Tag: bubble

Pisos.com: Rental Prices Rose By 5.09% In Q3

11 October 2016 – El Economista

The average rental price in Spain amounted to €661 in September 2016 for an average surface area of 112 sqm, according to the quarterly rental price report prepared by pisos.com.

In comparative terms, this figure represents an increase of 0.3% compared with the month of August and a rise of 5.09% with respect to June. Moreover, the YoY increase amounted to 9.26%.

By autonomous region, the highest rental prices were recorded in the regions of Madrid (€1,040/month), País Vasco (€936/month) and the Balearic Islands (€845/month), according to the report.

Meanwhile, the lowest rents were recorded in Extremadura (€429/month), Castilla-La Mancha (€442/month) and Galicia (€477/month).

Between June and September, the highest regional increase was registered in Cantabria, where rental prices rose by 10.54% and the largest decrease was seen in Asturias, with a decline of 1.03%.

The autonomous regions that recorded the highest increases with respect to the same period last year were the Community of Valencia (15.25%), the Canary Islands (12.75%) and the Balearic Islands (12.67%). No decreases were recorded in any region during the same period.

“The interest in acquiring homes in strategic places with a high return will encourage greedy investors, who are already very active”, said the CEO of pisos.com, Miguel Angel Alemany, referring to this increase in the price of rental homes.

In addition, Alemany said that an increase in the available supply could help to mitigate a possible bubble in the rental market. All of this through “more moderate” prices, he added.

Teruel: the cheapest province

According to the report, Guipúzcoa led the ranking as the most expensive province to lease a home in September 2016, with an average price of €1,090/month. It was followed by Madrid (€1,040/month) and Vizcaya (€936/month).

At the opposite end of the spectrum, Teruel was the cheapest province, with an average price of €372/month. Other less expensive provinces included Ciudad Real (€376/month) and Cáceres (€392/month).

The province that saw prices rise by the most during the third quarter was Huesca, with a 12.82% increase in rental prices, whilst Córdoba was the province that saw prices decrease by the most (-6.08%).

Nevertheless, in YoY terms, the province where rental prices increased by the most was Guipúzcoa (20.98%) and the province where rental prices decreased by the most was Burgos (-4.99%).

Barcelona: the most expensive provincial capital

By provincial capitals, the study named Barcelona as the most expensive provincial capital for tenants, with an average rental cost of €1,425/month.

Madrid was ranked in second place, with an average price of €1,405/month during the third quarter of the year. It was followed by San Sebastián where the cost was €1,301/month.

Meanwhile, Teruel was ranked in last place with an average price of €387/month.

Other cheap provincial capitals included Lugo (€405/month) and Ávila (€410/month). Tarragona (19.22%) recorded the highest QoQ increase, whilst the highest QoQ reduction was seen in Palencia (-5.67%).

On a YoY basis, Girona (20.80%) led the ranking with the highest increase in prices and Pontevedra (-4.55%) was situated at the opposite end of the table.

“If this upward trend in terms of rental prices continues, it will become increasingly difficult for tenants to find homes that they can afford”, said sources at pisos.com.

Original story: El Economista

Translation: Carmel Drake

Spaniards Keep The Same Home For 12 Years On Average

26 April 2016 – Cinco Días

Yesterday, Spain’s Association of Property Registrars published the Yearbook of Property Registry Statistics, which analyses aspects such as the use that Spaniards make of their homes, amongst other factors. This use is deduced from the average period of ownership of each home, a very valuable piece of information that is only recorded by the registrars. In 2015, that average period amounted to 12 years and seven months, whilst in 2008, the figure amounted to just seven years and 10 months.

Thus, although this conclusion is not foolproof, the Treasury has already stipulated that during the recent boom, if a home was owned for less than five years then it may indicate that the property was acquired as an investment, whereas properties owned beyond that period, are likely to be used as residences.

The numbers published yesterday show once again that, since the bubble burst and the serious problems being faced by many citizens and companies when it comes to selling their homes emerged, operations involving properties that have been owned for more than five years have gained ground.

