RE In 2016: The Experts Are Cautiously Optimistic

31 December 2015 – El Economista

Experts in the real estate sector continue to talk about the improvement experienced in the market in 2015 with caution; and they consider that 2016 will be the year of stabilisation following almost a decade of severe crisis. But, above all, the experts believe that we will see new homes being constructed once again next year.

That is according to the statistics published by the Ministry of Development for construction permits (…).

Given that it takes around 18 months for a new development to be constructed, in 2016 we can expect to see the inauguration of properties for which permits were granted at the end of 2014 and during 2015.

In this way, the President of the Spain’s Property Developers’ Association (APCE), Juan Antonio Gómez-Pintado, believes that investment funds and Socimis will both continue to be key players in 2016, although he says that the role of “property developers will become increasingly important and we will probably see (more) joint operations between these players”.

Such operations are already taking place in certain areas where new build properties are scarce, with investors approaching traditional property developers to leverage their experience in the sector in exchange for providing financial muscle. (…).

Other forecasts for next year

With this outlook, Beatriz Toribio, Head of Research at fotocasa.es expects to see a YoY increase in the price of second-hand housing in 2016, for the first time in eight years, as well as a lower rate of growth in terms of sales volumes, not because of a decrease in activity, but because the comparison will be made against figures from 2015, which will not have the same “step effect” that we have seen in 2015, with respect to the 2014 figures. (…).

Stabilisation or recovery

Against this backdrop, the experts have differing opinions when it comes to naming the current situation in the real estate sector. Juan Fernández-Aceytuno, the Director General of Sociedad de Tasación, thinks that 2016 could be the year of “consolidation”, but warns that several uncertainties still exist in the market.

Beatriz Toribio also thinks that it is still too soon to be talking about recovery because at the moment, house sales represent just one third of the volumes recorded ten years ago”, and so she prefers to describe it as the “normalisation” of the sector.

The main challenges facing the sector

In terms of the main challenges facing the real estate sector in 2016, Toribio believes that the main one is having the capacity to construct homes that new buyers actually want to purchase, in terms of quality, design and energy saving features, at prices that they are willing to pay, as well as reducing the housing stock at the same time.

According to Fernández-Aceytuno, the sector needs to open the market up to the demand that has been building up during the crisis to drain the stock of unsold properties. Finally, APCE has said that the sector’s main task for 2016 is to cultivate “more transparency” and to improve its image.

Property developers want a Housing Minister

In any case, given the political uncertainty following the general elections on 20 December, property developers in Spain believe that “having a Secretary of State or Minister for Housing would be more than justified” given the sector’s weight in terms of GDP. (…).

Original story: El Economista

Translation: Carmel Drake

Tinsa: Most Homes Bought In 2015 Cost Between €50k & €100k

31 December 2015 – El País

(…) Most of the homes bought this year cost between €50,000 and €100,000. That has been the most popular price range in the provinces of Madrid, Valencia, Sevilla, Zaragoza, Málaga and the Canary Islands. Homes were more expensive in Barcelona and the Balearic Islands, where they typically cost between €100,000 and €150,000. Those are the findings of Tinsa’s IMIE Local Markets Index for Q4, published yesterday, which concludes that the average price of finished homes (new and second-hand properties) rose by 1% in Spain in 2015.

This data, which represents the first YoY increase since the beginning of 2008, reflects the changing trend in the evolution of prices. Just a year ago, in the last quarter of 2014, the same index reflected a YoY decrease of 4.5%. (…).

During 2015, average prices increased the most in YoY terms in the Catalan provinces of Girona (10.7%), Barcelona (5.8%) and Lleida (5.3%), as well as in Albacete (4.5%) and Madrid (3.3%). In terms of provincial capitals, Barcelona led the ranking with a YoY increase of 8.5%, followed by Badajoz (5.7%), Ávila (4.3%) and Madrid (3.8%). Prices are expected to increase at rates of less than 5% during 2016. Nevertheless, the evolution of the market will be determined by the political panorama in Spain, as well as by the high level of debt that the economy and families still hold, and the quality of new jobs. The creation or otherwise of new solvent demand will be the main driver, to the extent that the pent-up demand, which is currently boosting the market, loses power.

“We should not forget that the market is extremely heterogeneous and is moving at different speeds depending on the area. If we compare average prices in Q4 2015 with those from the same period last year, then average prices have increased in 21 provinces and 15 provincial capitals, but at the same time, they have decreased by more than 5% in nine provinces and ten provincial capitals”, say sources at Tinsa. (…).

