Housing prices will fall another 20% before reaching their minimum level, according to Standard & Poor´s.

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

The Government is studying measures to avoid the seizure of homes from freelancers.

As explained by her, a postponement of up to five years of these debts is being studied, a period in which they will have more “flexible” repayment conditions, as well as increasing the minimum period for the first procedure for the seizure of the property from one to two years.

This has been the response of the minister of Employment to a question made by the Socialist Group in the Senate, where she confirmed that she hoped these measures would be in force soon. In any case, Báñez has pointed out that right now the home of one of these workers cannot be seized if he/she can guarantee those debts with other properties.

The minister of Employment has advanced that the Social Security has awarded in 2012 up to 24.340 payment postponements to freelancers, for 175 million Euros, which means, in her opinion, an “important effort” which benefits a group of workers which is “a priority for the Government.

The Minister of Employment has made this announcement after the socialist senator Juan Espadas asked if it would be possible to adapt the regulations of the Social Security in order to avoid seizures and evictions on freelancers which have their homes as guarantee for their debts.

Espadas gave the example of a couple with children and a business in Seville, where the husband has an income of 426 Euros and the wife is unemployed. This couple has a debt of 5000 Euros with the Social Security, but if the regulations are not changed, they could end up losing their home.

As indicated by the senator, should this debt be with a financial institution, this couple would be able to save their home; in this case though it would be “an eviction by the State”. One of them has paid contributions during 22 years and was expecting the State to lend him a hand”, he added.

The Federation of Associations of Freelancers (ATA) had already asked the Government to take into account the special conditions of thousands of freelancers on the verge of a seizure because of the debts with the Administration before the “anti evictions” decree was approved in November 2012.

They had specifically demanded the end of seizures on homes and premises, which are the guarantee of these workers on their debts, if they have any unpaid invoices with the Administration.

The decree, which does not include any specific measures for freelancers with debts with the Social Security, regulates the standstill during two years of the evictions if certain economic and social requirements are met, and the creation of the Social Fund for Housing, in order to shelter those people affected by these processes, with rents between 150 and 400 Euros.

Concerning this last matter, on Thursday the agreement on the Social Fund of Housing will be signed in Madrid. The National Banking Association and the Spanish Confederation of Savings Banks will transfer 6000 properties based on this agreement.

Source: Expansión

“The Economist”: Properties are still overvalued by 20%.

The adjustment of property prices is far from finishing. According to several studies, it has not even crossed its equator. The Economist has been the last one to certify that there remains a long way downwards, as it states that property prices in Spain are still overvalued by 20%, after having adjusted its prices by 24,3% since the maximum levels reached in the last quarter of 2007.

This means that after five years of falls, the final sales could go on until reaching a devaluation of more than 44%. Properties will end up costing half their price than during the boom.

This goes along with the conclusions of Spanish experts, who declare that prices will drop an additional 30% during the next five years.

The British publication certifies that Spain closed 2012 with the biggest drop in property prices of all the countries included in the study, with a drop of 9,3%, higher than the Netherlands (-6,8%), Ireland (-5,7%) and Italy (-4%).

“The problems property owners are facing have worsened all throughout Europe”, the magazine declares, adding that “the agony is deeper in Spain”. It also establishes that “the Spanish collapse reflects a surplus of properties built during the real estate boom”.

The information indicates that , opposite to the tendency seen in Spain, other parts of the world are experiencing important increases in real estate prices, such as South Africa (5%).

Meanwhile, the Spanish National Institute of Statistics (INE) certified that the sale of houses decreased by 6,1% in November, down to 25.655 operations. This is a surprising relapse, as there were supposed to be increases in the last two months of the year, due to the end of the tax benefits from January 2013 on. This indicator breaks the upwards tendency generated during the three previous months.

The sale of properties was able to end a 17 month period of falls in August, when it increased after the government announced the end of the tax benefits on the purchase of properties and the increase of the VAT for newly built homes from 4% to 10% from January 2013 on.

Source: Expansión

The energy certificate will be approved in January and will be compulsory when acquiring or renting a property from April on.

From April on, anyone selling or renting a property built before 2007, will need a certificate of energy efficiency. According to the Ministry of Industry, the royal decree draft which includes this document will be approved this month and will have an adaptation period of two months, and therefore will be demanded by the government from April on.

This is a requirement established by Brussels which should have been approved on the 1st January. The Ministry of Industry is now assuring that the royal decree draft will be approved this month, but if the approval period is not respected, then most probably Spain will have to assume a fine from Europe.

