Moody’s: The Average LTV on Residential Mortgages Amounted to 64.6% in Q1 2019

30 May 2019 – El Diario

According to the latest data from INE, more and more people are taking out a mortgage to buy a home in Spain. 30,716 mortgage contracts were signed in March, up by 15.8% YoY.

Many buyers are attracted by rising house prices (investment growth), which the ratings agency Moody’s considers is something “positive”. However, with personal savings rates in freefall, banks are having to lend more than ever to enable families to afford their homes.

Specifically, the percentage that the loan granted represents over the appraisal value of the property (LTV) amounted to 66.5% in Q4 2018, its highest figure ever. That figure moderated slightly to 64.6% in Q1 2019 but many families are now asking to borrow 65%-70% of the value of their homes, which means a greater risk for banks and a higher probability of defaulted payments.

According to Moody’s, whilst a portfolio with an average LTV of more than 80% has a default rate of more than 6%, a portfolio with an average LTV of less than 60% has a default rate of 1%.

Nevertheless, although some banks are now lending mortgages with LTVs of 100% in certain cases, the percentage of loans with LTVs of more than 80% is lower than it was before the crisis. Such mortgages currently account for 13.1% of the total compared with 17% in 2006.

Moreover, according to Moody’s, mortgage borrowers are better off today than they were at the outbreak of the crisis as they are in a better position to afford interest rate rises and other changes in the market thanks to the strict criteria that the financial entities have applied when granting loans in recent years.

Original story: El Diario (by Marina Estévez Torreblanca)

Translation/Summary: Carmel Drake

S&P Encourages Spain’s Banks to Divest More Property & NPLs

18 April 2019 – Ya Encontré

Spain’s banks got rid of €90 billion in foreclosed assets and doubtful loans last year, almost doubling the transaction volume recorded in 2017 (€52 billion) and setting a new annual record. But they still have a lot of homes left to sell and Standard&Poors is encouraging them to divest more of those properties, with a view to restoring their pre-crisis risk levels of 4% within two years.

According to the ratings agency, the banks still hold properties worth €80 billion, representing one of the highest stocks in Europe and accounting for 7% of the balance sheets of the domestic financial sector. In this context, S&P considers that the banks still need to get rid of another €30 billion in assets, at least, if they are to properly clean up their accounts.

The active buyside players in the market include many overseas investors and funds, such as Lone Star, TPG, Apollo, Blackstone, Bain Capital and Cerberus, which have played an important role in reducing the stock of major financial institutions, such as Santander, BBVA, CaixaBank and Banco Sabadell.

S&P is not alone in its stance. Both the European Central Bank (ECB) and the International Monetary Fund (IMF) are also urging Spain’s banks to divest the last of their property portfolios as quickly as possible to ensure financial stability ahead of the next recession.

Original story: Ya Encontré

Translation/Summary: Carmel Drake

Sareb’s Losses Plummeted by 55% in 2018 to -€878M

28 March 2019 – Cinco Días

Sareb recorded losses of €878 million in 2018, which were 55% greater than those registered in the previous year. Moreover, the bad bank forecasts a similar result for this year.

Despite the disappointing results, Sareb ended 2018 with own funds of €2.6 billion, which represents a sufficient volume to not have to request any capital increase from its shareholders, which include most of Spain’s major banks and the FROB.

The President of the bad bank, Jaime Echegoyen, observed that his company is committed to the divestment of the problem assets that it acquired from the struggling banks during the crisis, and to maximise its returns. Sareb is competing against many of the banks, which are now selling large portfolios of real estate assets at significant discounts. Nevertheless, it is reluctant to match those discounts given that its cost of managing the assets is lower than the discounts being asked for.

Instead, Sareb has opted to transform the assets it owns by finishing suspended developments and building new homes on the land that it owns. Within the coming days, the company is expected to close an agreement with a property developer, which will build new assets on some of its land.

At the end of 2018, the bad bank recorded total revenues of €3.65 billion, down by 5% YoY. It sold 21,152 units during the year, up by 12% YoY. But, it continued to incur significant expenses – its financial costs alone amounted to €658 million, whilst its operating expenses amounted to €697 million, resulting in the aforementioned losses.

Since its creation in 2012, Sareb has now reduced its global portfolio by one third (€16.5 billion) and repaid 30% of the debt that it issued to pay for the assets in the first place (€15 billion).