How long does it take to sell a property on average? 

On average, it takes 10.2 months to sell a home in Spain, compared with 10.6 months as at June 2015. Cantabria is the province where sales take the longest: 18.6 months. Sales periods significantly above the national average are also reported in the provinces of Álava, Segovia, Ávila, A Coruña, Salamanca and Vizcaya, where it takes more than 14 months on average to sell a home. The provinces where buyers are found most quickly include: Ceuta (3.7 months), Melilla (5.3 months), Soria and Santa Cruz de Tenerife, both with an average of seven months.

Barcelona stands out as the provincial capital that requires the greatest financial effort to buy a home, with 23% of gross annual household incomes being used to finance the first year of mortgages. Meanwhile, Madrid is the major provincial capital with the most liquidity when it comes to selling a home, since it takes less than six months (5.8 months) on average to sell a home, compared with 6.1 months in Barcelona and 13.5 months in Valencia.

Original story: El País (by Sandra López Léton)

Translation: Carmel Drake

Ministry Of Development: Housing Permits Reach 5-Year High

30 December 2015 – Expansión

The number of permits requested to construct new homes shot up by 29.2% during the first ten months of the year compared with the same period last year, to amount to 39,871 certificates, according to data from the Ministry of Development.

If the same rate of permit requests has been maintained during the last two months of the year, 2015 will come to an end as the second year of consecutive increases and with the highest volume in five years, since 2011, when the number of certificates reached almost 48,000.

Demand for permits to construct new homes thus maintained the growth trend that it had been recording for months and which allowed it to close 2014 with the first increase (in the number of permits) since 2006. Nevertheless, it still falls a long way short of the record figures reached before the crisis.

For the time being, during the first ten months of the year, 70% of the permits requested related to the construction of new blocks of flats, with 27,827 units and a cumulative YoY increase of 32.8%.

The other authorisations requested related to single family residences, with 12,028 requests, i.e. 21.6% more than during the same period a year earlier.

The number of permits requested to renovate and restore homes also increased between January and October, by 12.9%, to amount to 21,474 requests.

By contrast, the number of requests to expand homes decreased during this period, by 12.2%, from 1,318 during the first ten months of 2014, to reach 1,156 during the same period this year.

Original story: Expansión

Translation: Carmel Drake

First Residents Move Into Arroyo del Fresno (Madrid)

30 December 2015 – El Mundo

The new PAU (‘Programa de Actuación Urbanística’ or Urban Planning Program) in Arroyo del Fresno, located in the North of Madrid, has started to receive its first residents. CP Grupo and Amenabar have begun to hand over the keys to homes in this newly created environment, which will eventually contain almost 3,000 unsubsidised and subsidised homes (high-rise flats and single-family houses) in two phases. The development – where building work commenced in February 2014 – is, without doubt, one of the great symbols of the real estate recovery.

In accordance with the planned schedule, the first occupancy licences were granted in Arroyo del Fresno on 30 November for CP Grupo’s Montearroyo development (210 VPPL (limited price) homes) and Amenabar’s first VPPL residences, comprising 188 homes. All of these properties were sold shortly after their release onto the market in 2013 and the area is currently overrun with people moving in and deeds being signed, after Madrid’s Town Hall completed the partial receipt of the urbanisation.

In this sense, Amenabar has said that the deed signing process is progressing well, with deeds now signed for 176 (94%) of the 188 finished homes and the remaining deeds due to be signed for the other units soon. At the same time, the company revealed that it will begin to hand over its other development in Arroyo del Fresno in February; work there is almost complete on the 340 VPPB (basic price) homes.

In this way, the first settlers (which now occupy around one hundred of the properties) moved into Arroyo del Fresno in time for Christmas and hence the first illuminated windows and balconies can now be seen in the new neighbourhood. The number of residents in the PAU is expected to continue to increase over the coming days, as new residents take advantage of their days off over the holiday period to move in, according to CP Grupo.

It is worth highlighting that the opening of this new PAU is highly significant for the real estate sector because of what it represents. The definitive revival of the area took place at the height of the property crisis and the development received an enthusiastic response in terms of demand from the start, brandishing a new product in a sought-after location at competitive prices (post-boom). And so Arroyo del Fresno represents one of the faces of the new phase (of the economic cycle). After being the epicentre for the reactivation of property development, it is now really coming to life.

