Month: January 2013

The Government will close in the next few days a fundamental reform on the mortgage market, in order to protect borrowers from the spate of evictions which has taken place in the last few years. The intention is to “improve the position of the debtor”, decreasing the default interest rates dramatically in all mortgages on principal residences, so that they cannot be over the legal interest of money (now at 4%) plus a surcharge of two percentage points. That means, a maximum of 6%, opposite to the average 20% which is being charged right now, according to the mortgage experts. The default interest rates range between 18% and 29%, according to the sample of Adicae, who has analyzed 18000 deeds. “The average is near 24%”, sources close to this association are revealing.

(…) The reinforcement of the protection of debtors had been agreed by the Government and the socialists at the end of 2012, but had not been made public, according to sources within the commission created in order to solve the problem of the evictions. The PSOE will include this proposal of default interest rates in the amendment prepared for the project, which will be debated in Parliament on Wednesday, according to socialist sources.

(…) The agreement between PSOE and the Ministry of Economy could not be formalized in November and was postponed for the processing in Parliament. Now, as the decree has been “converted” into a Draft Law, positions have neared much more, thanks to the amendments. Now, the intention of the Government is that “under no circumstances will it be agreed that the mortgage assures interests (to the bank) for a period longer than three years”, instead of the five years established by the Mortgage Law. This means that debtors will pay interest rates of 6% during a maximum of three years, instead of 20% during five years. A great difference.

(…)The proposal prepared by the Ministry of Economy also stipulates the suppression of the article 115 of the Mortgage Law. The mortgage creditor will not have the legal ability to impose the debtor the extension of the mortgage in order to ensure due interests which have not been paid. This agreement will be allowed, but it will no longer be a “privilege” of the financial institution.

Another novelty is the proposal made by the Government of an extrajudicial procedure for the sale of the property when the debtor fails to pay the mortgage.

How will this be done? “At any moment prior to the bid, the debtor will be able to present a buyer to the court who offers an amount of at least 70% of the assessed price”. One the bank has been notified, it will have “20 days to present a buyer for a higher price or to take over the property for that amount, ending the procedure”. The assessment presented by the debtor will prevail over the one presented by the bank. (…)

Source: Expansión

Sareb, the bad bank, continues organizing its managing team. The company which gathers all damages assets from the financial system announced yesterday the signing up of five new executives, who will join Belén Romana, president; Walter de Luna, general director; and Oscar García, general secretary. The latter joined the bad bank in December.

The company, shared by 55% by banks and insurance companies and by 45% by the Banking Restructuring Fund (Frob), announced the appointment of Alfredo Guitart, as director of Means. He was currently director of internal audit at ONO. Previously he had performed responsibilities at Endesa and Arthur Andersen.

The divisions of Real Estate Assets and Financial Assets will be headed by, respectively, Juan Barba and Luis Moreno. The first one comes from the venture capital company Doughty Hanson, where he has been in charge of the real estate area for six years. He has been linked to the real estate sector since 1995. Moreno, on his side, has a 17 year experience in the financial sector. He has worked at Royal Bank of Scotland, where he worked as the Restructuring Director for Spain and Portugal. Before working for the Scottish company, he worked for ten years at ABN Amro, where he was in charge of the Risk area.

Sareb has also appointed Orland García as director of Internal Audit. He had been representing the board of Catalunya Banc at Frob since 2011. Previously he had been responsible for, among others, the departments of Strategy, Legal Compliance and Internal Control at BBVA.

The new recruits announced yesterday is completed with Miguel Garicano, appointed Director of Processes and Reporting of Sareb. With 23 years of experience in financial multinationals, he comes from ING Commercial Bank, where he was in charge of Operations and Systems.

(…) Key areas such as Risks and Financial are still without a manager.

The organization of its top leadership is one of the challenges Sareb will be facing in a short term. After absorbing in December 37000 million Euros in assets from the four nationalized institutions, it will need to carry out a capital increase in the first quarter so as to absorb another 15000 million Euros in assets from other banks with aids. The management of the properties and credits included in its balance is another important disadvantage.

Souce: Expansión

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.