Original story: Cinco Días (by Ángeles Gonzalo Alconada)

Translation/Summary: Carmel Drake

Ministry of Development: 100,733 New Build Permits were Granted in 2018

28 February 2019 – Idealista

In 2018, 100,722 building permits were granted to construct new homes, 25% more than a year earlier; a figure not seen since 2009, when 110,849 permits were granted, according to data from the Ministry of Development. Of the total figure, 79,453 were granted to build blocks of flats and 21,254 to build houses.

In this way, building permits have now recorded five consecutive years of increases. In 2013, they hit a historical low (34,288 units), a figure that represented a decline of 96% from the peak year of 2006 when 865,561 permits were granted.

Despite the good results in 2018, the construction sector considers that a healthy market is one that is capable of generating around 150,000 new work permits per year.

Why is it so hard to build 150,000 homes per year?

Daniel Cuervo, Director at Asprima, points to several factors:

– Building permits take a long time to be granted (…). In general, Town Halls take 14 months to grant a licence, on average (…).

– Financing has returned to the real estate sector, but it is not immediate (…).

– Urban planning in Spain is paralysed due to the high level of legal uncertainty (…).

Meanwhile, Daniel del Pozo, Director at Idealista/News, provides some additional explanations:

– Lack of awareness about how the market works and of the real demand by the Public Administration (…).

– The main land portfolios are owned by the banks, Sareb and the funds (…) which are all waiting for prices to rise before releasing the most sought-after plots.

– The political uncertainty, the threats of interventionalism and/or changes in regulation in the real estate market also play their role (…).

Original story: Idealista 

Translation: Carmel Drake

INE: Mortgage Lending Rose by 16.5% YoY to €42.7bn in 2018

27 February 2019 – La Vanguardia

Last year, 345,186 mortgages to purchase homes were signed in Spain, up by 10.3% compared to 2017, but the banks again refrained from fully opening the financing tap: the average loan amount increased by just 5.6% to €123,727, according to data presented on Wednesday by Spain’s National Institute of Statistics (INE).

The growth in the average amount is only slightly higher than the increase in house prices (which rose by 3.9% on average last year, according to data from the Ministry of Development, albeit by much more in the large cities and their metropolitan areas, where the bulk of demand is concentrated). “The banks are adopting a conservative strategy, that’s for sure”, said Oscar Gorgues, Manager of the Chamber of Urban Property in Barcelona – “because they are still very mindful of the excesses of the boom years. For that reason too, we can say that the real estate market is healthy and there is no risk of a bubble”.

The data from INE shows that after five years of recovery in the real estate sector, the number of mortgages granted is still 71% lower than the 1.24 million mortgages granted by the banks in 2007, the last year before the burst of the real estate bubble.

According to real estate firms, the caution on the part of the banks means that the main factor causing families, and especially young people, to rent, is the fact that it is impossible for them to obtain a mortgage loan. By contrast, according to the real estate firm Forcadell, around one third of homes are now purchased without a mortgage, in operations undertaken by investors (…).

According to data from INE, the value of all of the new mortgages constituted to purchase homes last year amounted to €42.7 billion, up by 16.5% compared to 2017, due to the combined effect of increases in the number of operations and the average loan amount (…).

Original story: La Vanguardia (by Rosa Salvador)

Translation: Carmel Drake

Following Blackstone, Cerberus, Lone Star and Bain Plan to Launch Socimis

7 February 2019

Major investment funds have taken over billions of euros of real estate from the banking sector in recent years and are now planning their exit strategies. Some funds, such as Cerberus, Bain Capital and Lone Star intend to follow in Blackstone’s footsteps, considering the creation of socimis with a portion of their assets, various sources in the sector told the Economista.

The sources stated that some funds’ plans are further advanced than others, already at the point where they are analysing the size of the portfolios which they may transfer to the market through this type of listed vehicle. They held out the possibility that one or more of the new socimis may premiere before the end of the year.

Under this formula, the funds would increase their investments’ liquidity, taking over from other more core investors, with a longer-term profile and more moderate levels of profitability.

The three funds’ future socimis would focus on the residential rental housing market with a model based on largely dispersed units since the apartments they acquired from the banks generally fit such a profile.

Major operations

Cerberus earned its place on the podium as one of the most significant real estate investors in Spain, just behind Blackstone. The fund, based in New York, was one of the first to arrive in Spain during the real estate crisis, between 2010 and 2012, and since then it has been taking positions in almost every sector of the property market through Haya Real Estate , the developer Inmoglaciar, the real estate agency Housell and Gescobro.