After the coming into force of the new legislation, any owner in Spain who wishes to sell or rent his property will need to have this certificate available for the buyer and/or tenant. Only those buildings which are considered protected monuments, cult places or housing buildings with a rental agreement for less than four months per year, among others, are free from this obligation.

Any property will have a tag similar to the ones already used on electrical appliances which indicate how efficient they are when it comes to energy consumption. Currently this tag is already used in recently built houses, classifying each property with a color code based on a scale from category “a” (the most efficient) to “g” (the least efficient).

Source: Idealista

Sareb signs up its directors of operations and audit.

The bad bank (Sareb) has speeded up the hiring of executives and is working on the signing up of its two main executives: Alfredo Guitart, general director for Means and Operations; and Orlando García, as general director of Internal Audit. No comments have been made from Sareb on these two appointments.

Guitart comes from Ono, where he met Belén Romana, president of Sareb, and was in charge of the internal audit. Romana was in the telecommunications company from 2008 to 2010, managing the strategy and operative control of the group.

García arrives to the bad bank after a long experience in the financial sector. He started at Banco Exterior and Argentaria, as director of internal audit. He was director of Strategy, Regulatory Compliance and Internal Control at BBVA, and was a member of the Board of Directors of Uno-e and Dinero Express. After his exit from the bank presided by Francisco González, in 2006, he joined Governanza Consulting as a managing partner. He represents the Restructuring Fund (Frob) in the Board of Directors of Catalunya Banc since 2011.

After these two signing ups, the bad bank still has to make some of its main appointments: asset management, financial, legal and risks.

Sareb started on the first of January with only six employees, opposite to the hundred professionals it will need to have once the asset management company is set up.

Romana´s number two is Walter de Luna, who was in charge of ING Real Estate in Spain and Portugal until two months ago.

Last December, Sareb also appointed Oscar García Maceiras as secretary. He was adviser-secretary of Banco Pastor and director of institutional legal advise of Banco Popular.

Source: Expansión

The bad bank is negotiating the entrance of foreign funds as consultants.

The relationship between Sareb and the foreign investors is a history of ups and downs. After the constitution of its initial capital without the presence of these actors, Sareb continues negotiating with them to hire them as consultants without ruling out their entrance as shareholders in the next capital increase.

The bad bank has received in the last weeks an offer of joint counseling from the funds Cerberus, Fortress and Centerbridge, according to sources close to these investors. Nevertheless, Sareb has declined the offer based on differences on the economic terms and has requested a new separate offer from all three funds. They would receive a commission for this work.

With this offer, the international investors would like to assure that the structure and strategy of the bad bank is to their liking. Cerberus, Fortress and Centerbridge proposed in December the contribution of between 150 and 200 million Euros to the capital of the bad bank, but with the condition of having the opportunity to influence its management.

This contribution would have placed them as one of the five main private shareholders of the bad bank, after Santander (660 million Euros), CaixaBank (476), Sabadell (264) and Popular (227), which have contributed with shares and subordinate debt. Above them stands the Restructuring Fund (Frob), with 44% of the capital.

At the time Sareb decided not to accept the conditions of the three foreign funds and decider to obtain this capital from insurance companies.

“It is normal that Sareb defends the interests of its main shareholders, the great Spanish banks, but at some time it will have to align its interests with foreign investors, as we will be the ones who will acquire its assets during the next 15 years”, representatives of one of the agencies declare.

The discrepancies between the bad bank and the foreign investors started after these ones asked for a seat in the Board of Directors of Sareb, a petition which was rejected by Frob.

The arrival of foreign investors is essential of the international credibility of Sareb, this is why it has hired Goldman Sachs, Citi, Barclays Capital, Nomura, Santander and N+1 in order to look for common ground with the funds. Among the offered possibilities, one is to allow the shareholders of the bad bank to have access to the information on the assets the company is planning to sale before their competition. The Government has also assured some tax benefits for the bad bank and its assets, having the intention of turning the company into a fund, in order to optimize its taxation and attract investors.

Sareb will face its acid test in a month, with the capital increase it will need to carry out in order to receive the assets from group 2 (BMN, Liberbank, España-Duero and Caja 3).

