Gov’t Says RE Recovery Is More Intense Than Expected

30 May 2017 – El Mundo

The Secretary of State for Budgets and Expenditure, Alberto Nadal, has highlighted that the growth of the economy in Spain is being favoured not only by the country’s exports, but also by the recovery of the construction and real estate sectors, which is proving to be much more intense than the Government had expected.

Those were the declarations made by the Secretary of State during the presentation of Inmonext 17, an event organised by Idealista in the context of Madrid’s International Real Estate Fair (SIMA) 2017, where he noted that GDP growth this year is set to exceed the official forecast of 2.7%.

During his speech, Nadal emphasised that this increase in growth is being supported by exports, which will continue to be very strong and by the recovery of the construction and real estate sectors. “The coffers don’t lie, people don’t pay taxes if they don’t have any cash”, he added.

In this sense, he said that the real estate sector is going to play a fundamental role in the growth of Spain and he reminded his audience that the sector was oversized during the years prior to the crisis and that real demand for housing was not well founded because prices were growing and the volume of credit exceeded the borrowing capacity of families. “Economic growth was unbalanced and was heavily concentrated in the real estate sector”, he said.

In his opinion, a reasonable cruising speed would be the creation of 50,000 homes per year and he added that the recovery is reaching the real estate sector later than other markets, perhaps because it was oversized before. For this reason, he said that the logical thing would be for the sector to operate at a reasonable average, leaving behind the extremes seen before the crisis and over the last few years.

Nadal said that the data shows that there is not a bubble now and he emphasised that the outlook of the Spanish real estate sector depends on the faith that Spaniards have in the future, especially in their jobs and salaries.

Original story: El Mundo

Translation: Carmel Drake

Risk Of A Bubble In The Rental Home Market?

4 November 2016 – El Mundo

The rental sector stopped being the bad guy the movie about the residential market a long time ago. Following the burst of the real estate bubble in 2008,  this option for accessing a home (so vilified in previous decades and so closely linked to numerous prejudices in a country where the ownership culture was deeply entrenched) quickly became an attractive an option. Its popularity has been so great that rental housing now accounts for more than 20% of the residential stock and that figure is on the rise. So much so, there are now concerns in the sector about the risk of a bubble.

The EU office for statistics, Eurostat, states that the percentage of the Spanish population living in rental homes now amounts to 21.8% and Spain’s National Institute for Statistics (INE), in its Continuous Household Survey for 2015, said that the figure amounts to 22.7% – the percentage is even higher in major cities such as Madrid and Barcelona -. If we look at this with some perspective, we see that the number of tenants has soared since 2007, when they accounted for just 6% or 7% of all dwellings.

Although perhaps most importantly, beyond the numbers, is the change in attitude towards renting. Nowadays, the hackneyed expression that renting is throwing money down the drain is no longer heard, and Spain is becoming more European in this sense. Currently, the national percentage of renters in Spain is higher than in Norway (17.2%) and is getting close to the levels seen in Portugal (25.1%), Greece (26%), Italy (26.9%), Belgium (28.6%) and Sweden (30.7%). Nevertheless, it is still a long way below the level in Switzerland, where more than half of inhabitants rent their homes (55.5%) and Germany (47.5%) (…).

Meanwhile, Servihabitat has published the first indicator that points to a boom. According to a study by the servicer’s investigation and market analysis platform, the average rental price is expected rise by more than 10% in 2016. Moreover, in the provinces of Málaga, Barcelona, Gerona and Alicante and in the uniprovincial communities of the Balearic Islands and Madrid, rental price increases are expected to exceed the average.

One of the most qualified people to talk about this situation in the rental segment is the firm Alquiler Seguro, which was established in 2007 and which nowadays brokers and manages tens of thousands of rental contracts all over Spain. The President of the company, Gustavo Rossi, acknowledges that the risk of a bubble does exist, above all, in the major cities and in the most touristy areas. “In those enclaves, the supply is insufficient for the demand that exists and, therefore, we see bull markets, with rental prices on the rise. If demand continues to grow and supply continues to stagnate, then we may see a price bubble”, he warned. Nevertheless, he points out that this possible bubble “would not be anything like the one seen with owned properties, when the construction sector stopped focusing on housing needs and took decisions based purely on speculation targets.

