Month: June 2013

The price of properties will continue falling for the next 15 years.

(…) 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”.

Source: Expansion

Catalonia sells 13 buildings to Axa “in order to make ends meet”.

The French insurance group Axa confirmed yesterday the interest of foreign funds in the Spanish real estate market. The greatest fund of real estate assets in Spain, Axa Real Estate, which had not acquired any offices in Spain since the beginning of the crisis, has acquired a lot of 13 buildings from the Catalan Government for 172 million Euros.

The Catalan Government will remain as tenant of the buildings and will pay an annual rent of 16,2 million Euros. The operation is a part of Artur Mas´ plans to reduce the deficit through sales and privatizations. There will be a decrease of the public debt in 172 million Euros, although only 127 million Euros will be deposited in the Treasury. The remaining 45 million Euros will be used to cancel the mortgages on these buildings. The spokesperson of the Generalitat, Francesc Homs, declared yesterday that the sale of these 13 buildings “will allow us to make ends meet”.

The buildings have been sold with a discount of 16,5% on the initial price and will mean a profitability of 9,45% for the buyer.

Source: Expansión

Investors in search of bargains.

KKR, Centerbridge, Cerberus, Lone Star, Apollo, Blackstone, Colony Capital or Green Oak. Their names sound more and more often in Spain, as the list of international funds interested in finding a real estate bargain continues growing. The traditional Spanish venture capital is out of the equation, not only due to lack of cash, but also because of the legal limitations to invest in this kind of assets. Only certain firms, such as Atitlan, from the Roig family, or Altamar have the possibilities of participating in the real estate sector.

These great funds have nearly 13.000 million Euros to invest in Spain and a great part of this capital is for the real estate sector that is now considered a priority. Nevertheless, the search for assets is very specific.”The foreign investors focus on a liquid and good quality product, preferably in rent; the search for high profits implies important discounts, which reduces the volume of operations”, Jesús Conde, partner in the real estate department at Baker & McKenzie.

The operations in the sector depend on the market of each asset. In the residential one, “the foreign funds are waiting for Sareb to organize and package the portfolio of the nationalized banks, so as to offer then a very reduced price for a set of assets with a similar level of liquidity and risk, with discounts of up to 90% of the original valuation”, Eduard Saura, managing partner of the financial assessment company Accuracy, explains.  In his opinion, the Anglo Saxon opportunistic funds are the ones keeping an eye on these assets.

This expert considers there is less interest on the segment of shopping malls. However there are still operations. For example, the bid organized by Morgan Stanley for the three malls that its fund Msref has in Spain was attended by many funds that are not present in the country. Only foreign funds have reached the final stage: Bau Post, Drago Capital and the one that is best positioned, Incus Capital.

At the end of the year, another foreign investor made its debut in Spain: the North American Autonomy, which acquired two buildings in the business park Omega, in Alcobendas (Madrid). In Barcelona, other funds, this time European ones, Värde and Anchorage, took part in the Operation Copernico, with the acquisition of five buildings in the centre of the Catalan capital and in Madrid for around 100 million Euros.

If the first ones to arrive to Spain were the Anglo Saxon funds, in the last few months other funds with a Latin American origin, have arrived to the market with a lot of liquidity. “Up to now, the Latin American capital fled the volatility of its countries and bet on the United States to invest. Now they are searching in Spain”, Francisco Machón, in charge of Investments of BNP Paribas Real Estate, assures. One example is the tycoon Carlos Slim, who acquired six months ago properties from CaixaBank for more than 400 million Euros, or the acquisition of a building in Recoletos street, closed last week, by a Latin American family.

“The investors are much more active, although they search for an adjustment in prices in view of the uncertainty of the awaited flow of cash for the next three years”, Javier García-Mateo, in charge of Real Estate at Deloitte, declares.

Source: Expansión

Madrid dinamites the real estate market: it sells 1800 public homes to an investment fund.

The town hall of Madrid has just opened the real estate market that the international investors desire. Last week, the managing board of the Municipal Company for Housing and Land (MCHL) awarded a lot of 1800 homes to the investment fund Blackstone, which paid nearly 120 million Euros in order to get the subsidized homes managed by the municipal organism, according to sources within the sector.

Although it is still not official, the sale has been finalized. Nearly nine months after the beginning of the process, the mayor Ana Botella has finished the sale of a lot of real estate assets in the hands of the MCHL, in need of cash in order to be able to guarantee its viability, as a recent audit carried out by PWC stressed that the municipal company was unable to honor its payments and that suffered an unsustainable level of debt.