These institutions will transfer around 15.000 million Euros in properties and toxic credits, so that Sareb will end up with a volume of 52.000 million Euros. In order to increase its size so drastically, the bad bank will need to obtain around 1500 million Euros in capital, 660 million Euros of which will need to be contributed by Frob while the rest, 840 million Euros, will need to be contributed by private investors.

The three funds which have made a proposal to Sareb have a long career path in Spain.

Cerberus acquired in 2012 a portfolio of 350 million Euros in mortgage loans from Santander.

Fortress, in that same operation, acquired 1000 million Euros in consumer loans and has established its platform, Paratus AMC, in Barcelona.

Centerbridge burst in Spain at the end of last summer with one of the biggest operations of the last few months: the acquisition of Aktua, the subsidiary of Banesto for recovery of failed loans, for 90 million Euros.

Source: Expansión

Ing Direct and Uno-e shoot up the prices of their mortgages.

As seen on January 2012, banks are taking advantage of the beginning of the year to revise their price policies; unfortunately for the consumer, this has always been done upwards. In the last few hours, Ing Direct and Uno-e have increased the price of their mortgages considerably.

The orange bank has increased from Euribor+1,89% to 2,69% (for clients of the institution), and placing the prices for non clients at Euribor+3,49%.

Uno-e, the online bank of BBVA, has also increased the price of its mortgages, increasing the differential from 2,20% to 2,70%, a very similar level to Ing.

There have been no movements from other bank for the moment, such as openbank (differential of 2%) or ibanesto (2,24%), both subsidiaries of Banco de Santander, although most probably it will not take very long before they do it.

With these modifications, online banks are no longer the most competitive offer in the Spanish mortgage scenario, getting further away from the offers made by some banks through their net of offices (without mentioning the mortgage offers of their own properties). As usual, it is necessary to compare offers in depth, as some institutions establish limits as high as 4,50% or great entailments.

If we compare the Euribor of December 2012 (0,549%) and the one of the previous year (2,004%), we can see that the fall means a reduction of the reference interest rate by 1,455 percentage points, curiously very similar to the increase of differentials applied by these banks in this same period of time. In January 2012, Ing Direct was offering mortgages with a differential of 1,24%; we can therefore say that the new mortgage holder would pay exactly the same today as he was paying last year, even if the Euribor has dropped dramatically.

The problem for consumers is that the Euribor will most probably fluctuate upwards, having a negative impact on its periodical revisions, while differentials are fixed. This means we will have mortgages with worse conditions.

As an example, for a mortgage of 150.000 Euros at 30 years, an increase in the differential of 0,50% can mean an increase in the cost of approximately 485 Euros per year (it will depend on the fluctuation of the Euribor), which would mean paying 14.560 Euros more in total, nearly 10% of the total mortgage. If we make the calculation with an increase of 1,50%, it will mean around 1440 Euros more per year or more than 40.000 Euros at the end of the life of the mortgage.

Source: Idealista

Banks are selling seized properties at bargain prices but…. with the former owners inside.

The hurry of banks to sell their properties as soon as possible is leading to some strange situations. It is common practice nowadays to “sell properties without possession”, which consists of the pre-sell of a seized property by the bank, but with the owners still residing in it, awaiting normally an eviction. These sales are therefore made at a lower price.

This operation seeks the optimization of the allocation through the payment of less taxes and maintenance costs. The buyer knows he has given a deposit for a house with tenants, receiving in exchange a bargain price, but he has to wait for a certain period of time before being able of occupying the property.

Fernando Acuña, managing partner of Taurus Ibérica, declares that this type of sale is known as “sale of a property without possession”, and it takes place in allocated properties with tenants awaiting their eviction, after the auction finishes without a purchaser.

Any person can have access to these sales, but they are normally taken up by investors used to these practices with no fear of entering such an operation.

The process of property sales without possession is as follows:

  • The buyer gives a deposit, which varies from bank to bank and which can be around 3000 Euros or 15% of the total value of the house.
  • The seller takes the responsibility of allowing the entrance of the buyer to the property after a certain period of time, after the eviction has taken place. There are also temporary contracts, of around six months, where after this period of time it is possible to renovate or cancel the process. If the latter happens, then the buyer would receive the deposit back. This contract would be renovated every six months because it is not possible to know in advance how long the eviction process will take.

Another possibility would be when the bank offers the buyer the possibility of assuming the cost of the execution of the eviction in exchange for a more attractive price. This means that the buyer needs to hire a lawyer and an attorney in order to carry out that process.