Antidotes to avoid the boom

To avoid the threat of a boom, Rossi advocates reactivating the supply, both from individuals as well as from property developers and investors. “The first step would be to put closed housing on the market and regulate the high flow of tourist homes”, he suggests. Similarly, he argues that “we should advance more in the professionalization of the sector to allow owners to lose their fear of renting. He also supports the need for Local Governments to commit to the rental sector “by creating specific courts to rapidly resolve conflicts and boost tax benefits for both owners and tenants, preferably via the income tax framework, and at the same time bring those rents that are submerged in the black market up to the surface”.

The forecasts for rental price increases are starting to cause problems, especially for renters. Currently, good tenants (those who pay on time), so sought after in recent years, are no longer the treasures they once were because the demand for quality is increasing. Some landlords, aware that rental prices are rising, are becoming increasingly less flexible and harsh with their current tenants, for example, when it comes to signing tacit contract renewals or granting ad hoc requests. (…).

In terms of prices, Servihabitat estimates that the average rental cost in Spain amounts to €540 for a home measuring 80m2 to 90m2, with significant variations depending on the autonomous region. In this way, the most expensive average rents are charged in the Balearic Islands (€980/month), the Community of Madrid (€940), Ceuta (€880) and País Vasco (€840), whereas the cheapest rents are paid in Galicia (€280), Extremadura (€370) and Castilla-La Mancha (€380). The servicer also identifies the trend in rental prices, which it describes as increasing in every autonomous region with the exception of Extremadura, Castilla-La Mancha, Navarra, Asturias and Ceuta and Melilla, where prices are stable. (…).

Original story: El Mundo

Translation: Carmel Drake

Oak Hill Grants €66M Loan To Construction Firm Murias

6 June 2016 – Expansión

The US fund Oak Hill Advisors has granted a direct loan (direct lending) to the Basque construction company Murias. The operation is significant, not only because it is the largest financing agreement of its type to be granted in Spain during the year to date, but also because it shows that major international investors on the other side of the Atlantic are regaining confidence in a sector that had been completely stigmatised, namely construction.

Murias Grupo Empresarial, founded in 1973, comprises 25 companies. As well as participating in several public and private construction projects, such as the construction of the new San Mamés football stadium (in Bilbao), the Group has also built several retail parks: the Gorbeia in Vitoria (pictured above); the Abadía in Tolego; Las Cañas in Viana (Navarra) and the Niessen in Rentería (Guipúzcoa). According to market sources, the €66 million that the Group has just borrowed will be used to develop and then manage a shopping centre in Melilla.

The numbers

The Group recorded revenues of €71.8 million in 2013, according to its most recent set of consolidated annual accounts filed in the commercial registry. Its attributable net profit amounted to €1.2 million and it employed a workforce of 296.

The company has been advised by N+1 Debt Capital markets, a division of the boutique Spanish consultancy firm N+1, regarding the structuring and placing of this operation. The loan has been structured through a single-tranche loan, with a single international investor and a term of 5 years. The funds afford the company complete flexibility to undertake the project to construct a shopping centre in Melilla, as well as to finance new projects in the new future.

The investor, Oak Hill, is a giant in the world of investment, with assets under management amounting to more than $27,000 million (equivalent to around €24,200 million). The fund participated alongside other investors in a recent injection of liquidity into Abengoa, as part of its debt restructuring process. In fact, it may take control of the Spanish company. On the other hand, Oak Hill injected €100 million into the car park subsidiary of Isolux. In exchange, Isolux granted Oak Hill an option to acquire the car park subsidiary from 2019 onwards.

Original story: Expansión (by D.B, I.A and M.F.)

Translation: Carmel Drake

Ministry Of Development: Housing Permits Soared By 57% In Q1 2016

31 May 2016 – Expansión

More signs of acceleration in the construction sector. The number of permits to construct new homes have recorded their highest figure since 2011, although they are still a long way below the figures seen in 2006.

The number of housing permits granted by the college of architects to construct homes soared by 57% during the first quarter of the year to 16,782, the best figure recorded during the first three months of a year since 2011, according to the latest statistics from the Ministry of Development.

Despite the increase, the number of housing permits are still a long way below the highs recorded in 2006, at the height of the boom in the real estate sector (…).

The total number of permits granted for new builds, renovations and extensions during the three months to March amounted to 16,979, which represents an increase of 36% with respect to 2015.

