the tax changes will put “direct pressure” on housing prices.
- Sareb. The organization of the bad bank, or Sareb, is one of the most expected novelties of 2013. “It has created many expectations. Its challenge will be to give answers in a professional way”, Luis Martin, director of BNP Paribas Real Estate, declares. Most of the experts believe that the consequences of the creation of the biggest real estate company in Europe will be seen on the long term. “The commercial strategy of Sareb will have an effect on the evolution of prices, but in the long term, as it will sell properties to investors through packages and these will sell them later”, explains the director of Sociedad de Tasacion.
- Socimis. At the end of 2012, the Law 11/2009 was passed, which regulates the Socimis, listed limited companies which invest in the real estate market. These type of companies, created in 2009 following the Reits, intend to promote the rental market by offering its investors tax benefits. “Thanks to the reform, the structure of the Socimis becomes very attractive in order to establish a company which holds assets”, Luis Martín assures. 25 days after its publication in the official state gazette, the group owning Money Gam and Madrid Visión – controlled by the family Pavon Olid – has started the launching of the first Socimi in Spain.
- Stock and start of new developments. According to the estimates of Sociedad de Tasación, only 46.000 homes were started in 2012 in the Spanish market. Currently the stock of homes accumulated since 2007 could reach one million units. Experts within the sector believe that a higher number of homes will be started this year as, even in some coastal towns there is still a surplus offer, there are other towns with a demand higher than the current offer. (…)
- Access to financing. After a year with serious restrictions on real estate financing, experts foresee less obstacles for 2013, thanks to the reform of the financial system. “Sareb is born as the best way to carry out the reorganization of Spanish banks. If institutions start financing themselves normally, these should transfer that normality to families and companies, facilitating transactions between individuals, which have been very much affected by the difficulties in obtaining mortgage financing”, Corral assures.
- Interest rates. The performance of the main indicator for mortgages, the Euribor, has reached “historic minimums”. This will give mortgage holders a break, but is not encouraging new loans, as the conditions will be worse.
- The future of the big real estate companies. The main developers are facing 2013 with new negotiations with their creditors, as their assets have devalued but their debts continue. Within the sector many believe that most of these companies will be absorbed by real estate portfolios of the financial institutions or by Sareb.
- Arrival of new investors to the market. The creation of Sareb and the reforms carried out by the government will encourage many investors to land in Spain, after years waiting for opportunities in this market. “We know that investors are looking at properties. There are vulture funds which will wait a bit longer so as to find real bargains, and other with a financial or real estate profile which will wait less”, Aceytuno comments. At the moment, some international funds such as Sambil and Autonomy have already acquired some properties at the end of 2012.
- Land Law. Urban regulations are one of the pending matters which will be dealt with in 2013. The government intends to modify the Land Law in order to change the valuations system and eliminate administrative responsibilities, which hinder the development and restoration activities.
- Restoration. The future Restoration Law and the subsequent development of this market niche is one of the pending challenges in the market. Its development will allow, according to the experts, the stabilisation of the housing prices and the increase of rental offers.
- Sale of office buildings. The non residential market has to face historic levels of vacancies in big markets, such as office buildings in Madrid and Barcelona. The difference between finding a buyer or not will be made by the improvement of these buildings and their price adjustment.