Rock-Bottom Prices Revitalize Lending

13/06/2014 – Bloomberg

Statistics confirm that Spain has finally managed to crawl out from a deep, almost 6-year recession. To illustrate, housing sales shot up 48% to over 80.000 units sold in the first quarter of the year. Moreover, March data shows mortgage approvals improved as well.

Daragh Quinn from Madrid-based Nomura International said “the market started to come off but from a very low base”.

Jesus Encinar, founder of Idealista.com asserted the banks lend again, only to trustworthy clients though. Several banks asked him to publish financing adverts on his website. Encinar explains that their loan load has shrunk significantly so they need to lend.

Unemployment rate in Spain also falls (currently at 25%) and price rebounds have been observed in many places, among which Madrid and Barcelona are believed to recover the fastest with Q1 positive value development of 1.9 and 1.5 pc respectively.

On average, housing prices have plummeted 47% since 2007 peak. Rating agency Fitch expects them to bottom-out at the beginning of 2015.

One of the biggest challenges faced by the sector is the lingering stock. An expert from the market calculates that around 40% of unsold homes will not find a purchaser due to their non-attractive locations, lack of facilities and the horrifying jobless rate which will keep many Spaniards away from mortgage financing.

During the housing bubble rise, people were buying 900.000 properties annually receiving lending of 100% or more for up to 45 years. Many of the borrowers turned out to be insolvent and the banks fell into the need of bail-out. The entites that survived are much more cautious now when it comes to financing.

With the recession hanging over the heads of Spaniards like the Sword of Damocles, this nation had to change their mentality from owners to tenants, boosting the rental market.

Investors see opportunity in the turn in the tide and poach apartment blocks. For instance, in July 2013, Blackstone acquired 18 buildings in Madrid for around €125.5 million. A month later, Azora purchased 32 subsidized homes in the capital.

In turn, Sareb, Spain´s bad bank that received over €50 billion in repossessions in 2012, last week sold an €80 million worth of land to Castlelake.

 

Original article: Bloomberg (by Sharon Smyth)

Summary: AURA REE

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