By type of property, permits to construct housing blocks rose by 64%, to 12,425; whilst the number of permits granted to build family homes increased by 39% to reach 4,356 permits.

In terms of surface area, the average size of family homes amounted to 203.6 sqm, whilst the average size of flats stood at 118 sqm.

The number of permits granted started the year with a bang, up by 44% in January to 4,943. In February, the YoY increase amounted to 35%, with 5,663 permits, whilst in March the number doubled to reach 6,176.

Since the Ministry of Development began to compile these statistics in 1991, the number of permits granted hit a historical monthly low in August 2013, when just 1,585 licences were granted. The maximum high was recorded in September 2006, with 126,753 permits granted.

Original story: Expansión

Translation: Carmel Drake

Unemployment Rose By 26,000 In Sept To 4.1M

5 October 2015 – Expansión

The unemployment rate always increases at the end of the summer following the end of the holiday period as the abundance of temporary jobs linked to the tourism sector comes to an end. Other sub-sectors also tend to be hit, for example, catering, trade and leisure activities.

And that is exactly what happened last month (September). For this reason, the number of unemployed people registered at the Public Employment Service increased by 26,087. However, if we discount the effects of seasonality, the number of people on the dole actually decreased by 9,746 people.

In any case, the increase in the unemployment figure is in line with the previous two years. Unemployment grew by 19,720 people in September 2014 and by 25,572 people in the same month in 2013.

It could be said that with the economic recovery, the evolution of unemployment in September is tending to become more normal. During the economic crisis, unemployment rose by 95,000 people during that period.

It also true that, according to the Bank of Spain, QoQ economic growth weakened by 0.2 p.p. between July and September. GDP increased by 0.8% in Q3, compared with 1% in the second quarter of the year. This was due primarily to the impact of the crisis in China and Brasil on the global economy. Nevertheless, activity in Spain is also suffering from the moderation in household spending and residential investment.

For these reasons, the YoY rate of reduction in unemployment has fallen below 8% once again, after exceeding that threshold in July. Thus, in absolute terms, unemployment decreased by 353,808 people in September, i.e. by 7.95% in relative terms. The total number of unemployed people stands at 4,094,042. A (low) level not seen for five years – since 2010. (…).

By sector, unemployment in the construction sector has now recorded 35 consecutive months of decreases. (…).

Original story: Expansión (by M. Valverde)

Translation: Carmel Drake

Bank of Spain: Default Rates Decreased In Q2 2015

22 September 2015 – Expansión

The decline in the default rate is also affecting the sector that was hardest hit by the crisis: real estate.

Data published last week by the Bank of Spain relating to the end of June, shows that the default rate has reduced significantly on loans to developers and construction companies – which are nevertheless still the most delinquent borrowers in the system – as well as on mortgages granted to individuals.

The default rate of real estate developers amounted to 32.12% in June, which represented a decrease of 2.6 p.p. during the second quarter. In June 2014, that ratio amounted to 38%. Banks’ exposure to property also continued to decrease: the volume of loans at the end of June amounted to €138,329 million, after a decrease of 5.6% in just one quarter. It is worth noting that the total loan balance reached historical highs of €324,664 million in June 2009.

It was then that the banks started to reduce their exposure to the sector, by closing off the tap completely to anything that was remotely related to brick. Moreover, since then, many debts have been exchanged for assets, i.e. property or land, which has turned the banks into the largest estate agent in Spain.

A similar trend is being observed in the construction sector. The default rate decreased to 29.8% in June, dropping by 2.3 p.p. in just one quarter, whilst the loan balance amounted to €46,090 million, having decreased by 4.1% during the quarter. At the height of the real estate bubble, bank financing to this sector peaked at €153,453 million.

Mortgages

Spanish banks have always argued that, despite the harsh crisis that the country suffered, mortgages to individuals have resisted the onslaught relatively well. The delinquency rate in this segment only exceeded 6% in two quarters: Q1 and Q2 2014. Since then, it has followed a downward trend to reach 5.2% in June 2015.

The total residential mortgage loan balance amounted to €542,422 million at the end of H1 2015, whereby accelerating its YoY rate of decline to 5.4%. Although mortgages have become a central part of banks’ commercial strategy once again, especially as a tool for securing customer loyalty, the new loans being granted do not yet offset the repayments on the existing ones.

