S&P Warns of Deceleration in Catalan Housing Market

7 February 2018 – El País

The Spanish real estate market is going to continue growing, but the Catalan crisis may have a negative effect on the housing market in the region. “Although Barcelona has recorded some of the highest property prices since the start of the recovery, in 2018, Cataluña could see a recession in its real estate market”. That is what the ratings agency Standard and Poor’s (S&P) thinks, according to its report about the real estate market in Europe, which indicates that “economic growth should continue to be strong this year and next, but the political uncertainty may have a more negative impact on companies and consumers. The main risk is the impact of the Catalan crisis, given that it is the largest economic centre in Spain, accounting for 20% of the country’s nominal GDP”.

Leaving aside Cataluña, the agency indicates that the strong economic conditions in Spain will continue to drive up the volume of house sales and will help to reduce the stock of homes. In fact, it forecasts that the volume of transactions in Spain will grow by around 8% this year.

Moreover, although interest rates bottomed out at the end of last year, they will continue at very attractive levels for house purchases. Nevertheless, the agency points out that accessibility ratios continue to be high, even though the number of years of salary needed to buy a home has decreased from 7.7 years at the height of the boom to 6.6. years in 2016. And it adds that second-hand house prices are going to continue to increase, although to a lesser extent that over the last two years.

The S&P agency considers that the Spanish economy will exceed the figures recorded in 2017, when average prices increased by 4.2% YoY in the last quarter, according to data from Tinsa. The city of Madrid exceeded Barcelona with an annual increase of 17% compared to 14.8% in the Catalan capital, where prices fell by 1.7% during the last three months of 2017. The volume of transactions amounted to 455,000 during the first 11 months of the year, compared with 375,000 in the previous year. Purchases by foreigners accounted for 17% of the total.

Original story: El País (by S. L. L.)

Translation: Carmel Drake

Fitch Warns Of RE Bubble In The Centres Of Spain’s Large Cities

25 October 2017 – El Mundo

The ratings agency Fitch is warning that a real estate bubble is now visible in the centre of Spain’s large cities, although it does not anticipate a widespread bubble in house prices across the country as a whole in the short term, due to the high volume of stock that still needs to be absorbed and the restrictions facing people wanting to access a home.

Those were the findings of analysis performed for the Housing Sector in Spain report published by the entity, which explains that bubbles involving these types of localised assets are now very evident: the strong demand and limited supply of housing in the country’s main cities are leading to extreme price increases that are becoming increasingly “unsustainable”.

According to the agency, in the central neighbourhoods of Madrid and Barcelona alone, prices have recorded an annual increase of between 15% and 35%.

For Fitch, this demand is being influenced by quantitative easing, purchases by foreigners and investment decisions, given that investors are looking to benefit from the appreciation in asset prices and rental yields. Nevertheless, the agency forecasts that these “ingredients” will not influence the overall real estate market in the short term.

Similarly, the ratings agency asserts that it is “highly unlikely” that the problems in the real estate market are correlated with the economic recovery in general and it forecasts that the average discounts being applied to sell foreclosed homes are going to continue to be very high and stable over the next few years.

This situation will continue for as long as the banking sector continues to have an excess stock of housing and for as long as buyers insist on significant discounts to acquire foreclosed homes, said the ratings agency.

According to data from the company, the discount on the sale of foreclosed homes is still “high”, up to 60% on average, compared to the initial valuation, whilst discounts can range from between 50% to 75%.

In this sense, the dispersion of the discounts on the sale of foreclosed properties is decreasing. In fact, the gap between the range of discounts decreased to 25 percentage points at the end of 2016 from 35 percentage points during the period comprising 2010 and 2011. Nevertheless, it says that this reduction is not widespread.

Problems accessing housing

On the other hand, Fitch explains that access to housing will continue to be complicated because the velocity of the house price index is exceeding wage variations.

In this way, the families’ capacity to save is increasingly reduced, also due to the labour market that favours temporary contracts over permanent ones, which makes it hard for would-be buyers to save enough to make the initial down payment of 20% necessary to buy a home.

The report also underlines that access to housing over the long-term may be limited by the gradual elimination of monetary stimuli in the market and the likely scenario of higher interest rates.