Original story: El Mundo (by Jorge Salido Cobo)

Translation: Carmel Drake

Sareb Unlikely to Acheive Any Of Its Goals For First 5 Years

29 December 2015 – Economía Digital

Sareb, the bank that was formerly chaired by Belén Romana and which, following her resignation, is now led by Jaime Echegoyen (pictured above, centre), is about to close its third year of activity. And it is doing so with a great deal of uncertainty over whether it will be able to fulfil the four main objectives it set itself in 2012.

Those objectives were: to reduce its balance sheet by 44% by December 2017; to repay 49.9% of its €50,781 million ordinary debt by that date; to have sold 45,000 homes, also by that date; and to guarantee shareholder returns of between 13% and 14%.

Unrealistic goals

The majority of its shareholders, even initially, did not expect to receive such high returns. But it seems like the other objectives are not going to be easy to acheive either, above all the main one: to repay €25,000 million of its debt within the next two years, half of which it paid out to acquire its 197,500 assets (more than 107,000 real estate assets and almost 91,000 financial assets).

Despite the work performed over the last three years, and having repaid €8,500 million of the €50,781 million that it must return to the savings banks that transferred those assets, it is a long way from achieving the objective set out for the company’s first five years of operation. To repay half of its ordinary debt between 2016 and 2017, it must fork out around €16,000 million.

Untenable position with increasing interest rates

And all of this is happening in an enviable situation in terms of interest rates, which meant that Sareb was able to reduce its financing costs, by lowering the spread on the renewal of its bonds, at the end of the first half of the year and will do so again at the end of 2015. In the event of an increase in interest rates, which will happen, sooner or later, the situation will automatically worsen.

The first step that Sareb must take to be able to repay half of its debt by the end of 2017 involves reducing its balance sheet by 44%. So far, as at June 2015, it had reduced its assets by just 14%. And then only thanks to the good performance of the financial assets, which decreased by more than €7,000 million, given that, by contrast, the value of its real estate assets has barely changed from the initial balance of €11,357 million.

Minimal reduction in assets

That lack of variation in terms of the value of its real estate assets is due to the fact that the sales that have been made fall well short of the 45,000 house sales forecast between 2013 and 2017, and because the foreclosure of property developer mortgages have ended up increasing the number of properties on the bad bank’s balance sheet.

At the end of 2015, Sareb still owns more than 90,000 of the 107,000 real estate assets that were transferred to it when it was first created, in February 2013, despite numerous campaigns launched in December by both the bad bank and by the servicers entrusted with the sale of these assets.

New accounting circular

And as if that were not enough, the Bank of Spain published a new accounting circular earlier this year. It was both expected and feared by Sareb, and it obliges the bad bank to individually value its assets at market prices, compared with the criteria used when they were transferred, which involved average discounts by asset type.

In theory, the accounting impact of the measure is not expected to alter the revenues streams and, if, as expected, new provisions are required, then they will be drawn from the conversion into capital of the amounts required from the €3,600 million subordinated debt in issue and subscribed to by around thirty investors. Those investors include the State, through the FROB, which is the main shareholder, with €1,652 million, followed by all of the main banks, with the exception of BBVA.

Original story: Economía Digital (by Juan Carlos Martínez)

Translation: Carmel Drake

Bank of Spain: House Rental Yields Soar To 9.1%

29 December 2015 – Expansión

The returns on buying a home have not been as high in Spain since September 2007, at the peak of the bubble. The average gross annual yield on homes currently amounts to 9.1%. That is according to the most recent data published by the Bank of Spain, which relates to the end of the third quarter. Three months earlier this indicator amounted to 8.6%; whilst in March it equalled 6.2%, which gives us an idea of the speed with which residential returns are growing.

The total gross return on residential properties “is calculated as the estimated gross return from rent, plus capital gains”, according to the body led by Luis María Linde. In other words, the calculation takes into account not only the amount an investor can expect to obtain each year from leasing out the property, but also the gain he/she can expect to make from selling it in twelve months time.

The gross annual yield is the most important indicator for investors. Much of the appeal of homes as investments is that they offer returns that are significantly higher than those currently generated by public debt and deposits. Specifically, the average home is 5.2 times more profitable than 10-year State bonds, whilst deposits offer returns of just 0.4%, according to the body led by Luis María Linde. (…).