In November 2017, it bought 80% of BBVA’s real estate business, which had a gross value of some 13 billion euros. The transaction was the second largest portfolio operation ever concluded in the history of Spain, behind Blackstone’s acquisition of Banco Popular’s toxic assets from Banco Santander. Cerberus has also been increasing its portfolio of NPLs and REOs with other smaller operations such as CaixaBank’s Agora project, Sabadell’s Challenger and Coliseum portfolios and BBVA’s Jaipur Project, among others.

On the other hand, Cerberus is in the race to acquire Solvia Desarrollos Inmobiliarios, a developer that owns a portfolio of land valued at about €1 billion.

Lone Star is also analysing the possibility of launching a socimi with a portion of the properties it acquired during its flagship operation in Spain when it bought CaixaBank’s real estate business, which had a gross value of 12.8 billion euros. The fund also acquired the bank’s servicer, Servihabitat.

For its part, Bain Capital, which owns the developer Habitat, has also been one of the most active investors in debt portfolios. One of its more recent operations, known as the Shell Project, involved the acquisition of some €700 million in NPLs to developers from Kutxabank.

Original Story: Eleconomista.es – Alba Brualla

Photo: Getty

Translation: Richard Turner

Cerberus Looking to Top Blackstone as the Largest US Investor in Spanish Real Estate

7 February 2019

Cerberus has a plan for Spain: the fund is looking for continued growth in the country. So, the US fund is putting together one of the most powerful teams in the Spanish real estate industry. Its goal in the medium term is to triple its investments in residential development, continue to grow its logistics business and start a new front in the rental business.

Cerberus has already invested more than 10 billion euros in Spain and now wants to exploit new lines of business such as rentals and logistics. The fund also has plans to leverage its development operations through the acquisition of more land and after buying Inmoglaciar. Blackstone, in total, has already invested more than 26 billion euros in Spain since 2014.

The American fund has generally avoided the limelight. In Spain, the fund has maintained a fairly low media profile, but that now seems about to change, as Gonzalo Gallego, who was responsible for the fund’s real estate investments in Spain, commented on Wednesday.

“We do not usually hold public events, and I think it’s a good time for a change. Cerberus has come to stay in Spain, we are 22 people dedicated to it, and it is already the second most important office in the world,” the representative said.

A look towards rentals

The change is also linked to the fund’s interest in expanding its investments in rentals. Mr Gallego stated that the sector is one of the pillars of the fund’s new strategy. Therefore, they have begun assembling a team dedicated exclusively to the sector.

Cerberus stated that the team consists of local experts who are seeking to “develop strategies that add value to their acquisitions.” The business will not be based solely on buying NPLs, though Mr Gallego stressed that the Spanish market has many such opportunities. “We invest in an asset by asset basis,” he said.

Another business the fund has experienced success with is REOs. Mr Gallego thinks that “they are wonderful.” “We know how to reposition and sell them to our investors; we work with almost 400 funds actively in the sale of these portfolios, it’s not a coincidence, it’s a strategy,” he explained.

Cerberus Real Estate believes that Spain still has enormous potential, although the current macro situation is forcing them to be more careful with their investments. “We are very optimistic regarding Spain, but some cold winds could freeze up some types of investments,” Mr Gallego said.

Opportunities and mergers

In the end, Cerberus believes that it has a ‘pipeline’ full of opportunities and that is why the fund is predicting an excellent year ahead, especially since there will be a “consolidation of the market” with “very important” corporate operations.

The North American fund came to Spain in the middle of the financial crisis (between 2010 and 2012) with the objective of taking over banks and real estate companies, as it did in other countries. The first did not go well after some attempts with the older banks (cajas). However, the fund’s luck with real estate has been better. Cerberus already controls more than €50 billion in assets, from Bankia, Sareb, Cajamar, Liberbank and BBVA.

Its next acquisition could be the developer Solvia Desarrollo Inmobiliario (SDIN) of Banco Sabadell, which is selling land worth more than 1 billion euros. The bid for these assets has already begun, and financial sources claim that the fund has shown interest in them.

Original Story: Vox Populi

Translation: Richard Turner

Ghost Towns Still Haunt Spain in Property Rebound a Decade After

25 November 2018 – Bloomberg

Juan Velayos’s biggest headache these days is getting licenses fast enough to hand over new homes such as the upscale condos his company is building in the northern suburbs of Madrid.

Less than 60 miles away, Ricardo Alba’s neighborhood tells a different story about Spain’s property market. The fencing instructor is one of only two occupants at a block of apartments whose development was frozen in its tracks when banks pulled the plug on credit.

“The real estate sector’s recovery in Spain is developing at two clearly different speeds,” said Fernando Rodriguez de Acuna, director of Madrid-based real-estate consultancy R.R. de Acuna & Asociados. “While one part of the country is consolidating the recovery of the sector and even expanding, another part of the country is stagnating and is showing few signs of returning to pre-crisis levels in the medium- and long-term.”

A decade after the financial crisis hit, Spain’s real estate recovery is a tale of two markets. Key cities and tourism hot spots are enjoying a fresh boom, fueled by interest rates that are still near historic lows, an economic recovery and a banking system that’s finally cleaning up its act. Private equity firms such as Blackstone Group LP are picking up once-toxic assets worth tens of billions of dollars and parsing out what’s still of value, often using their playbook from the U.S. real estate recovery to convert properties into rentals.

But travel a little beyond the bustling centers, to the outskirts of smaller villages, and ghost towns still litter the landscape — once ambitious developments, often started on agricultural land that was converted into building lots just before the crisis hit. They still stand half-finished, unable to find a buyer.

The “Bioclimatic City La Encina” where Alba began renting an apartment two months ago is one such development. Situated on the edge of the village of Bernuy de Porreros, about 10 kilometers (6 miles) from Segovia, it promised to be Spain’s first environmentally-friendly town, providing solar energy and recycled water for 267 homes, comprised of two-, three-, and four-bedroom chalets and apartments. A faded billboard speaks of the dreams that were sold, including communal swimming pools and gardens for residents who would “live… naturally.”

Today, only about a dozen of the homes are occupied. One street has finished homes but half have their windows bricked up to discourage break-ins, locals said. Alba does have solar panels heating his water, but his electricity comes from the local network. On the far side of the development, trees sprout out of the middle of a street that was never paved. Brightly-colored pipes and cables protrude from the ground. Bags of plaster on a pallet have long hardened.

Spain’s housing crash was fueled by a speculative frenzy combined with loose restrictions and corruption that allowed plots of farmland in rural villages to be converted to feed a demand for homes that never truly existed, said Velayos, who is chief executive officer of Neinor Homes. At the height of the boom in 2006, authorities approved 865,561 new home licenses when even in an economic boom demand is no greater than 250,000 homes, he says.

Banks were handing out loans to developers who had little to lose if a project didn’t find a buyer because the money wasn’t theirs. The result was an almost total collapse of the market and close to $200 billion of soured assets.

About half of them were bought in 2012 by Sareb, a bad bank set up by the government to help lenders. Sareb spent about 50 billion euros to acquire assets that were once valued at twice that amount, mostly loans to developers and real estate. Among the latter are also 97 of the 267 properties at La Encina. None of them are currently for sale as Sareb works through legal issues and construction of many isn’t finished.

Other assets were picked up by deep-pocketed investors such as Blackstone, which has 25 billion euros invested in Spain, according to Claudio Boada, a senior adviser at the firm. The New York-based company — the world’s largest private markets investor — is doing what it did at home after the financial crisis: renting out homes instead of selling them in a bid that fewer people can afford to own. Spain had a relatively high home ownership rate before the crisis but it has since come down.

Blackstone’s Bet

“We’re holding most of what we own and looking to rent it out for the foreseeable future,” said James Seppala, head of real estate for Europe at Blackstone. “There’s a meaningful increase in demand for rental residential around the world, including in Spain, driven by home ownership rates coming down.”

Private equity investors also backed a new breed of real estate developers that are bringing a different rigor to the industry. Companies such as Neinor and Aedas Homes S.A.U. are more tech-savvy when assessing markets, and emphasize industrial production techniques to improve efficiency. They’re behind a surge in licenses for new homes to 12,172 new homes in July, the highest monthly total in a decade.

But demand is uneven: Madrid is enjoying its most robust year of home construction since 2008 with an average of 2,151 licenses awarded per month in the first seven months of the year. In Segovia, just 27 minutes from Madrid on the state-run bullet train, an average of 25 homes licenses have been approved per month in 2018, compared with an average of 180 homes a decade earlier.

The volume of residential mortgages sold in Spain peaked in late 2005 before hitting a low in 2013. Since then they have gradually picked up, with 28,755 sold in August, a seven percent annual increase.

