Month: November 2015

What Can We Expect From The Housing Sector?

30 November 2015 – Cinco Días

It goes without saying that the real estate sector was the most vilified during the crisis. Blamed for almost all of the problems that ended the greatest economic boom in recent history, the sector has been striving to rise from the ashes since the end of 2013. International investors returned to Spain first, attracted by the low prices – according to statistics, property prices have now decreased by between 30% and 40% since their peaks.

Next, came a rise in the number of transactions, driven by improvements in the labour market and expectations of an economic recovery. Following this increase in sales, came a moderation in the price decreases and, finally, the cranes returned to the urban landscape of the large cities, albeit in a very piecemeal way. The housing stock, i.e. the huge surplus of new homes (389,00 units in total, according to a recent study from Tinsa), has stopped representing such a problem in certain cities and therefore, the moment to return to property development has arrived.

The problem is that the crisis has practically destroyed the real estate sector along the way. Today, sales represent just one third of their levels in 2006, firms are constructing only 4% of their historical peak volumes and instead of property developers and construction companies, the business has now diversified and is in the hands of the banks, Sareb and new servicers.

Macro-economic figures

The truth is that the key macroeconomic figures are starting to show real signs of the real estate recovery. Employment is growing by more than 3% and the flow of financing is increasing. Mortgage lending continued to increase at rates exceeding 20% in September, which means that it has now been recording double digit increases for 16 consecutive months.

Nevertheless, the experts warns that the “exit from the crisis is not going to be the same for everyone”, says Luis Corral, CEO of Foro Consultores. “There is a dual market. The euphoria being seen in Madrid, and to a lesser extent in Barcelona, contrasts starkly with those places where the surplus has not yet been digested and, therefore, nobody wants to build there”, he says.

The evolution of these two variables, employment and credit, will determine whether the recovery strengthens or stagnates at its current modest figures. Demographics are working against it, since the rate of household creation that was seen at the end of the 1990s, which really spurred on real estate demand, is not expected to be repeated, according to the population projections made by Spain’s National Institute of Statistics. That is why nowadays, almost no-one, except from the sector association Asprima and the appraisal company Tinsa, dares to venture a projection about what demand for homes will be like in the future. Both entities forecast that between 200,000 and 250,000 homes will be constructed over the next few years.

New Projects

Prudence is one of the key words that everyone is talking about in the market at the moment. Prudence in terms of projections, lending, construction etc.

Refurbishments

Moreover, the logical evolution for Spain’s stock of more than 25.5 million homes involves renovations and refurbishments. The vast majority, almost 95% of homes, do not comply with basic energy efficiency criteria and many established neighbourhoods in large cities could be rejuvenated with good urban renovation and renewal projects, with the corresponding boost to activity and employment that such projects would involve.

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake

Villar Mir Sells Torre Espacio To Grupo Emperador For €558M

30 November 2015 – Expansión

Villar Mir has found a buyer for its Madrilenian skyscraper Torre Espacio. The group led by Juan Miguel Villar Mir has signed an agreement with the Philippine group Emperador for the sale of its 236m-tall office building, located in the Cuatro Torres Business Area in Madrid.

Emperador, the largest spirits company in the Philippines (it holds agreements with the Andalucían group González Byass) will pay €558 million for the property (around €9,200/m2), somewhat below the €600 million sales price that the seller was hoping to secure.

Inaugurated in 2007, Torre Espacio contains 60,000 m2 of office space, spread over 57 floors. It houses the offices of British American Tobacco and Red Bull, as well as the embassies of Australia, Canada, the Netherlands and the United Kingdom. Its occupancy rate is 85%.

The building’s main tenant is the Villar Mir group itself and its subsidiaries, which occupy 55.1% of the property. According to the President, Juan Miguel Villar Mir, the construction company and the other subsidiaries, such as Fertiberia and Ferroatlántica, will continue to have their headquarters in the Madrilenian skyscraper.

In fact, to make the purchase more attractive, the owner of OHL offered to remain as a tenant in order to guarantee rental income of €34/m2/month, according to real estate sources.

Emperador has succeeded in taking ownership of Torre Espacio despite being a very late joiner to the process, which was launched in June, when Villar Mir engaged the consultancy firm Aguirre Newman. In recent few weeks, the best positioned candidate has been the real estate fund Invesco. The real estate company Colonial had also initiated a due diligence process for the building, according to sources close to the operation. Other investors studying the purchase of Torre Espacio included Corporación Financiera Alba – owned by the March family – , the German fund Deka and Pontegadea – the real estate company owned by Amancio Ortega.