In fact, those operations went from representing barely 43.7% of all transactions in 2007 (in other words, less than half of the homes that were bought and sold during the last year of the boom were residences) to 80.7% last year, which the experts describe as a much more balanced figure. By contrast, those operations involving properties owned for less than five years went from accounting for 56.3% of all sales and purchases in 2007 to 19.3% last year.

Another significant finding relates to who participated in the majority of sales and purchases. In 2015, 87.3% of transactions were carried out by families, which represented the second consecutive increase since 2013. Companies, by contrast, continued to lose weight, accounting for just 12.7% of operations, compared with 15.3% in 2014 and 21.9% in 2013. Nevertheless, the figures are still a long way from the minimum of 5.1% recorded in 2007.

House purchases by foreigners accounted for 13.2% of the total and that figure has now been growing for seven years. In the Balearic Islands, that percentage amounted to 35.6%. Moreover, 5.2% of all operations completed by foreigners involved properties costing more than €500,000.

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake

The RE Sector & Its Challenges For The Future

14 April 2016 – Cinco Días

“Few countries in the world have as much regulatory complexity as Spain”, said Alfonso Benavides, Chairman of the Urban Land Institute in Spain yesterday, at the Sustainable Urban Development Forum organised by the newspaper El País and sponsored by Distrito Castellana Norte. According to experts, the diversity of legislation hampers growth in a sector that has great potential for expansion. The politicisation and lack of a roadmap for management plans represent another obstacle”. “There is no strategic vision”, said Eduardo Fernández-Cuesta, Chairman of RICS in Spain.

The system is so complex (and hard to interpret) that it generates more questions than it answers. The continuous updates to the regulatory framework resolve one set of problems and create another. “The private sector can work with complexity, but not with uncertainty over timings”, warned Benavides, who pointed out that the first draft of an urban planning request alone can be up to 2,500 pages. The proposed extension of the Castellana being managed by Distrito Castellana Norte has been in the pipeline for more than 20 years, awaiting the various approvals.

“The fundamental concept is legal security, something which we currently lack”, said Ricardo Martí-Fluxa, Chairman of the Spanish Association of Real Estate Consultancy Companies. It is estimated that for every €1 million of real estate investment, between 18 and 20 jobs are created. In his opinion, we should stop demonising the economic gains of projects because the private sector, which has to drive these processes, must be able to generate a return from its investments and he noted that Town Halls in other European capital cities, such as London, are determined to give companies facilities so that they can execute such investments.

Juan Antonio Gómez-Pintado, Chairman of the Association of Real Estate Developers in Madrid, expressed the same views. He noted that the first people who are interested in putting an end to speculation are property developers. “It is absolutely essential that land is available, when it is restricted, a natural speculative process occurs. By the law of supply and demand, when land is restricted, its price increases”, he complained. (…).

The big question is, following the burst of the real estate bubble, whether Spain needs to continue building homes. The Ministry of Development, which prepares an annual report, estimates that there are 43,000 empty new homes in Madrid alone. Sources in the sector dispute those figures. “The report is prepared using a valid methodology, but it does not reflect the reality because, for example, it does not take account of the fact that the owner of a new home may not want to sell it”, said Juan Fernández-Aceytuno, CEO of Sociedad de Tasación. The actual number, if we look on a promotion by promotion basis, does not exceed 8,000 homes in Madrid. “One of the major problems is that we have run out of stock”, said Gómez-Pintado.

Nevertheless, the experts agree that, a new bubble is unlikely, especially due to the lack of available mortgage financing. In 2006, around 1.3 million loans were granted. In 2014, that figure barely reached 350,000. “There is no risk of a bubble”, said Fernández-Aceyuno. “We expect a period of stability in terms of house prices across the country”.

Original story: Cinco Días (by Carlos Santana)

Translation: Carmel Drake

RE Sector: Are The Mistakes Of The Past Being Repeated?

3 June 2015 – Expansión

Overseas investors are exerting significant buy-side pressure, which is driving up property prices; the experts hope that rental prices will increase accordingly, otherwise another bubble will begin to grow, they fear.