After a first try that failed, at the end of February the town hall presided over by Ana Botella received the first signs of interest to buy the 1800 homes. The process has been carried out without a public tender as these were not patrimonial assets and although the operation is over 100 million Euros, the funds will only pay between 30-40 million Euros, as the rest of the amount belongs to the replacement of the financial burden on the homes.

In the beginning, the MCHL negotiated individually with the fund Lone Star, which carried out a process of due diligence and valuation of the assets in order to present an offer. With this price reference, the Town Hall of Madrid started a process of competitive sale, hoping to obtain a higher amount, which is when the real estate funds managed by Morgan Stanley or Blackstone made their binding offers.

However those interested in acquiring the lot of 1800 subsidized homes had a second chance last Friday the 14th June, after the tender was modified and an extension was awarded. The reason for this extraordinary measure was the suspicion of possible irregularities.

The revision of the tender took place even after Cerberus, one of the interested investors, backed off the process. (…)

The MCHL is the organism that has been in charge of developing the access to subsidized housing for more than 30 years, as well as for granting aids for the refurbishment and favoring rehousing. At the end of 2012, the town hall had managed 17000 rental homes with an average price of 685 Euros. According to the conditions of the agreement, before formalizing the transaction, the tenants could exercise a preferential right to buy the home.(…)

 

Source: El Confidencial

La Caixa postpones the sale of 12000 properties, but continues with Servihabitat.

La Caixa has decided to postpone the sale of 12000 properties to qualified investors and funds specialized in this type of assets, as pointed out by sources within the real estate sector. They maintain the sale of 51% of its properties managing company Servihabitat.

The explanation given to those investors interested in the operation was “that it has dissociated the sale of properties” from the sale of 51% of the managing company.

Sources of La Caixa have declined making any comments. Other sources within the real estate sector point out that the funds interested in the operation have been informed that the sale of 12000 properties has been postponed, but that it can reactivate any moment.

The retirement of the offer has caused a certain discomfort among the funds interested in the sale. First of all, because it was an important operation, of around 1500 million Euros.  And also, because it is not the first time Spanish banks turn back in this type of transactions. Banco Santander did exactly the same last year.

La Caixa joined both operations in order to make them more attractive, but now has decided to leave the package of properties aside and continue with Servihabitat.

The big discounts demanded by the so called vulture funds are one of the reasons banks are postponing this kind of operations. It might be interesting to wait for a recovery of the real estate market and those banks which are strong enough such as Banco Santander or La Caixa prefer to resist than to sell cheap.

The properties put up for sale by La Caixa were first residences, in perfect condition and located in Spain, basically in Madrid, Barcelona and other capitals. Therefore, they were prone to benefit from a possible reactivation.

Servihabitat´s operation does continue. La Caixa already has binding offers and it would be possible to close the operation in the next few months, according to real estate sources. Among those interested were Blackstone, Lone Star, Apollo, Cerberus, Centerbridge, JB Capital Markets, Pimco and Savia Assets, among others.

As for Servihabitat, the final price will depend on how the managing company is valued and the earning it may obtain with the sale of properties, as Servihabitat manages the properties of the company Building Center, the real estate company of La Caixa, as well as all assets within LaCaixa.

Sources within the sector agree that the management agreement is attractive for investors, as it includes the recovery of mortgages, foreclosures and sale of awarded properties, with an important volume in commissions on a portfolio of more than 1300 million Euros, regardless of whether the institution sells at a loss.

Source: El Confidencial

Key facts about the new Law of Refurbishment.

The Senate passed yesterday the draft of the Law of urban refurbishment, regeneration and renovation. The legal reform of the real estate sector is therefore completed, after the new Law for rentals. (…)

Change of model

The importance of the norm is based on the change of the real estate model it is trying to stimulate: after decades of a hegemonic building of new homes, the apathy of the sector obliges to turn the business to a facelift of the aging Spanish housing development. Refurbishments represent 28% of the total construction in Spain, thirteen points below the European average (41%).

Less bureaucracy

This new economic strategy will be carried out with incentives: with the elimination of bureaucracy, with facilities for neighborhood associations, simplifying legislation. The voting system of the neighborhood associations is simplified, and now it will be possible to get an approval with a simple majority in many cases, such as for anything related with lifts.

Better financing

The norm establishes a new model of public-private cooperation, so that the energy saving obtained by the refurbishment may pay for the works. Owners will also be able to create companies in the sector and have therefore access more easily to financing. And the minor works will also opt to public aid.

