The bad bank and the end of the tax benefits will increase property prices even more.

After four years of downfall in the real estate sector, there are very few analysts who dare make a forecast on the evolution of the market in 2013. Specially when 2012 has seen the worst figures in construction and sales since the boom finished. According to the National Institute of Statistics (INE), there were 269880 operations up to October. Nearly 100000 less than in 2011. And prices continue to fall. The square meter has lost more than 25% of its value in comparison with the maximum figures during the boom. Everyone agrees that the evolution of the number of sales and the prices will be affected by two novelties: the establishment of the bad bank and the end of the tax benefits on the purchase of properties.

The constitution of the bad bank, or Sareb, to whom all banks and savings banks are transferring their toxic assets related to the real estate sector, among them properties and land, can cause a change in the tendency, even though its short term sales policy has still not been explained.

Sareb can choose between taking an inventory of all available assets and selling or giving the market a boost in order to reactivate it; that is, it needs to decide between commercializing  the assets or not and depending on its decision it will have a greater or minor effect on the market, Julio Gil, partner of the real estate consulting firm Horizone, explains

Although the president of the bad bank, Belén Romana, has explained it will not concentrate on the retail market, but will segment the properties in packages so as to maximize their value, and the Ministry of Economy and the Bank of Spain insist that the prices of the absorbed assets are not a reference in the market, the real estate sector believes that the discounts applied on the sale of these assets will influence the rest of operations, pushing prices down.

“The prices established by Sareb will be a reference”, Gil says, who believes “prices will continue to fall”. Mainly because of the increase of the unemployment and the lack of credit, but also because 2013 starts with tax novelties which affect the sector. Since yesterday, property buyers will not benefit from the deduction for the acquisition of their principal residence, and also the “superreduced” VAT, which is applied to these transactions has increased from 4% to 10%. The disappearance of these incentives, along with the paralysis of the sector and the lack of financing – the stock of unsold properties remains in 700000 units – will force sellers to apply higher discounts.

There are also some other pending details, such as the measures to be approved by the Government on housing or the legislation on real estate investment companies (Socimi).

Very few share the views of the Secretary of State of Economy, Fernando Jiménez Latorre, who last year assured that the prices of properties had already reached their rock bottom. “The fall of prices will be very similar to the one in 2012”, a representative of RR Acuña & Asociados declares.

The negative economic and unemployment forecasts foresee new set-backs. Prices will continue to have a downward tendency. And they should drop between 0,5% and 1,5% monthly during all year, as declared by Manuel Gandarias, director of the Studies Division of

Source: ABC