Velayos, chief executive officer at Neinor, said business is starting to pick up beyond Madrid and Barcelona to smaller cities and the coast. His company plans to hand over 4,000 homes by 2021, more than 12 times as many as in 2017. The biggest challenge has been getting licenses approved on time. Velayos had to cut his delivery target for 2019 by a third as often understaffed local councils cause bottlenecks in the production process.

More significantly, Spain’s real estate is now funded by investor’s equity and not credit, said Velayos. Neinor was bought by private equity firm Lonestar Capital Management LLC from Kutxabank SA in 2014 and went public in March 2017. Aedas is backed by Castlelake, another private equity investor, and was floated the same year. Metrovacesa SA, owned by Spain’s biggest banks, held an initial public offering earlier this year.

Shares of all three developers have declined this year at more than twice the rate of the local stock index, a reminder that the market’s recovery remains fragile, with higher interest rates and an economic slowdown on the horizon.

For the Bioclimatic City La Encina, that means it may take longer still until Alba gets new neighbors. Prices for half-finished chalets were slashed by half, according to residents. Some now sell for as little as 16,700 euros, half the cost of a mid-range car.

Alba doubts such cuts will lure buyers. Then again, that may not be a bad thing, he says in summing up the development’s advantages: “It’s very peaceful.”

Original story: Bloomberg (by Charlie Devereux)

Edited by: Carmel Drake

Congress Agrees that the Banks will Pay All Mortgage Costs, Except the Appraisal

13 November 2018 – Expansión

The political parties today agreed by majority that the new Mortgage Law will establish that notary expenses linked to the signing of mortgages will be paid by the banks and that the appraisal costs will be paid by customers.

Moreover, the notaries will carry out a questionnaire with each borrower to ensure that he/she understands all of the clauses in the mortgage contract, at no additional cost.

The Mortgage Law was presented again today at the Congress’s Economy Committee after the Government approved a royal decree law which stipulates that the Documentation Registration Tax (AJD) will be paid by the banks and not by customers.

The new Mortgage Law reflects that decision and makes it clear that the financial institution will pay for the first copy of the notary deeds; the customer will cover the cost of any copies he/she requests. Meanwhile, the registry costs will also be paid for by the bank; and the borrower will pay the appraisal expenses since he/she will be able to choose the appraisal company freely.

Nevertheless, several other important issues still need to be agreed, such as those relating to early repayment fees, late payment interest and the early termination clause of mortgages and which allows the foreclosure of homes depending on the debt that has been acquired by the borrowers (…).

On the other hand, the political parties will also have to decide about the entry into force of the new standards, given that the financial sector is asking for a margin of 6 months versus the 15 days that the draft bill is proposing.

The Mortgage Law, which is a transposition of a European directive, seeks to provide greater protection for consumers and promote transparency in the granting of mortgages, which is why the political parties have agreed that appraisal companies can be independent physical persons or legal entities (…).

Original story: Expansión

Translation: Carmel Drake

Spain’s Banks Must Pay the Mortgage Tax from Now On

10 November 2018 – Expansión

The Royal Decree approved by the Council of Ministers last Thursday, which modifies the Law governing the Tax on Property Sales and the Documentation Registration Tax (ITP and AJD), comes into force today, following its publication in the BOE. The Decree establishes that the banks, and not the customers, are responsible for paying those taxes.

From today, the purchaser of an asset or right, and in his/her absence, the persons who initiate or request the notarial documents, or those in whose interest they are issued, shall be subject to the tax. When it comes to loan deeds with mortgage guarantees, the bank shall be considered the taxpayer.

In terms of new features, the Royal Decree introduces a new article in the exemption section, which means that “loan deeds with mortgage guarantees, in which the borrower is one of the persons or entities listed in section A) above” shall not be subject to the tax.

Those entities include the State and regional and institutional Public Administrations and their organisations for welfare, culture, Social Security, teaching and scientific purposes. Financial institutions will not be allowed to deduct this payment from their Corporation Tax charge from 2019 onwards, given that tax changes are applied to complete fiscal years. The tax that the banks will have to pay will amount to €2,500 on average per loan and will, according to the Minister for Finance, María Jesús Montero, contribute to the collection of €2 billion every year for the regional coffers.

The Government justifies the “urgent” need for “regulation” to dissolve the “legal uncertainty” created by the Supreme Court following its ruling to force banks to pay the tax, before resolving a few days later that it was returning to case law and therefore obliging citizens to pay it. “This succession of events has led to a situation of legal uncertainty, which affects the mortgage market as a whole, and which must be addressed immediately”.

Original story: Expansión

Translation: Carmel Drake