The mass entry of foreign capital into Spain’s real estate market after six years of absolute drought has led to significant changes in the sector, but some (experts) fear that the mistakes of the past may be repeated. At a meeting of experts from the real estate sector, organised by Expansión and KPMG, the speakers agreed that the (economic) cycle has now changed, but they warned against the speed of the price increases in certain segments and the indebtedness of some transactions.

CBRE’s CEO in Spain said that “two years ago, we could not have dreamed of such a rapid recovery”. He added: “From the outside, the investment sector validates that Spain will do its homework and that rental prices will recover, however these rents must increase, since they are the lifeblood of the sector; if not, we will be inflating a new bubble”.

The director of the Masters in RE Consultancy at the University of Barcelona, Gonzalo Bernardos, is more pessimistic. “We are witnessing a new cycle of growth that is going to result in further price rises in Spain; whether that is harmful or not will depend on the financial institution, but I personally have serious doubts as to whether the banks have learned anything”, he said.

(…)

By contrast, the partner responsible for Real Estate at KPMG in Spain, Javier López Torres said that “banks are reviewing transactions with tremendous care, they are not managing land any more”. And he confirmed that “in a residential building, for example, the loan to value ratio must not exceed 50%”.

The CEO of Hi Partners, Alejandro Hernández-Puértolas also thinks that “the analysis that banks are currently performing with respect to hotel assets goes beyond their mere value, it is completely different from a few years ago”. He said that “increasingly, there are more sophisticated investors in this segment: it will be an important year for investment by private equity firms, Socimis and private individuals”.

Rebound effect

All of the speakers agreed that there has been a rebound effect in Spain after the investment drought. However, the co-founder of Elix, Jaime Lacasa, is concerned about the debt that is accompanying the investment operations. He thinks that “the banks’ models are too short-termist” and…he considers that many people are practically being forced to invest their money.

The CEO of Colonial, Pere Viñolas, also thinks that “the mistakes of the past will be repeated in the future: significant errors may already be happening in some deals in Spain”, he said. In Madrid, for example, “players are investing in office buildings on the outskirts, at very dubious prices. In general, in the prime areas, property values are now just 30% below the peaks reached in 2007 and the recovery in terms of rental income has not even started yet”.

(…)

Financing

Martínez-Laguna wanted to point out that the property (ownership) business should be distinguished from the property development business…Lacaso affirmed that in the development sector “the riskiest financing is to developers; if we solve that, then financing to end buyers is not risky”. He also called for “regulation of the development sector..”.

Bernardos thinks that “Spain will be fashionable for a few more years” and also that “the Catalan independence process will crush the office market in Barcelona”.

Original story: Expansión (by Marisa Anglés)

Translation by: Carmel Drake

Formulas To Capitalize On Construction Sector Recovery In Spain

29/12/2014 – Cinco Dias

The housing market has completely transformed since the burst of the housing bubble; it has gone from what had long been an investment sector to avoid to one that is now giving way to new business models with interesting opportunities for private owners as well.

“2015 is going to be, as it has been since 2014, a good time to buy properties to rent,” says Julio Gil, president of the Real Estate Studies Foundation (EIF), who argues that with an average annual return of 4.5%, residential leasing has become “a much more controllable investment for a small-scale investor” and more advantageous than deposits, given the drop in interest rates to historic lows, or equities, and the ups and downs in strong market volatility.

From his point of view, moreover, this approach allows the individual to benefit from the progressive rise of the rental market — the crisis has reduced the traditional preference for homeownership among Spaniards — exploiting the gap left by large buyers.

Experts envisage new business models with investment opportunities in the housing market

Some international investment funds that have been entering the Spanish market over the last year and a half have also chosen to purchase residential property to lease, e.g. Blackstone that acquired 1,860 homes to rent in the Municipal Housing and Land Company of Madrid, or Azora and Goldman Sachs, who bought 2,935 homes from the Housing Institute of the Community of Madrid (Ivima). However, most have opted to implement this strategy in the tertiary sector.

“The prospects for rent growth are somewhat feeble, while still observing an upward trend in prime-location office rents” highlights a recent report from the real estate consulting firm Knight Frank, pointing to Madrid as one of the rising markets with returns ranging from 5.5% to 8% depending on the type of asset.

This market, however, is not off-limits for the small investor. Despite the stagnant results being seen throughout the first quarter, a handful of investment companies in the real estate market, the so-called REITs, have begun trading during this year. These investment vehicles, which spend 80% of their resources on investing in rental property, are exempt from taxes and their shareholders are only taxed on the dividends they earn.

“Their main targets are prime-location offices and shopping centers, although renting houses and hotels is also on their business plans,” states the latest UBS outlook report, noting that at its base scenario, “The annual return for investors will be in a range between 7% and 10% over a three to four years timeframe, a competitive return even compared to the broad Spanish equity market.”

In terms of prices, Swiss bank experts point out that the price of housing in Spain has fallen between 30% and 40% from its previous highs, a decline despite which “the price of houses in Spain is not cheap”.

In light of this development, they expect further reductions of between 1% to 3% in the coming year and price stagnation in subsequent years. Given this situation, on the whole, UBS notes that it sees no investment opportunity in the Spanish residential sector except the rental market.

Thus investment in housing in the wait of a strong appreciation in the medium term is what all consulted experts dismiss at any rate. With that in mind, real estate transactions are still associated with obtaining a mortgage loan for individuals without large financial resources.

Obtaining a mortgage is a path paved with requirements due to a persistent credit crunch but it is beginning to pick up on the bank windows with deals nearing Euribor plus 1.5% variable interest, and a close entanglement with the bank. The conditions are often particularly advantageous on still strong housing properties, appropriated by banks and SAREB and appearing on their balance sheets. A possible opportunity for those who decide to take advantage of the construction sector recovery in the new year.

Original article: Cinco Dias (by Juande Portillo)

Translation: Aura REE

What Are the Odds of Living Through Another Housing Bubble?

11/09/2014 – Cinco Dias

Real estate bubble had a devastating impact on the Spanish economy. Feverish pace of new dwellings construction resulted in a million of homes built every year, many of which now pile up to the unsold, repossessed stock.

On seeing how simple and fast it was to mortgage their property, many households took credits with no chance of paying them, at the same time entering into over-indebtness. This lack of control led to, in the worst cases, to foreclosures and evictions.

The entire business built around housing (sales, construction or auxiliary services) required plenty of low-skilled workers who indeed flocked to Spain tempted by high salaries. Afterwards, they have been explused from the market without future. Is it possible that such a scenario takes place again?

This question has been asked by the research department of La Caixa in its latest monthly report on the slight rise in property prices ocurring for the first time in last six year.

At the moment, their answer is no.

Prior to coming to this conclusion, La Caixa‘s team compared housing prices development and income of Spanish households. ‘The fact, that advance in value exceeds largely and in time the increase in household earnings may suggest the prices are found above their balance level‘, points out Joan Daniel Pina, the author of the study.

The risk is considerable in six countries where the home prices go up faster than the family income, i. e. in Australia, Austria, the United Kingdom, New Zealand, Sweden and Canada. The rate is extraordinarily high in Australia and the USA with the values increasing 10% annually in the first quarter of 2014.

When it comes to Spain, the country undergoes a pure adjustment after abrupt slump in prices.

Mr Pina moves further and thinks of ways of tackling the price overheating if this occurs in Spain. In such a situation, he reckons it reasonable to restrict accessibility to credits and to put stricter eligibility criteria by asking for more income from applicants or reducing the financing percentage of the total property value.

Another tool is the tax incentive in case of purchase of a main home, applied in all developed countries. In Spain, one of the most bubble-battered countries, the tax deduction disappeared in January 2013. Reasons were two: firstly, too many households could benefit from the relief and secondly, the regulation represented very high cost to public administrations (€1.8 billion less each year).

If the bubble expanded to more countries, the report advises a quick reaction from the part of monetary authorities in order to raise the interest rates. ‘Such an increase in lending costs slows down both demand and supply and allows reining in the housing prices‘. However, it also remarks that finding a happy medium might turn out impossible as ‘removing the financial stimulous could be lethal for recovering economies‘.

Original article: Cinco Días (by Carlos Molina)

Translation: AURA REE