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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. (…)

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

Source: Expansión

It has arrived to stay for fifteen years. It will be the biggest real estate company in history based on the volume of assets with properties, plots and credits once the assets from the other candidates are transferred. There are voices who say it will be a huge management company or a financial entity created by political imperative in order to park properties. At the end of December, the four nationalized institutions transferred 270000 mortgaged properties and 85000 properties, apart from loans. During this first semester there will additions from four other institutions.

Management agreements have also been signed for the sale and cession of those assets and there will be a conferring of powers to finalize sales because, in order to search for liquidity as soon as possible, they continue with the “retail sale” of properties, through traditional real estate agencies or specialized companies which will have the green light, only if they adjust to prices and established requirements.

(…) Selling over the established price will have a bonus, but selling below that price will require the authorization of a committee within Sareb, still being organized.

As for the commissions to be charged for the management of the assets, the nationalized institutions would earn 0,1% of the transfer value of each asset, while they would receive between 2% and 5% for their sale.

It will depend on the type of asset and those percentages could vary if the sale has been for a price over the established limit. The commission will also increase slightly if the sale is done through a third party.

(…) Some experts point out that the destruction of jobs and the insolvency proceedings will continue within the real estate sector until Sareb can reach its cruising speed after 12 or 18 months.

If the management is not quick enough, credits with no risk could turn into toxic ones simply because they do not find a reliable speaking partner (…). The awaited foreign investment funds are waiting for more discounts and they seem more interested in managing than in investing. There is also the danger that when they acquire credits they will accelerate the insolvency proceedings more than negotiating refinancing.

Another disadvantage is the ban from Brussels for the nationalized financial institutions: they will not be able to lend to the real estate sector. The risk linked to the construction business is supposed to disappear from their balances.

Another question mark is that institutions are transferring their properties and credits in exchange for debt guaranteed by the State, a debt which generates financial costs. Sareb has started with a limited capital. It does not reach 1000 million Euros and 45% comes from Frob.

The cash is only 2,6%, while 89,6% is debt guaranteed by the Spanish public debt or even subordinate debt which does not have preference if a non-payment occurs (7,8%).(…)

Source: El País

Housing prices dropped by 10% in 2012, according to the official figures of the Ministry of Public Works. That is, according to the rating companies, which are the ones supplying the figures to the Government, through its trade association Atasa.

The average price per square meter of free homes reached 1531,2 Euros at the end of the year, with a quarterly variation of -2,2%.

The mentioned devaluation of 10% is lower than the ones registered by the public notaries (-12,7%), the National Statistics Institute (-15,2% in the third quarter) and the rating company Tinsa (-11,3%). The experts in the sector consider that the statistics provided by the Ministry are not very reliable to measure the real drop of the value of residential properties in Spain. In reality, analysts do not rely a 100% on the above mentioned figures.

According to the historic trend of the Ministry, prices accumulate a descent of 27,1% from their maximum level, reached during the first quarter of 2008. Housing prices dropped by 7,8%, while prices for second hand homes did so by 10,4%. State subsidized housing reduced its prices only by 1,1% (…)

Source: Expansión

The rate of non-payment of the loans for the acquisition of properties with a mortgage guarantee continues growing mainly because of the deep economic crisis. This level of delays in payment increased in the third quarter of 2012 up to eight points in relation to the same period in 2011.

It reached 3,4%, while the previous year it was at 2,6%, according to the figures published by the Bank of Spain (BS).

In Euros, the balance of the uncertain mortgage loans reached 20818 million Euros at the end of the last quarter, the highest amount in history. Meanwhile, the total balance of loans for the purchase of a property with a mortgage guarantee closed at 597181 million Euros, 2,5% less.

This drop of the mortgage balance reflects the fall of the acquisitions and of the prices of homes which is also the base of the difficulties faced by developers, whose delay rate has also reached historic maximums of 30,3%.

This ratio of mortgage delays stayed below 1% until march 2008, but from June of that year it started to increase due to the outbreak of the crisis and the subsequent increase of the unemployment. At the end of that year it had surpassed 2%.