The Philippine group Emperador forms part of the Alliance Global business conglomerate led by Andrew L. Tan, who also owns real estate businesses through his company Megaworld. With this purchase, Emperador joins the huge list of investors that have purchased real estate assets in Spain in 2015.

Funding for OHL

With the transfer of Torre Espacio, Villar Mir will generate significant income, having reduced its stake in the listed companies Abertis and Colonial to cover its part of the €1,000 million capital increase in its construction company OHL. Villar Mir invested €400 million in the construction of the building, including the purchase of the land.

However, the businessman is not abandoning his real estate investments at the Cuatro Torres complex; he has been working on the construction of a fifth tower on an adjacent site for several months. (…).

The Villar Mir group is also working on the Canalejas complex, in the centre of Madrid, where it plans to invest €500 million.

Original story: Expansión (by R. Ruiz and C. Morán)

Translation: Carmel Drake

The RE Recovery Intensifies As House Prices & Permits Rise

27 November 2015 – Expansión

According to official data from the Ministry of Development, the average value of private homes amounted to €1,476/m2 at the end of Q3. This represents a YoY increase of 1.4%, or 1.8% in real terms, after accounting for inflation. This represents the fourth consecutive increase, which means that house prices have now been rising for a whole year.

Two other statistics published yesterday supported the intensification of the start of the real estate recovery. Firstly, the number of mortgages granted to buy homes increased by 20.2% in September, according to Spain’s National Institute of Statistics (INE). Secondly, the number of permits granted for the construction of new homes soared by 30.5% during the first nine months of the year, to 36,031, the highest figure since 2011, according to the department led by Ana Pastor.

“The increases that we are seeing in terms of the number of mortgages being granted and homes being sold are a reflection that now is a good time to buy a home”, explains Beatriz Toribio, Head of Research at Fotocasa. “The decrease in house prices, above all in the second-hand segment, the opening up of the credit tap and the increased competition between financial institutions to offer the best mortgages are reactivating the market”, she added.

Cumulative decrease

Effectively, the second hand market, which comprises homes that are more than five years old (previously it comprised homes that were more than two years old, but now the banks have so many older homes that have never been lived in that the threshold was changed) decreased in Q3. Specifically, prices fell by 0.1% to €1465.90 /m2, on average. The average value of new residential properties (those completed during or since 2010) amounted to €1,741.90/m2, up by 1.6% YoY.

The cumulative decrease in average house prices since they reached their peak (in Q1 2008) is 29.8%, according to historical data from the Ministry of Development. That figure exceeded 30% in 2014. In real terms (including the variation in CPI), the cumulative decrease amounts to 34.1%.

The average appraisal value of homes surveyed by the companies that form the Association of Value Analysis (AEV), which serves as the Government’s benchmark for the evolution of house prices, increased in 12 autonomous regions and decreased in 5 during Q3 2015.

The highest increases were recorded in Madrid (with a YoY increase of 3.5%), the Balearic Islands (3.2%), Aragón (3.1%), La Rioja (2.9%), the Canary Islands (2.4%) and Navarra and Valencia (2.1%). The highest decreases were recorded in Asturias (-3.6%) and País Vasco (-1.4%).

It is worth noting that in general terms average house prices fell by 0.1% QoQ in July, August and September.

The provinces in which house prices rose by the most were Salamanca (4.2%), Zaragoza (3.9%), Jaén (3.6%), Madrid (3.5%), the Balearic Islands (3.2%), A Coruña (3.2%), Palencia (3.1%) and Soria (3%).

The other big news for the real estate sector, revealed yesterday, was that the number of permits granted for the construction of new homes soared by 30.5% between January and September. 70% of requests related to block properties, which amounted to 25,238 in total, representing a YoY increase of 34.8%. The number of requests to construct family homes rose by 21.5% to 10,777.

This data indicates that there will be an increase in construction activity over the next two years. (…).

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

INE: Mortgages Increased By 20.2% In September

27 November 2015 – ABC

The signing of new mortgages for home purchases rose by 20.2% YoY in September, with 23,828 new mortgage loans granted during the month.

According to data published by Spain’s National Institute of Statistics on Thursday, the increase is slightly higher, 23.6%, if we compare the figures with those from the previous month.

In total, the volume of mortgages granted to purchase homes in September amounted to just over €2,619 million, which represented a 24.3% increase compared with the same month in 2014, and a 30.3% increase compared with the previous month.

This data from INE shows that 36,010 mortgages were signed in total, for all types of properties including urban land, representing a YoY increase of 18.7% and a MoM increase of 24.4%. The value of these mortgages amounted to €4,785 million, i.e. 23.9% more than in September 2014 and 9.1% more than a month earlier.