Original story: Expansión (by M. Romani)

Translation: Carmel Drake

Refinancing Of Loans To Households Grew By 5% In Six Months

1 September 2015 – Expansión

The economy is showing clear signs of recovery, but not without the exit from crisis being widespread among the citizens. In the six months, the bank has brought an increase of 5.06% through individual refinancing operations, a sure sign that the hardships of many families still force to redesign their debt so they can repay it rather than face default.

The size of renegotiated loans to individuals climbed from 76,071,000 at the end of 2014 to 79,919,000 in June, as specified by the banks to the National Securities Market Commission (CNMV) in response to the demand for transparency imposed by the Bank of Spain.

Almost all institutions also acknowledge increase in the number of restructured operations, at rates ranging between 1.25% and 16.43%; except Santander, BBVA and Abanca, whose censuses fall and drag the total count of modified debts from 3.71 to 3,630,000 instead of escalating.

In late 2012 the Bank of Spain imposed an obligation to detail the refinancing so to address the malpractice of disguising under color of healthy loans the insolvent ones and draw from under rugs problematic exposures, when market health sector was questioned for fear of its balance sheets being flooded by toxic operations.

In that first calculation, the sector stripped off 211,273,000 euros in refinanced and restructured transactions, amount equivalent to 1.57% of the outstanding/pending credit with only one-third belonging to households and two-thirds to the companies, hindered mainly by the real estate crash.

Construction generates only 29%

Three years later the situation has changed considerably. The restructured debt has reduced to 196,109.45 million, equal to less than 10% of the financed stock, with the builder and property development being responsible for only 28.87% of global exposure.

The construction lost market share abruptly, at the beginning of the year, with the cleaning of SAREB and severe requirements in sanitation/stabilization, which helped to discover refinancing transactions and reclassify them as defaulting – once protected against severe losses with endowments, they speed up the recognition of defaults.

The trend continues with this inertia. In the first six months of the year the portfolio readjusted from financing to construction and real estate fell by 10.42%, to 35,966,000; and the number of operations went from 60,874 to 59,613.

A situation that ironically contrasts with the upturn in families, now responsible for nearly four out of ten euros of refinancing operations. Despite the demonization of the practice for fear that it helps disguising losses, redesigning debt is a common banking remedy for giving customer payment opportunities when economic conditions worsen and to avoid much distress in the case of not returning the credit or, in the most dramatic cases, losing home.

The restructuring of mortgages, estimated in millions of cases, has contributed to their delinquency being limited to 6% even with unemployment soaring up to 25% of the population and after enduring seven years of crisis. It is an effort intensified these last years, adding to the portfolio of solutions extensions of maturities, deficiencies in rates or fees, acquittances, while the banks kept accumulating provisions .

If in 2012 51.4% of the balance was delinquent, with endowments covering only 15-18% of the entire refinanced portfolio; now 22% are protected, with non-performing exposures limited to 44%.

The effort to shield the impaired balance allows sector to face the opening of the credit tap more willingly. Now that defaults begin to decline and the economy has put an end to job losses, banks have turned to financing.

The new concession to households and companies amounted to 144,615,000 in the first seven months of the year, resulting in a year increase of 21.4%. It remains insufficient for the total stock to increase, but it has taken a growing rate of acceleration: rebounds progression in companies, from 9.6% in June to 14.4% in July, going from 33% to 37.6% in the new credit to households.

The battle for funding favours new reductions in prices of loans: the APR on new mortgages slipped down from 2.50% to 2.43% from June to July, and in business loans above one million euros from 2.41% to 2.02%, in lesser amounts it rose from 2.53% to 2.72%, according to the data released yesterday by the Bank of Spain.

Original story: Expansión

Translation: Lee La

Housing Permits Increase By 28% During 5M To May 2015

31 July 2015 – El Economista

The number of permits granted by the Colleges of Technical Architects for the construction of homes soared by 28% during the first five months of 2015 to 19,134 – the best figure to be recorded during that period since 2012, according to the latest data published by the Ministry of Development.

Permits started the year with a 37% increase, to 3,466 in January. In February, the YoY increase soared to 57%, whilst in March, the trend was broken with a 13.5% decrease in the number of permits granted with respect to the previous month. The number then grew again in April and May, by 50% and 22%, respectively.