The highest increase took place in the third and fourth quarter of 2008, when it rose in 0,60 and 0,50 percentage points, respectively. From 2009, the mortgage delays continued increasing, although at a more moderate pace.

Source: El Mundo

She seemed Paulo Coelho in a tender day, but she was the vice-president of the Government of Spain. Soraya Saenz de Santamaría attracted all the interest in the mass signature of the agreement to create a social housing fund. The news were that banks were placing 6000 properties at the disposal of those evicted with rents between 150 and 400 Euros, but the vice-president trespassed the red line of sentimentality – which in politics is very fine – in a speech that arose so much astonishment that it overshadowed the family photograph of those signing the agreement.

In front of three ministers, the president of the Spanish Ferederation of Towns and Provinces, several bankers, representatives of the NGOs and some Secretaries of State, Saenz de Santamaría turned the signature of the agreement into a sentimental and paternalistic defense of the protective role of the Government. The vice-president even declared, with a trembling voice, that the Government had put itself “in the shoes of those which had risked for Spain” and had lost “what they loved more”. She was referring to the evicted.

With an even more sorrowful intonation, the number two in the Government stressed that “this agreement recognizes the right to fail, but no to lose one´s life”. That is, “the right to a second opportunity”. “It could happen to anyone of us”, she said.

Saenz de Santamaría left this compassionate tone behind only once. This was to warn that the 5891 properties banks have put at the disposal of the fund are not an excessive number, in comparison with the number of families that have lost their homes because of the non payment of their mortgage since January 2008. “It is not an excessive effort. I hope the financial institutions can excuse me”.

(…) The content of the agreement shifted to the background, but it can be summarized as rented homes destined to families with an income below 19000 Euros per year and with special social features (like, having children aged three or less).

The novelty of this agreement, advanced yesterday by Expansion, is that banks will not be able to choose which properties they allow to be rented, but they will have to release more properties in those areas with more foreclosures. According to the courts of First Instance, Catalonia, Madrid, Andalusia and Valencia are the autonomous regions where the amount is higher.

The town halls will play a leading role, as they will identify those families with a higher risk of social exclusion. (…)

Source: Expansión

Housing prices have still a long way downwards ahead. The risk agency Standard & Poor´s considers there will an adjustment of 20% based on the ratios “price-revenue” and “price-rent”. Its forecast is in line with those published this weekend by The Economist, which considers that prices in Spain are overvalued by 20%.

The agency foresees that the nominal price of properties in Spain has dropped by 7,8% this year and another 6% in 2014, and therefore does not predict improvement signals in the real estate market on the short term in view of the high number of assets pending to be sold.

In a report on the residential sector in Spain, the company believes that four years will be needed before Spain achieves a balance between the offer and the demand of real estate assets.

In fact, the recession in Europe is pushing down real estate prices in most markets, which means that in Spain, along with the increase in unemployment, the tax consolidation and the tensions in the financial markets, the recovery of the residential real estate market is still far away.

The firm, as well as The Economist, indicates that Spain is still affected by an excess offer of assets with an estimated number of unsold properties of 700.000.

According to the Financial Sector Evaluation Program of the IMF, the real estate stock will reach one million properties this year.

Even though interest rates have been reduced, the growth of mortgage loans is diminishing. The agency also stresses the recent liquidity injection in Spanish banks, the disinvestment of financial institutions in real estate assets and the subsequent decrease of prices this year.

In a scenario very much affected by the precarious Spanish labor market conditions, Standard & Poor´s claims that, even though the debt rate of Spanish families is decreasing, the deleverage process will be slow.

In view of the correlation of the real estate offer and demand in Spain, the agency believes that there could be a certain degree of overvaluation of the real estate assets before prices reach an equilibrium.

The forecast of Standard & Poor´s join those made by other experts. The consulting agency R.R. de Acuña & Asociados are more aggressive as they believe that the price of properties will face a drop of 30% or even more during the next five years -between 2013 and 2018-. Fitch, on the other hand, published a few days ago a report which foresees an additional drop of 15%. Arcano Capital mentions a correction of 10% during 2013, while there are no figures from the Spanish National Mortgage Association, although there is talk of reaching the minimum level this year.

Source: El Confidencial