54.7% of the mortgages signed in September were granted for homes, according to INE. The data also reveals that 90.3% of mortgages had variable interest rates, compared with 9.7% that had fixed interest rates.

Euribor was the most typically used reference rate for the constitution of variable rate mortgages; specifically it was used for 94.3% of all new contracts. The average interest rate, at the beginning of the term, for mortgage granted over homes was 3.34%, which represented a 7.1% decrease compared with the same period in 2014.

By autonomous region, those that registered the highest number of home mortgages in September were: the Community of Madrid (4,949), Andalucía (4,330) and Cataluña (3,755). The regions with the highest YoY variations were the Balearic Islands (74%), Cataluña (34.3 %) and Cantabria (33%).

The regions in which the highest amount of capital was loaned for the constitution of home mortgages were: the Community of Madrid (€776.1 million), Cataluña (€446.7 million) and Andalucía (€398.0 million).

The regions with the highest positive monthly variations in terms of the number of mortgages granted for homes were: Cataluña (47.5%) and the Community of Madrid (43.4%).

Meanwhile, the only regions that recorded negative monthly rates were La Rioja (-39%), Cantabria (-14%), Galicia (-11.2%) and Asturias (-1.1%).

Original story: ABC

Translation: Carmel Drake

Metrovacesa Creates RE Developer With Assets Worth €1,040M

27 November 2015 – Expansión

The real estate company Metrovacesa, controlled by Santander (owner of 72.5% of the share capital), BBVA (19.4%) and Popular (7.9%) is going to be divided into two companies.

The historical real estate company has announced a demerger project, which was approved by the Board of Directors on 24 November and which will be presented to the ordinary shareholders’ meeting for approval on 29 December.

The project includes the creation of a new company into which Metrovacesa will place its land and home development businesses; meanwhile, the existing company will continue to hold the properties linked to its real estate business, in other words, the offices, shopping centres and homes that generate rental income. “We are looking to carry out a business restructuring process to add value to the company, as well as a potential refinancing of our financial liabilities, to ensure the feasibility and profitability of the businesses in the future, by separating out the property business from the land and home development businesses”, explains the company.

The new company, called ‘Metrovacesa Suelo y Promoción’, will be 100% owned by the current shareholders of the real estate company, in “exactly the same proportion as their existing stakes in Metrovacesa”. The company led by Rodrigo Echenique will create a new company with assets worth more than €1,040 million. “The new company will issue 3,075 million new shares, with a nominal value of €0.16 – a total share capital of €492 million – with a premium of €547.8 million, taking the total value to €1,039.85 million”.

Three capital increases

To create the new company, the Board will propose three successive capital increases to its shareholders. The first one will be non-cash and will involve “specific major shareholders”, which will contribute “assets that will form part of the company’s equity”. The second will involve the capitalisation of financial loans, leaving the new company with hardly any debt; and the third will take place to ensure that there is no dilution of the minority shareholders’ stakes. “In the event that the capital increases are fully subscribed, Metrovacesa’s share capital would amount to €1,261 million”.

Following the demerger, the real estate company will have share capital amounting to €769 million, in other words, around 61% of its current value, and the remaining 39% will be transferred to the new company. The real estate company indicates that its indebtedness is associated “primarily” with its property business and a “significant” portion of it is due to mature in Q3 2016, which it will be able to refinance more effectively following the execution of this process.

Original story: Expansión (by Rocío Ruiz)

Translation: Carmel Drake

El Corte Inglés Leases Iconic Titania Building To EY

27 November 2015 – Expansión

El Corte Inglés has signed a lease contract with the consultancy firm EY, which will occupy the eleven floors of office space in its iconic building, Torre Titania. The property is located in the centre of Madrid on the site of the former Torre Windsor, which burnt down in 2005.

The tower, which forms part of the El Corte Inglés commercial complex on the Castellana, is 111m tall and has 27 floors, five of which are dedicated to underground parking, with another four used for technical aspects (lift machinery, air treatment units, fans, etc..).

The first seven floors above ground were opened in 2011 as the retail area of El Corte Inglés on the Castellana, whilst the remaining eleven floors are reserved for office use and were put on the market for both lease and sale.

According to a statement by EY on Wednesday, the new offices will house its 2,000 employees in Madrid. It added that Titania is one of the most modern and efficient buildings in the capital from an energy perspective.

The property, also known as Torre Azca, is located in the financial district of the same name, says EY, which expects the relocation of its headquarters in Spain to be completed during the first few months of 2017.