Original story: El Mundo

Translation: Carmel Drake

Tecnocasa: Second-Hand House Prices Rose By 12% In Barcelona In H1

6 September 2017 – Expansión

The Spanish real estate recovery varies by neighbourhood. Whilst in smaller cities such as Zaragoza and Sevilla, second-hand house prices rose by 1.7% and 2.1% during the first half of the year, in Madrid and Barcelona, the value per square metre soared at a rate of 7.3% and 12.7%, respectively. On average, in Spain, second-hand house prices rose by 8.24% during H1, according to the latest report from the estate agent Tecnocasa and the Universidad Pompeu Fabra (UPF).

It is the largest increase registered in a single 6-month period since the price curve hit rock bottom at the end of 2013 and began its recovery with a slight increase of 1.12% at the end of 2014.

At that time, at the height of the real estate depression, the cumulative decrease in second-hand house prices peaked at 57% with respect to 2007. Nowadays, prices are 48.10% below the peaks recorded before the crash. The average value amounted to €3,500/m2 then, compared with €1,811/m2 now.

Despite the dizzying increase in prices currently being seen, there are no signs that a new bubble is being created. The CEO at Tecnocasa, Paolo Boarini, said yesterday that one of the most important factors to take into account is “the new attitude of the banks”. Whilst in 2007, mortgage loans represented 86% of the value of homes on average, that ratio has now decreased to 72%. (…). Moreover, mortgages that exceed the value of the home are no longer being granted, which was not the case during the years leading up to the burst of the bubble.

Tecnocasa’s report points to the ratio between the monthly mortgage instalment and a borrower’s monthly income, which is also one of the most significant risk indicators. To minimise the risk of non-payment, it is recommended that the aforementioned ratio not exceed 35%. At the end of H1 2017, the ratio between the mortgage instalment and the monthly income of mortgage applicants amounted to 25.5%. On average, mortgages in Spain cost around €375 per month (…).

In terms of the bargaining power in the market, according to data from Tecnocasa, the discount made by sellers with respect to the initial price was 2.7% in 2005, a figure that rose to 13.4% in 2012 and that currently stands at around 5.1% (…).

The study performed by Tecnocasa and the UPF is based on data from transactions brokered by the real estate agent itself involving loans advised by Kíron, the financial services company owned by the same group. José García-Montalvo, professor at the UPF and coordinator of the document, stressed that, unlike other reports, this document uses only real prices of actual sales and not the initial asking prices of homes for sale.

The most expensive square metre in Spain’s major cities was located in Barcelona for another half-year, at €2,754/m2, followed by Madrid, at €1,970/m2. The cheapest major cities include Córdoba (€1,009/m2) and Valencia (€893/m2).

Original story: Expansión (by Marisa Anglés)

Translation: Carmel Drake

The Banks’ Average Default Ratio Drops To 10.66% In Sept

19 November 2015 – Expansión

Improving trend / The banks’ average default ratio dropped to 10.66% in September, its lowest level since 2013. Bankinter has the lowest default rate (4.35%).

The default rate of Spain’s banks continues to fall, mainly thanks to a decrease in the number of loans going into default, an increase in recoveries and sales of non-performing portfolios.

The latest statistics, as at September, show that the default ratio amounted to 10.66%, its lowest level since March 2013. Moreover, there was a small month-on-month recovery in total lending, which boosted the trend.

The decrease is the result of two factors, which are pushing in the same direction: a decrease in doubtful debts and a slight recovery in overall lending. Doubtful loans decreased by just over €3,000 million in September, to amount to €141,267 million. This represents a YoY decrease of 21%. In parallel, loans granted by banks, savings banks and other financial entities increased by €7,529 million during the month, to €1.325 billion, which led to an almost 1 basis point reduction in the YoY rate of decline, to 3.29%.

This trend is a reflection of what is happening in the vast majority of entities. But, clearly, the situation is different for each bank.

Based on the data as at September for the country’s main financial institutions, eight had a default ratio below the average rate and four had a default ratio that exceeded it.

Bankinter stands out as the bank with the lowest default ratio in Spain, with a difference of 6.3 percentage points compared with the average for the sector (10.66%).