The growth in the number of permits granted between January and May comes after a timid increase of 0.003% in 2014, to 34,873 – the first year of growth in the sector after seven years in decline.

Despite the increase recorded during the first five months of the year, the number of housing permits being granted is still well below the peaks recorded at the height of the boom in 2006, when more than 217,000 permits were granted in the real estate sector during the first three months of the year, i.e. 94% more than during the first five months of this year.

In total, 30,140 permits were granted for new builds, renovations and extensions during the five months to May, which represents an increase of 20.5% with respect to 2014.

By type of property, permits granted for the construction of housing blocks increased by 35% (with 13,585 licences), whilst those granted for single-family homes grew by 13%, to 5,537 permits.

In terms of surface area, the average size of single-family homes was 201 m2 and the average for flats was 112 m2. The number of housing permits granted began to decrease in 2007 (which saw a 24.8% reduction) and since then have followed a downwards trend until last year’s tiny increase.

According to the Ministry of Development, which began compiling these figures in 1991, permits reached their historical minimum level in August last year, when only 1,585 permits were granted. The historical maximum level was recorded in September 2006 when 126,753 permits were granted in a single month.

Original story: El Economista

Translation: Carmel Drake

Sareb Sells Its Debt In ‘Grupo San José’ To BofA

1 July 2015 – Faro de Vigo

Sareb, also known as the ‘bad bank’ has decoupled itself from Grupo San José‘s refinancing program. Sources confirmed yesterday that the body chaired by Jaime Echegoyen (pictured above) has sold the liability that it held with the Pontevedra-based construction group and will therefore not participate in the €100 million warrant issue (which may be convertible into shares) scheduled by the company. According to the same sources, the bad bank has sold its debt to Bank of America, which hereby strengthens its position as a creditor of San José and will acquire more than half of the warrants.

According to documentation submitted by the firm chaired by Jacinto Rey – which successfully dodged bankruptcy thanks to an agreement reached with its creditors – Sareb was going to acquire warrants amounting to €6.936 million. Sareb had voted against the Pontevedran group’s debt contract, but the Commercial Court approved the agreement and forced by the bad bank and KutxaBank – which had also rejected the program – to underwrite the obligations.

With the decoupling of Sareb from the construction group, the creditors that will acquire warrants will be: Bank of America (almost €54 million), Banco Popular (€25.1 million), Deutsche Bank (€10.468 million), Barclays Bank (€10.037 million) and KutxaBank (€251,241). According to the terms of the contract, this group of creditors will take ownership of 35% of the Galician group if it is unable to repay its €100 million loan in 2019. By virtue of the construction company’s bailout agreement, the creditors have now taken over control of the company’s real estate division, comprising assets worth more than €1,400 million (primarily land, completed developments and buildings for rent).

Original story: Faro de Vigo (by Lara Graña)

Translation: Carmel Drake

BBVA: The RE Recovery Depends On 3 Cornerstones

5 June 2015 – Idealista

According to BBVA Research, the real estate sector showed clear signs of stabilisation during the first quarter of 2015. The entity has based its findings on: the opening of mortgage credit; the slight variation in house prices; and the recovery in construction activity.

The data supports this recovery. The volume of house sales increased by 2.3% YoY in Q1 2015, maintaining the trend seen in recent months. The General Council of Notaries confirmed the trend with the sale of 34,756 homes in March alone.

This growth in demand, coupled with interest rates at historic lows, has allowed more growth in the mortgage market, with a YoY increase of 22% in mortgage lending during the first quarter of the year and an increase of 20.4% in the volume of loans granted for new house purchases during the first three months of the year.

Meanwhile, house prices dropped slightly (by 0.1%) during Q1 2015 to reach €1,459/m2 on average, according to data from the Ministry of Development; they continue evolve heterogeneously by region. Whilst the Canary Islands and Aragon experienced the highest increases during the quarter (higher than 1%), Cantabria, Murcia and Asturias suffered the most significant decreases.

The third element of this improving environment is: construction activity. Despite the decline in the granting of permits for new constructions during the first quarter of the year with respect to the previous two quarters, YoY growth amounted to 23%. Moreover, the number of individuals registered for social security in the sector increased slightly, by 0.4%, in April compared with March, whilst unemployment continued to decrease in the sector.

Original story: Idealista (by David Marrero)

Translation: Carmel Drake