This type of sale is a “blind purchase”, as the individual interested in a property cannot find out if the house is in a good condition nor can he know how he will receive it. This is why the price is so interesting, as it is accepted that the new owner will need to refurbish the property. According to Fernando Acuña, there are individuals who do not mind taking such a risk because they know that if the property goes into the market, it will be sold immediately.

Another way of getting rid of properties as quickly as possible would be to sell them before the legal auction takes place. If the financial institution succeeds in selling the property, then it can cancel the pending debt. As an example, if the bank sells a property for 100.000 Euros, but with a mortgage of 150.000 Euros, those 50.000 Euros are cancelled from the debt of the mortgage owner. Financial institutions save on registering costs, on taxes, like the real estate tax, or on maintenance costs of these properties.

Financial institutions also resort to a credit cession with a grace period: the bank sells the mortgage debt and the right of recovery to a third party and before the auction, in exchange for a discount, or forced sale. This consists in transferring the property to a third party with a discount after the auction and the third party can be the real estate subsidiary.

Source: Idealista

The rural properties, a wealth reserve for investors.

In a scenario of drop of sales within the real estate sector, there is a product which keeps its demand, avoiding the fall of prices. Those are the rural properties.

According to a report drawn up by Tecnitasa, the average price of homes in Spain has dropped in the last five years, around 31%, while the price of rural properties has only decreased in 7%. “Housing reached its peak in the second half of 2007, starting to drop from that moment on. Nevertheless, the rural properties continued increasing their prices until the beginning of 2010.”

This drop in prices has not slowed down operations as it has in the rest of the real estate sector. While the number of mortgages on homes has dropped more than 82% in the last six years, the drop on rural properties has been of around 55%.

“It is surprising that, according to the National Statistics Institute, the number of mortgages on rural properties has dropped by more than 20% in the last year, but the amount of them has seen an important increase, in percentages which had not been seen in the last six years”, Tomás González, director of Rural Properties at Tecnitasa, explains.

“Those properties in Madrid and surroundings with more than 200 hectares are easier to sell than an 80 square meter apartment”, Jorge Villalón, manager at Fincas Villalón, assures. “The are customers who commission us to sell rural and residential properties in cities and are only able to sell the first ones”, he adds. As with most of the real estate products, there are many different types of properties and prices within the rural properties, which are established depending on the area. “These are very mixed products with prices that go from 2500€ per hectare in dry land in Aragon to 300000€ per hectare in greenhouse farms in Andalusia.”

This diversity also affects the different types of buyers. “There are two profiles: the farmers, who demand plots for agriculture and livestock; and investors, which are mainly interested in the farming activity”, Tomas Gonzalez explains.

The crisis has not eliminated property buyers, but has changed their profile. “Weekend getaway properties do not interest developers anymore, who are now the sellers, and are seducing top executives in international banking who are interested in investing in rural assets”, Jorge Villalon comments.

These new owners look, in general, for properties located near the main capitals like Madrid, so that they can use the property as a second residence. “Before the crisis, people were looking for properties of 2000 hectares. Now, they do not want those dimensions, but something smaller at a distance of maximum two hours from Madrid by car”, the owner of Villalon stresses.

Source: Expansión

Real estate investment in Spain drops by 45% in 2012.

The drop in prices and the need of banks and great companies to obtain liquidity through the sale of their assets have not been enough to boost the real estate sales in the Spanish market.

In 2012, the non residential real estate investment decreased in 45% reaching 1806 million Euros, according to the Real Estate Area at Deloitte. This investment was divided into 52 operations, among them the acquisition of the headquarters of BBVA in Barcelona by the owner of Inditex, Amancio Ortega, which was finalized in the last days of December. The total amount of this acquisition was around 100 million Euros.

The office segment is precisely, along with main street premises, the one providing a higher volume, around 505 million Euros, although still very far from the figures reached in previous years. In 2011, this real estate area registered a volume of 970 million Euros, 400 million of which corresponded to one single operation: the acquisition of Torre Picasso by Pontegadea.

In hotels, there have been ten purchase operations, with an investment volume of 295 million Euros, 64% less than on the previous year. The acquisition of Hotel Barceló Raval by the German fund Union Investment, who paid 40 million Euros, stands out in this area.

As for malls, acquisitions have dropped by 47% down to 1051 million Euros. The acquisition of the mall Avenida M-40 in Madrid by the Venezuelan group Sambil for 17 million Euros stands out.

Source: Expansión