It was vital for José Luis Perelli, the President of EY in Spain, to find new headquarters for the company given the growth of its workforce, which will amount to almost 3,000 employees by the end of the year, compared with 2,300 at the end of 2014.

Original story: Expansión

Translation: Carmel Drake

Tinsa: 24.9% Of Homes Completed Since 2008 Remain Empty

26 November 2015 – El Economista

24.9% of the homes completed since 2008 remain unoccupied, according to a report entitled “In-depth analysis of the housing stock 2015”, compiled by the real estate valuations, analysis and advisory company, Tinsa.

1.56 million new homes have been constructed in Spain since 2008, a figure equivalent to 6.4% of the total real estate stock, of which 389,000 remain empty. It estimates that it will take an average of 2.5 years to find owners for thema all, according to the study. (…).

Therefore, Tinsa considers that, in general, this stock of new homes will not be fully occupied until the first half of 2018.

In turn, this scenario implicitly assumes demand equivalent to 150,000 new homes per year will be sold, self-promoted or rented, over the coming years.

Nevertheless, in areas where the surplus falls below 10% of the constructed stock, it estimates that it will take only 1.2 years for them to be occupied and in areas where the surplus exceeds 50%, itestimates that this time period will increase to four years.

In this sense, funding difficulties, the increase in unemployment and the outlook of falling prices have been the factors that have slowed the number of sales.

Prices have not still adjusted to the market

Tinsa believes that prices have still not adjusted to the market and that they still need to fall for almost one third of the stock located in the areas that have seen the most construction activity in recent years.

The company also considers that prices will remain stable for 41.3% of homes, will decrease by between 0.1% and 6% for 29.5% of homes and will rise by between 0.1% and 6% for 29.1% of homes. (…).

13.9% of homes are still owned by property developers

13.9% of the empty new homes are still owned by property developers, whilst the remaining 86.1% are owned by other organisations, mainly banks.

In this context, it is hard to estimate what percentage of empty new homes are not being marketed, since it depends on the operators.

Amongst the reasons for the existence of this stock are that home owners would rather wait for prices to rise to obtain higher returns and also that no effective demand exists.

Meanwhile, the company highlights the reasons why homes on the market are not being sold or rented, including insolvent demand, poor location in some cases, high prices and the lack of established environments (local amenities etc).

Percentage by province

By province, Almería has the highest proportion of empty properties, with 38.9%, followed by Cuenca and Castellón, with 37.1% and 36.1%, respectively.

By contrast, Álava is the province with the lowest proportion of empty homes, with 10.3%, followed by Guipúzcoa with 15.2% and Navarra with 17.6%.

Nevertheless, in Madrid and Barcelona, construction needs to begin to avoid shortages within the next two years. This is also the case in the cities of Málaga, Granada, Girona, Oviedo, Santander, Vigo, Pontevedra, San Sebastián, Gijón and Avilés.

The same situation has also been identified in certain municipalities on the Costa del Sol, on the north-east coast in Girona and in Cádiz, as well as in some of the island regions, such as on the Balearic Islands and Tenerife.

Original story: El Economista

Translation: Carmel Drake

Qatar “Conquers” Málaga’s Port With A 35-Storey €100M Hotel

26 November 2015 – El Confidencial

Just like in Madrid with the Cuatro Torres and in Sevilla with Torre Pelli. A hotel is going to definitively change the skyline of Málaga. A group from Qatar is going to invest €105 million in a luxury 35-storey five-star hotel in the Port of Malaga. The project, involving 350 rooms, will be modelled on the Sail Hotel in Barcelona, with an average occupancy rate of 80% and an average room rate of €300 per night. On Monday, the Port Authority of Málaga approved the start of the administrative concession to drive the business initiative, led by the company Andalusian Hospitality II SL, whose sole director is Fakhroo Abdulla Darwish AD, according to data obtained from the Commercial Registry in Málaga.

(…). Andalusian Hospitality II SL has already deposited €1.8 million as a guarantee, equivalent to 2% of the value of the construction project. At least one other business group is interested in constructing a hotel in the port area. (…).

However, the process has barely begun. Following the publication of the applications made by the aspiring bidders in the BOE, modifications need to be made to the Port’s Special Plan, which must be approved by Málaga’s Town Hall and by the Council of Ministers, as required by the Ports’ Law, since the process involves the construction of a hotel in the port, as happened in the case of the iconic Sail Hotel in Barcelona and another hotel in Alicante.

The Civil Aviation authority has limited the height of the building to 175 metres. (…).