To reactivate the employment

The Government has calculated that with the new regulation and over all, with the new Housing and Refurbishment Plan, 105.000 new jobs will be created in four years. (…)

Accessibility

The law underpins the accessibility of old buildings. There are more than “3 million flats” in buildings that should carry out a mandatory refurbishment before 2016 in order to be accessible, but the Government will grant two more years, until 2018. The councils will force these refurbishments.

Source: Expansión

The Fund urges Banks to sell assets and limit the dividend. It “calms down” on more aid.

The pulse of the Spanish financial sector has improved greatly in the last year, but it is necessary to continue the surveillance. This is what the International Monetary Fund, which presented its recommendations for the economy, believes. Its opinion is not trivial, as the Fund acts as the independent supervisor for the Eurogroup in the program of financial assistance to Spanish banks for 100.000 million Euros.

The institution presided over by Christine Lagarde considers that banks are “significantly more solid” but that “risks continue”, mainly with an economy that continues in recession. In order to fight these risks, it is necessary to protect the solvency of banks which was “so hard to attain” and incentive the credit.

James Daniel, chief of the mission of the IMF for Spain, demanded caution to the financial institutions. “They should reinforce the quality and quantity of capital and be very cautious in the distribution of dividends in cash”. The dividend is the part of the benefit that a company distributes to its shareholders.

The position of the Fund agrees with that of the governor of the Bank of Spain, Luis María Linde. He advised banks to distribute dividends with “rigour” in the last Annual Report of the supervisor, although his recommendation was more subtle than the one expressed yesterday by the IMF and without any explicit mention to which should be the best formula to remunerate the shareholder.

The IMF defends the limits on dividends in cash because banks are able to increase their own resources and reinforce the financial cushion needed to face a possible deterioration of the economy. This is the way to minimize the use of public resources in any crisis.

Most Spanish banks which have profits and therefore distribute dividends, are already close to the recommendations of the IMF. The institutions choose the formula of the scrip dividend that allows shareholders to choose between the payment in shares or in cash.

Nevertheless, the emission of new shares in order to distribute a dividend could affect the price of the shares and reduce the profit per share. In fact, Santander and BBVA, the two biggest banks in Spain are thinking of returning to the distribution exclusively in cash from next year on, a movement that will be followed closely by the supervisor.

Daniel also requested banks to continue cleaning their balance sheet and selling the problematic assets quickly. The institution praised the decision of the Bank of Spain of keeping an eye on the risk of the refinancing of credits. These allow banks to grant longer datelines to customers with temporary liquidity problems hoping they will recover their payment capacity on the medium term. Investment banks and analysts have pointed out that with this formula banks avoid non-payments, they delay default payments and the recognition of the related losses. The Bank of Spain will require new provisions for the refinancing which globally reach 208.206 million Euros, 13,6% of all the granted credits. The supervisor calculates that he will demand around 10.000 million Euros in provisions in two years.

The IMF reminded yesterday that the control on banks is indispensable. The solvency tests required by the European Union are not enough and therefore the Bank of Spain should carry out its own “rigorous and regular” tests, Daniel indicated. The last decision of the Spanish supervisor would fit in this policy, as he plans to revise the banking assets confidentially next fall. His objective is to check that Spanish institutions will be able to pass the next stress test that will be carried out once the banking supervision is taken on by the European Central Bank. Daniel pointed out that “perhaps” the tests of the Bank of Spain reveal that the institutions need more capital. (…)

Source: Expansión

Sareb´s three comercial strategies to sell its stock.

It is still awaiting the finalizing of its first sale operation to institutional investors. Just six months after its creation, which equals 3,33% of its useful life, the “bad bank” has scarcely developed the three pillars of its commercial strategy. Three channels which , in the next 14 years and a half, should allow it to get rid of more than 197.000 assets, properties and credits, acquired from the nationalized and aided institutions for more than 50.000 million Euros. And if possible, with a profit.

That is why, although originally it was decided that most of the commercial activity would be focused on the great investment funds, the president of Sareb, Belén Romana, did not take long to defend that the company would take advantage of all possible sale channels, which includes the retail, wholesale and unique assets ones.

Also, the business plan of the bad bank includes rental plans for those properties with less possibilities of being sold, as well as demolitions and the development of unfinished developments. Each channel has its own features and its target audience, these are their main features and achievements.

Homes for individuals

This was originally considered a marginal channel, but now the commercialization of homes to families is one of the main driving forces of the commercial activity of Sareb in its first months. The management of properties and their commercialization among individuals has been subcontracted for a year by those institutions that transferred their assets, which know the portfolio well and have the access to financing. Between February and May, the companies have closed the sale on 550 homes, have started 800 operations pending to be registered on public record and have registered preliminary offers on another 2200. The activity has generated earnings of 500 million Euros for Sareb, although this amount includes the sale of properties and the recovery of credits.