We are currently experiencing an impasse involving high returns with minimal risk. And there are many reasons for it: house prices are starting to rise (by 2.6% in 2015 and by more than 6% in 2016, according to Servihabitat) and rental prices are on the increase as well, although more gradually (by around 1%, according to the index prepared by IESE and Fotocasa). The average price paid by tenants has increased significantly in Spain’s two largest cities, Madrid (4.67%) and Barcelona (6.19%), according to data from Tecnocasa.

In addition, the percentage of citizens choosing to rent rather than buy is increasing, from 19% to 21.2%. In the last three years, the rental market has increased by 1 million homes and is now 42.5% larger.

For this reason, investors looking to obtain higher returns have started to hunt for properties in very established locations, with high demand, with a view to renting them out.

Rental yield, excluding capital gains

Another way of measuring the attractiveness of investing in homes is the gross rental yield, excluding capital gains. In the second quarter of 2015, that indicator amounted to 4.6% and had been stable since March 2014. Prior to that, such high rental yields had not been seen since June 2003, when house prices were increasing at two-digit rates.

The most profitable city is currently Sevilla. The Andalucían capital offers a gross rental yield of 8.2%, according to a study by Tecnocasa. In Madrid, the yield on homes amounts to 7.7%; in Zaragoza, it is 7.4% gross p.a.; and in Barcelona, it amounts to 6%.

Other real estate assets offer even more attractive gross rental yields (excluding capital gains) than homes. Commercial premises continue to be the most profitable product (7.5%), followed by offices (6.8%) and garages (4.6%). (…).

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

Don Piso Plans To Open 30+ New Branches In 2016

29 December 2015 – Cinco Días

The real estate company Don Piso plans to open around 34 new offices in Spain in 2016, of which 22 will be franchises, according to a statement made by the company yesterday.

Don Piso’s agency network will open four new offices, all operating under franchise agreements, before the end of the year, taking its total number of offices to 60, which represents growth of 27% with respect to 2014 (…).

Two of the four new offices will be opened in Madrid, with new offices also opening in the cities of Menorca and Salamanca, according to a statement issued by the real estate company, which is headquartered in Barcelona.

The chain currently has 18 owned offices and the forecast for 2016 involves expanding that number to 30. Moreover, in terms of its franchises, the company expects to increase the number from 38 to 60 by the end of next year.

Growth plans

These plans for growth, together with the fact that the Don Piso network has not closed down any owned or franchise offices in the last five years, according to the company, means that its managers are certain that the franchise arrangement is currently the preferred business model in the sector.

“As a result of the strong performance shown by the consolidated data for the real estate market, we think that now is a good time to invest in the sector through real estate franchises, as a highly profitable model in the short and medium term”, says Emiliano Bermúdez, Assistant Director General of Don Piso and head of brand growth.

Created in 1984, the company currently has a significant network of offices in the country’s main cities and a turnover that has enabled it to act as the intermediary on property sales worth more than €500 million in the last year. The company provides sales, rental and renovation services and employs 296 people.

Survivor of the property crisis

Don Piso is one of the survivors of the property crisis. It was created in Barcelona in 1984, as a network of intermediary agencies for the sale of properties. During the boom years, specifically in 2001, its owners sold the company to Ferrovial. Five years later, the company changed hands once again, when it was acquired by Habitat Promociones.

In the midst of the real estate crisis, in 2010, the former founders of the company, led by Luis Pérez Fernández, former Director General of Don Piso, submitted the highest offer in an auction process for the company, organised by the commercial court of Barcelona. The chain, which closed 2008 with losses of €42 million, reduced its network to 60 agencies after implementing a series of cutbacks.

Original story: Cinco Días

Transltion: Carmel Drake

Drago Capital Enters Residential Development Segment

29 December 2015 – Cinco Días

Property development is becoming a business opportunity for companies in the real estate sector once  again, following the severe crisis that began in 2008. Even for the least conventional players, such as Drago Capital, an investment fund that normally acquires other kinds of assets like office buildings and commercial premises.

The fund has started to develop a new urbanisation, dubbed Ocean Hills, in the vicinity of Estepona (Málaga) on the Costa del Sol. It represents its first major project targeted at the second home market and the development comprises 62 apartments.

Drago Capital identified the business opportunity in an unfinished development, which it acquired in December 2014, and which it has completely redesigned.

In total, the initial investment amounted to €8 million, which was sourced mainly from a number of family offices, according to the managers of the fund.