Málaga’s hotel supply

“The hotel could become a destination in itself”, said Paulino Plata, the President of the Port Authority of Málaga. The head of the Málaga port values the project’s significant potential to generate employment (“double the number of jobs that would be created by a four-star hotel”, he says), although he did not want to give a specific figure. But, is there demand for a hotel like this? Between 2003 and 2013, the supply of hotels in the city of Málaga doubled and the average occupancy rate rose to 66%. The best year was 2014.

The Port Authority of Málaga also views the project favourably as a way of enabling it to avoid the losses that are dragging it down since the decline in container traffic. They calculate that they could receive an annual fee of €1 million, “which could cancel out our losses”, admits Plata.

José Seguí is the architect who has been commissioned by the Qatari company. Sources close to his office stated that it was “too soon” to know any details about his plans for the hotel. (…). “This is just the beginning of a long process”, added the same sources.

Original story: El Confidencial (by Agustín Rivera)

Translation: Carmel Drake

Merlin & Hispania Prepare To Issue Bonds In 2016

26 November 2015 – El Confidencial

(…). The new kings of the Spanish real estate sector have begun the second phase of their adventure in the markets and, after starring in the bulk of the stock exchange’s IPOs over the last 1.5 years, they are now preparing to issue bonds.

The two key players in the sector, Merlin and Hispania, have taken the lead and are already working with the main ratings agencies to receive their ratings in 2016 and, as a result, make bond placements in order to adjust their financial structures.

The Socimi led by Ismael Clemente is more advanced in this process, because it began to work with the three ratings agencys – S&P, Fitch and Moody’s – to obtain an investment grade rating as part of its process to purchase Testa for €1,800 million.

The company’s plans include registering a bond program, which would be divided into between two and four placements, through which it expects to raise between €800 million and €1,000 million. Although the company’s timings are slightly delayed with respect to its initial plans, its objective is to have everything ready during the first half of next year.

Hispania is working to a similar time frame, conscious that in an environment marked by zero and negative interest rates, fixed income securities represent the perfect way of raising capital, above all in the case of real estate companies, such as Socimis, which make significant block investments to acquire assets that have long-term business plans.

In fact, Merlin and Hispania’s interest in obtaining an investment rating is leading the way for other companies in the sector, a general move in line with the group movements that these companies have been making over the last two years.

Natural step

In this way, whilst in 2014, the general trend was towards IPOs, through which they raised their first significant capital inflows, in 2015, the major trend was towards capital increases, through which the largest players in the sector alone – Merlin, Hispania, Lar and Axiare – raised almost €2,000 million.

The next natural step, therefore, is for these entities to request investment ratings to enable them to go to the debt market. Nevertheless, this is not an unfamiliar step for some companies in the sector. Uro Property, Santander’s landlord, has already completed a €1,350 million bond issue; whilst Lar launched a €140 million bond issue at the beginning of the year.

The difference with respect to the step that Merlin and Hispania are taking is that those placements were made outside of Spain, in Luxembourg and Ireland, respectively, without first obtaining a rating. In the case of Uro, the Socimi that exclusively comprises Banco Santander branches, it managed to achieve a rating for its placement equivalent to that of its tenant, although the Socimi has no been assigned its own rating.

Meanwhile, Lar completed its placement to raise funds, unlike Merlin and Hispania, which are aiming at taking advantage of the low interest rate environment to reduce their financing costs and, moreover, adjust all of their financing to suit their vocations as long-term businesses.

Original story: El Confidencial (by Ruth Ugalde)

Translation: Carmel Drake

Second-Hand House Prices Have Fallen By 44.5% Since 2007

25 November 2015 – El Economista

Second-hand house prices in Spain have decreased by €105,999, on average, since they reached their maximums in April 2007, according to the latest analysis from the real estate portal fotocasa.es. It reports a cumulative price decrease of 44.5% since the start of the crisis, when the cost of buying a home measuring 80m2 amounted to €236,174, on average.

“Second-hand homes are driving up the real estate sector at the moment. In addition to the extensive supply, these homes are more attractive in terms of prices, since they allow more room for negotiation and they are levied with lower taxes”, says the Head of Research at fotocasa.es, Beatriz Toribio.

By autonomous region

In terms of the reduction in second-hand house prices by autonomous regions, Cataluña is the region where prices have decreased the most. Specifically, sales prices have decreased there by an average of €142 ,512 in eight years, which represents a decrease of 46.1%.

At the opposite end of the spectrum, Extremadura is the autonomous region that has seen the lowest decrease in sales prices in recent years. There, the average reduction amounts to €59,745, after prices reached maximum in March 2007; this represents a decrease of 39.6%.

Original story: El Economista

Translation: Carmel Drake