(…) The Statistic Annual Directory of the Real Estate Market 2013, drafted by the consulting company RR de Acuña & Asociados, establishes that housing prices will continue falling for 13 or 15 years more. The conclusions of the report are, once again, in line with the apathy of the sector, devastating. Homes accumulate a depreciation of 30% since it reached it maximum level at the beginning of 2008, and now are facing a similar fall in the next five years. That is, properties will depreciate another 30% in the period 2013-2017, as advanced by Expansión on the 26th December 2012.
After three years of descent, housing prices will head for a zero or negative tendency at least during eight or ten years more, according to the report. (…)
Homes will therefore cost in 2017 half of what they cost in 2008. It is complicated to do any estimations after this date, but demand will continue to be feeble, according to the consulting company. (…)
The reference for Spain is Japan, with an inverted population pyramid, a slow growth for a long period of time and a long standing descent of housing prices. If the Japanese lost decade already lasts twenty years, the Spanish will take – regarding the real estate sector- more or less the same (from 2008 until 2027, at least)
According to RR de Acuña & Asociados, there are several motives to think this. First, globally there is a gap between the offer and the demand of 6,6 times. There is a stock in offer of 1,7 million of new and second hand homes, while net sales remained at 259.379 properties in 2012.
Also the net generation of households in 2012 was of 11.645 “and it is expected to be negative in the next few years”. Thirdly, globally and by regions the awaited evolution and tendency of the offer and the demand are divergent. “At least, during the next five years”, the report adds.
This situation of the demand opposite to an excessive offer “will pressure prices downwards, especially in all cases in which it is necessary to carry out the sale of the property, not only by the financial institutions, but also by individuals”.
RR de Acuña also considers that the price offered by sellers “is 50% higher than the price accepted by the demand”, in average.
There is another factor that favors a greater depreciation of homes: the end of the tax benefits. Once the tax exemption finished and the VAT was increased from 4% to 10%, buyers have ended up paying much more for their properties. Not only in the buying price, but also in the final amount paid, as the tax deduction also affected the payments of the mortgage. Both tax blows “are equivalent to the descent of prices between 2007 and 2012 in terms of financial effort (-27%)”, the report stresses. (…)
This scene might be encouraging for buyers with access to mortgages, but it is the perfect storm for real estate developers. “The structure of developers will disappear. In three or four years the developing sector will disappear”, Rodriguez y Rodriguez de Acuña stressed.
According to the consultant, healthy banks will be able to launch a policy of big discounts in order to get rid of the real estate ballast, but developers won´t, as they will not be able to sell below the production cost, while at the same time they will have to bear the financial effort of their refinanced debts. (…)
They will not be able to sell, nor will they be able to build. In most Spanish cities (90,2%), the average price of a property is below 120.000 Euros, amounts that do “not justify the construction”.
According to the report, 36% of the developers that existed in 2007 have closed. And 46% of the existing ones are bankrupt.
This is why developers will end up transferring 600.000 properties to the balance sheets of banks, which will force the financial sector to increase their provisions.
Regarding individuals, those which do not lose their homes will also suffer the collapse of prices, which will mean a patrimonial decrease and an effect of poverty. Also, in five years the value of any home acquired in the peak of the bubble (2007) will be below the mortgage of that property.
In the short and medium term it is “impossible that the sector may improve”.