Packages for investors

The main bet of Sareb, however, is placed on the attractiveness generated by the sale of packages of assets, real estate or credit ones, among investors. The model allows to  gather them in the so called FBA (funds of banking assets), collective investment instruments with a very advantageous taxation: during the 15 years of operation of Sareb they only pay 1% and the non resident investors, included those acting from tax havens, are exempt from the withholding on benefits.

In spite of this, for the moment Sareb has only been able to barely underpin a great operation, known as “project bull”. It will include the sale of a package of 200 million Euros with properties scattered around Andalusia and Valencia, to a group of international investors. This type of transactions is negotiated directly with Sareb, even if the transferring institutions or the investment banks, can provide a good entrance door. Sources within the venture capital assume that there are no similar operations because of the price. And regarding  the credits for buyers, Sareb has recently signed an agreement with Santander in order to finance the acquisitions of banking assets funds, as well as granting mortgages to individuals, at an interest from Euribor + 2,25%

Unique assets

The portfolio of Sareb does not only include homes, plots and credits to developers. There are also unique assets, such as hotels, malls, office buildings and luxury residences, the acquisition of which assures the granting of a permit of residence if the price is over 500.000 Euros. As these are unique assets, they are not included in the so called FBA and their acquisition is negotiated directly with Sareb.

Source: Cinco Días

The real estate subsidiary could affect the accounts of BBVA.

The profit and loss account of BBVA in Spain could be affected negatively depending on the evolution of the real estate business of the bank, Francisco González, president of the institution, declared yesterday. He wished to distinguish two separate parts in the activity in Spain: the traditional business, “which generates very good results”, and the real estate activity, “that could affect the accounts of the bank in Spain”. It was his way of avoiding the fact that the bank, like the rest of institutions in Spain, will register losses in their global activity in Spain due to the deterioration of the margins, the increase of default and provisions, and the limited success of any activity related to the real estate sector.

González also referred to the minimum limit clauses. “The Supreme Court has stated that they are legal, but transparency criteria are now required which were not demanded previously”, he pointed out. “There has been a change in the conditions”, he stressed, in order to justify the decision of the bank to remove the minimum limit clauses from all their mortgages. He declared being convinced that the rest of institutions would do the same as BBVA had done as soon as the complaints from customers got to the Supreme Court and this one ruled the same as it had against BBVA, Cajamar and Novagalicia Banco.

González indicated as well that it is too soon to know if the Spanish financial system will need or not any new European resources in order to reinforce its solvency and liquidity, because the “effort tests carried out by the ECB and the European Banking Authority at the end of the year or at the beginning of 2014” will show which will be those needs.

The banker thus clarified the affirmations made by the Ministry of Economy, Luis de Guindos and the Secretary of State of Economy, Fernando Jiménez Latorre, in the last few weeks, declaring that they do not believe a new aid program or an increase of the current one will be needed. They consider that the new provision and capital requirements will be much less than those of last year, and that the financial system and the Treasury through the FROB, could provide those resources.

According to González, the resolution of the financial system crisis will not be near until the FROB sells the institutions it now controls and clarifies its solvency level. It will have to be done with the criteria finally adopted at European level, and once they know which will be the liquidity requirements established by the authorities.

Source: Expansión

The default on mortgages exceeds 4% for the first time since the crisis started.

The default on mortgages of families exceeded 4% in March, due to the drop on financing and the increase of non-payments. This rate continues to be fairly low in the current economical context, with an economy in recession and an unemployment rate of 27,2%.

Nevertheless, after a continuous increase, the rate has reached a level which had not be seen during this crisis. In March, it closed at 4,13%, according to the figures that will be published this morning by the Bank of Spain. In the first quarter of last year, the default rate for families was at 3%, and therefore it has increased one point in one year.

The estimations show that the non-payments will continue to increase, at least until the situation in the labor market starts to change. Most experts agree that mortgages will not become a great problem for Spanish banks.

The estimations show that the increases will be moderate and that the institutions will not need more provisions to face the situation. However the credit for the acquisition of a property will continue to decrease, and this will not help the market. It closed the quarter at 598.371 million Euros, its lowest level in the last six years.

The default of credits granted for the acquisition of consumer goods closed at 6,23% in the first quarter, due mainly to the decrease of the credit balance.

Source: Expansión