Type of apartments

The managers ruled out a development on the beachfront and instead, consider that more value can be obtained inland. The homes are located next to the Monte Selwo park, in a natural environment and with views of the Mediterranean Sea.

62 modern homes will be constructed with a maximum of two bedrooms and all with spacious terraces. Construction will centred around four, three-storey blocks of flats. The marketing of Ocean Hills will be targeted primarily at overseas buyers, mainly in the North of Europe and in the UK. The first part of this urbanisation has already been sold in its entirety to a group of Norwegian citizens.

Project details

The development is being constructed on a plot of land measuring 7,000 m2 and there may be an opportunity to construct new buildings on two adjoining plots, which would add another 7,000 m2.

The contract for the construction work has already been awarded to Avintia, which will complete the construction of the homes and resume the work that was suspended before Drago Capital’s purchase. The homes are expected to be finished by the end of 2016.

Drago Capital considers that the market for second homes, with the characteristics found in this development, has returned and it regards this investment as a good opportunity. Moreover, its managers consider that the Costa del Sol area in general, and both Marbella and Estepona specifically, represent places with significant demand.

Original story: Cinco Días (by A. Simón)

Translation: Carmel Drake

Hispania Signs 7-Year €65M Financing Agreement With ING

29 December 2015 – Expansión

The large Socimis are continuing with their plans to finance their real estate assets. Such is the case of Hispania and Axiare, which yesterday announced two separate financing agreements, to fund assets that have already been acquired in the case of the first, and for new projects in the case of the second.

Hispania has signed a 7-year bilateral financing agreement with ING for €65 million, for a portfolio of offices that it controls through its subsidiary Hispania Fides. Meanwhile, Axiare has agreed a 10-year bilateral loan amounting to €39.9 million with Banco Sabadell, which will enable it to continue its investment plans.

Original story: Expansión (by R. R.)

Translation: Carmel Drake

House Rental Prices Increase Across All Of Spain

28 December 2015 – Expansión

Spain is a country of property owners. You just need to look at the European comparatives to realise that Spaniards prefer to buy than rent. Specifically, jsut one out of every five homes in Spain is rented out, a percentage that falls well below those recorded in other countries in Europe, such as Switzerland, Austria, Denmark and Germany (where rental homes account for more than 35% of the residential market in all cases). The rental market began to take off in Spain when the crisis forced thousands of families out of the purchase market into the rental market, but it has still got a long way to go.

The percentage of homes rented out has increased from 11.4% during the boom years to 18% or 20%, according to sector analysts, although the Bank of Spain reports a more conservative figure of 15%. Therefore, 3.42 million of the 18 million primary residences in Spain are rented out. If we also include holiday homes, that figure amounts to almost 5 million.

Prices, which are now more competitive than ever, have contributed to this situation. The average rental cost of a residential property is now 30% lower than in was in May 2007, according to the IESE-Fotocasa index, which the Government uses since it does not compile any official figures itself, besides CPI.

But, the cost of being a tenant is going up again across all of Spain. The average rental cost recorded its first YoY increase in eight years in November across every autonomous region. Cataluña stood out, with an average rental price increase of 10.6% with respect to November 2014. It was followed by the Balearic Islands (7.8%), Madrid (6.3%) and La Rioja (6%). At the other end of the spectrum, Castilla-La Mancha is the region where prices increased the least, specifically, by 0.7%, followed by Cantabria (1%), País Vasco (1.1%) and Navarra (1.3%). “Rental prices are stabilising and although they are increasing significantly in certain areas where demand is high, in general, they will remain stable over the next few years”, explains Beatriz Toribio, Head of Research at the real estate portal Fotocasa. In terms of the evolution in prices by province, rental price increases were recorded in 26 provinces with respect to October.

We are seeing a gradual change in mentality. In 2011, 70% of Spaniards thought that “renting was like throwing money down the train”, but now 65% regard it as a solid life choice, according to a survey by Fotocasa. In other words, there has been a complete turnaround. “This is partly explained by the crisis, but is also because new generations have a much more favourable attitude (towards rending)”, explains Toribio.

The country’s other major real estate portal, Idealista, predicts that rental homes will increase in weight over the next few years to account for around 25% of the total housing market. “Rental is now undergoing an important stage in its development, despite the classic reluctance to embrace it in Spain”, says Fernando Encinar, Head of Research at the portal.

Original story: Expansión (by J. M. L.)

Translation: Carmel Drake