Thanks to its prudent strategy in the real estate sector during the boom years, the entity led by María Dolores Dancausa maintained its position as the bank with the lowest default ratio for the entire duration of the crisis.

CaixaBank is ranked in second place, although it sits a long way behind Bankinter. The Catalan bank had a default ratio of 8.7% in September, having reduced its ratio by almost 2 points in the last year. It is followed by Kutxabank, another entity that has been noted for its robustness, during a period when the vast majority of the savings banks suffered from the ravages of the burst of the RE bubble.

Spain’s two largest banks, Santander and BBVA, have exactly the same default ratio: 9.5%, based on the data supplied by the entities to Expansión. (…). Therefore, both banks have a default rate that is one percentage point below the average ratio for the sector.

Ibercaja Banco, the former Aragonese savings bank, which took control of the Caja3 group, also sits slightly above the average. Finally, Sabadell and Liberbank’s ratios are also above average, although in both cases, the ratios do not include the assets covered by their respective Asset Protection Schemes, granted when they acquired CAM and CCM, respectively.

Original story: Expansión (by Michela Romani)

Translation: Carmel Drake

Housing In Q3: Sales Rise By 6.4% & Prices Rise By 2.2%

16 November 2015 – Cinco Días

On Friday, the property registrars published their real estate statistics for the third quarter of the year. According to the figures, prepared using data obtained from operations recorded in the registries, the changing trend in house prices that began in 2014 continued to strengthen during Q3 2015. The Index of Repeat Sales House Prices (based on the Case & Shiller methodology applied in Spain) recorded a QoQ increase of 2.2%. In the last year, prices have increased by 6.6%. The rate of growth in recent quarters is continuing to abate the cumulative decline recorded since the peak levels of 2007, which now amounts to 28.4% on average.

Registered purchases

One of the explanations behind the price rises is the trend in house sales. During the third quarter, the registrars recorded 92,786 operations in total, which represents the highest volume in the last ten quarters, and an increase of 6.4% compared with the second quarter. It also represents an increase of 16.6% compared with the same period in 2014.

“The cumulative YoY data for the third quarter confirms this positive trend, showing that during the last twelve months, 348,388 operations have been recorded, i.e. 13,255 operations more than the cumulative annual volume as of the second quarter 2015”, said the College of Registrars in a statement.

As usual, the distinction between new and second-hand homes explains this positive trend: there were 18,017 operations involving new homes, which represents a new historical minimum, with a decrease of 2.5% compared with the previous quarter. Meanwhile, there were 74,769 transactions involving second-hand homes, which represents a QoQ increase of 8.8%.

Purchases by foreigners

Each quarter, the registrars’ statistics analyse what is happening in terms of demand for homes by foreigners, however it does not differentiate between residents and non-residents. In any case, the operations closed by foreign citizens continued increasing in terms of their relative weight, to account for 13.5% of all house purchases in Q3 2015, above the 12.8% recorded in Q2, which means that foreigners made 12,000 more purchases in Q3.

By nationality, the British, who account for more than 23% of all purchases made by foreigners, are the clear leaders of this ranking. They are followed by the French (who accounted for 8.7% of all operations), the Germans (6.4%), the Swiss (6.4%) and the Belgians (5.5%). The Russians have dropped to ninth place in the ranking, accounting for just 3.4% of all purchases and confirming once again the downwards trend seen in previous quarters.

Mortgages

(…). In terms of new mortgages, the average amount loaned per home equals €109,744, which represents a QoQ increase of 2.09%. In the last year, this figure has increased by 4.6%, to record six consecutive quarters of increases.

Mortgage terms (durations) are also moderating, given that during the third quarter, the average term decreased from 23 years to 22 years and nine months.

On the basis of this data, the College of Registrars estimates that new borrowers are paying an average mortgage instalment of €531.86 per month, i.e. 0.02% less than in the previous quarter, which indicates, according to the experts, that access to housing is stabilising at optimal levels in terms of risk. In fact, this instalment amount represents 28.12% of wages, below the 33% threshold that the Bank of Spain considers is the optimal risk level for households when it comes to borrowing.

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake