Bank of Spain: Real Estate Loans Account for 40% of All New Lending

3 May 2018 – El Confidencial

The Spanish economy is returning to its roots. New real estate loans granted to households, in other words, lending that does not include the renegotiation of existing loans, is now growing at an annual rate of 17.4%. In total, such lending amounted to €36.5 billion in 2017.

And this is not a one-off blip. So far this year, although the rate of growth has softened, it still rose by 11.1% during the first quarter compared to the same period last year. That explains how real estate loans now account for 37.4% of all lending that households requested in 2017, which amounted to €97.5 billion in total.

Those €36.5 billion that were used to buy properties exceeded the amount spent on the purchase of consumer goods (€29.1 billion) and the amount that was financed through credit cards (€13.3 billion), whose growth was very significant.

Paradoxically, the most expensive financing – financial institutions apply significantly higher interest rates when consumer acquire goods using credit cards – grew by 20.3%. Therefore, by five times more than the increase in nominal GDP (with inflation).

Data from the Bank of Spain leaves no doubt about the recovery in real estate lending boosted by low interest rates, which explains that the number of renegotiations is still very active, although it has decreased with respect to two years ago, when many households changed the conditions of their loans to benefit from the European Central Bank (ECB)’s ultra-expansive monetary policy.

Specifically, between 2015 and 2017, Spanish households renegotiated loans amounting to almost €18.0 billion, which allowed them to benefit from the extraordinary monetary conditions. In fact, 1-year Euribor remains at -0.1890%, which has encouraged increasingly more households to opt for fixed-rate mortgages over variable rate products.

The average interest rate on new operations for the acquisition of homes amounted to 2.21% in February, which represented a slight increase of 16 hundredths with respect to the previous month. In any case, these are tremendously favourable real interest rates (with respect to inflation), which boost property sales.

Property bubble

The credit map reflecting the Bank of Spain’s statistics reveals two very different realities. On the one hand, as described, new real estate lending has soared, but on the other hand, the amount granted before 2008, which is when the real estate bubble burst, is continuing to fall very significantly. In other words, families are continuing to repay their loans and, therefore, reduce their indebtedness, but, at the same time, new operations are growing strongly.

A couple of pieces of data reflect this clearly. In 2011, the outstanding loan balance dedicated to real estate activities amounted to €298.8 billion, but by the fourth quarter of 2017, that quantity had decreased to €110.0 billion (…).

The importance of the real estate sector in the Spanish economy is key. And, in fact, the double recession was very closely linked to demand for housing, which fell by no less than 60% between 2007 and 2013. In particular, due to the drag effect on the other components of private consumption (…).

The data on real estate lending are logically consistent with those offered by Spain’s National Institute of Statistics (INE) on the constitution of mortgages, which reflect an increase of 13.8% in February (the most recent month for which data is available) compared to a year earlier. In total, 27,945 mortgages, with an average loan value of €119,708, were granted (…).

Original story: El Confidencial (by Carlos Sánchez)

Translation: Carmel Drake

Quabit Signs €50M Loan with Taconic & Grupo Royal Metropolitan to Fund Land Purchases

4 April 2018 – Eje Prime

Quabit has sealed a deal to continue operating in the property development business. The company has signed a line of credit amounting to €50 million with the aim of financing the acquisition of developable plots of land focused on the development of residential real estate assets, according to a statement filed by the company with Spain’s National Securities and Exchange Commission (CNMV). The real estate company has signed the loan with specific funds advised by the companies Taconic Capital Advisors UK and Grupo Royal Metropolitan España.

Specifically, according to the agreement, the provisions of this line will finance 70% of land acquisitions and the corresponding taxes, whilst Quabit will finance the remaining 30%.

The funds must be drawn down during the first nine months of the contract, and the drawn down funds must be returned upon maturity of the line of credit, after four years, with the possibility of making early repayments and reusing the funds to finance new investments.

For each one of the projects financed, a separate company will be used in which Quabit will hold a 100% stake, albeit indirectly. These stakes will be the guarantee for the loans, leaving the land free, if necessary, for banks to finance its development.

The signing of this line of credit forms part of the new investments financing scheme established by Quabit in its business plan for 2017-2022. The company chaired by Félix Abánades recorded turnover of €535.7 million in 2017, although its sales fell by 83% due to a reduction in stock during 2016, and because its new developments are going to start to be handed over this year, according to the real estate company.

Original story: Eje Prime

Translation: Carmel Drake

CaixaBank to Lend €3bn to Hotel Sector

15 March 2018 – Expansión

CaixaBank has declared the hotel sector strategic for increasing its credit investment. Through its new line of business CaixaBank Hotels & Tourism, the entity has just signed an agreement with the Spanish Confederation of Hotels and Tourist Accommodation (Cehat) to make available a specific financing line of €3 billion to its 13,000 establishments over two years.

The bank led by Gonzalo Gortázar closed 2017 having granted €1.5 billion in loans to the hotel sector, where it has a portfolio of 14,000 clients – two out of every three hotels in Spain – and €5 billion in terms of business volume. With the launch of the new division, CaixaBank expects to grow its loans to this segment by 20% during the first year.

Original story: Expansión

Translation: Carmel Drake

Spain’s Mortgage Market Heats Up, Led by Madrid & Barcelona

16 February 2018 – Eje Prime

The mortgage market in Spain is heating up again starting with its traditional strongholds: Community of Madrid and Cataluña. During the 11 months to November, those two regions, together with La Rioja and Cantabria, saw the highest increases in the number of mortgages constituted in the country.

Whilst Congress is still processing a new Mortgage Law, which looks set to introduce important increases in guarantees and transparency for bank users, the number of mortgages is picking up again across the country, with almost 401,000 operations formalised during the first eleven months of last year.

Between January and November, 69,885 new mortgages were signed in the Community of Madrid, according to data from Spain’s National Institute of Statistics (INE). That figure, the second highest in Spain (after Andalucía, the most populated community) represents an increase of 15.7% compared to the same period last year.

In the case of Cataluña, 61,831 mortgages were constituted, up by 10.5% compared to the first eleven months of 2016. Both regions outperformed the evolution across Spain as a whole, where the number of mortgage contracts signed increased by 7.8% between January and November last year.

Nevertheless, the rate of growth in both Cataluña and Madrid was surpassed by La Rioja, which saw an increase of 26.8%. Cantabria also performed well, with a 15.4% increase in the constitution of mortgages during the eleven months to November. Aragón, the Canary Islands, Extremadura and Navarra all saw decreases in the number of mortgages constituted in the period from January to November.

In addition to a rise in the number of mortgages, the average amount of mortgages is also gradually recovering. In November, for example, the average mortgage in the Community of Madrid amounted to €216,137 (the highest amount in the country given the more expensive house prices in that region), up by 9.8% compared to a year earlier. In the case of Cataluña, the average mortgage amounted to €166,191, up by 17.3%.

Far from the pre-crisis levels 

Although the tone of the mortgage market in Spain is recovering, the magnitudes are still well below their pre-crisis levels. In 2006, for example, more than 1.7 million mortgages were constituted in the country between January and November, for a higher average amount.

Since 2006, the average amount of mortgages in the Community of Madrid has fallen by 58.5% and, in the case of Cataluña, the decrease amounts to 58.5%. It just so happens that the decreases in both regions have been lower than the reduction across the country as a whole, where the average mortgage is now 78% lower than it was in 2006.

Original story: Eje Prime (by Jabier Izquierdo)

Translation: Carmel Drake

Experts: Foreign Investors will Continue to Back the Spanish RE Sector in 2018

11 January 2018 – Expansión

The experts believe that the residential sector is going to be the main protagonist of 2018, in terms of both development and investment. The banks are expected to continue their balance sheet clean-ups with more portfolio sales.

The real estate sector is expected to continue to constitute a mainstay of the Spanish economy in 2018 thanks to the growth of residential property development and the commitment from international investors to Spanish property as a safe haven for their investments, according to the experts consulted by Expansión.

For Adolfo Ramírez-Escudero, President of CBRE España, property developers will be some of the most dynamic investors in 2018. “Last year, they underwent an expansionary cycle and, through specialisation and the sophistication of their product, they will continue to increase their prominence in the sector”, he explains.

The CEO of JLL España, Enrique Losantos, forecasts that 2018 will maintain the positive rhythm of recent years and that figures will remain in line with 2017, with a total investment volume of around €13 billion. Losantos also expects that portfolio operations, which were the major stars of 2017, thanks to the sale of assets by Banco Popular and BBVA, will continue to strengthen their position in 2018 (…).

Rents

For Santiago Aguirre, President of the Board of Directors of Savills Aguirre Newman, “we are entering a year of consolidation in terms of the upward cycle that we have been immersed in since 2014. Several segments, such as offices and logistics, have reached maximum leasing levels, nevertheless, we still see potential for rents to reach the maximum levels seen in the previous cycle”.

In terms of investment in tertiary assets, Oriol Barrachina, CEO at Cushman & Wakefield, explains that there is a perception that there will be more liquidity than product, despite caution being erred in light of the local and international uncertainty. “The main difference with respect to the last two years is that one group of buyers, the Socimis, are now also going to be selling assets. For years, they have purchased lots of assets and after generating value from them, they are going to put them up for sale, a fact that will also help to bridge the gap between supply and demand”, adds Barrachina.

Sandra Daza, Director General at Gesvalt, thinks that this year those investors who entered the cycle during the opportunistic period, between 2013 and 2015, will be replaced by long-term investors, such as insurance companies and pension funds.

In terms of trends, Mikel Echavarren, CEO at Irea, considers that residential development will continue to generate news this year, both in terms of land transactions, as well as price rises and the recovery of secondary markets (…).

Humphrey White, Director General at Knight Frank, highlights that Spain is currently at the beginning of an expansion period, with forecast demand of between 120,000 and 150,000 new homes per year, even though it closed 2017 with just 47,500 new home transactions (…).

No sign of a bubble

White considers that the growth in the sector in Spain rests on “some very firm foundations in terms of the law of supply and demand, whereby moving firmly away from a possible real estate bubble”.

For Gonzalo Gallego, Partner in Financial Advisory at Deloitte, buildable land will be one of the major challenges in the property development sector.

In terms of the rental market, Ramírez-Escudero explains that in 2018, we will see “quite a lot” of activity in the market from institutional investors backing rental homes. Over the last decade, the number of rental homes has increased significantly to reach 22.5%. Nevertheless, Spain still has major potential given that the average in the EU is 33% (…).

Javier López-Torres, Partner in Real Estate at KPMG, agrees. He considers that the rental segment will continue to gain weight due to the difficulties involved in accessing credit, mobility and cultural change (…).

Asset types

By sector, Thierry Bougeard, Director General at BNP Paribas Real Estate, says that demand for office space will continue its strong performance (seen in 2017), above all in Madrid, where leasing volumes are expected to increase to around 600,000 m2.

Meanwhile, in the logistics market, e-commerce will continue to be the main motor of demand, whilst in retail, many owners are betting on improving the quality of their centres, boosting leisure areas and the quality of them, with the aim of encouraging customers to stay longer, he explains.

The experts also agree in highlighting the high level of interest expected in alternative real estate assets, such as student halls and nursing homes.

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake

Spain’s Residential Rental Sector Continues to Thrive

6 January 2018 – Cinco Días

The current rental market in Spain has nothing or very little to do with the one that existed in the noughties (2000-2009), when being a tenant was almost equivalent to being a second-class citizen, as Gustavo Rossi, President of Alquiler Seguro, recalls. A study compiled by Idealista maintains that whilst in 2000, homes offered for rent represented just 9% of the market, by the end of 2017, Madrid was the third-placed city in the ranking of places with the most rental homes in Europe, whilst Barcelona was ranked sixth.

That increase in supply has been driven by an exponential growth in demand for rental homes and by the boom in tourist rentals. During the first few years of the crisis, demand switched to the rental market, above all due to necessity. Faced with the impossibility of buying a home due to the high prices or the closure of the credit tap by the banks, or even both factors, families had to resort to renting as their plan B.

Nevertheless, and as the economic and employment recovery has been gaining momentum, although the majority of those who rent still aspire to become homeowners, increasingly more households are opting to lease regardless of their economic capacity or solvency level. They are the new tenants by conviction. “The impact that the no-credit-generation (those who are not willing to get into debt and who prefer to pay to use a home) is having on the market is considerable”, explains Rossi.

One way or another, the percentage of households that rent their homes has gone from just 11% in 2001 to almost double that figure, more than 20% in 2017, according to figures from the sector. That progression is even more marked in the large cities since it is estimated that in Madrid and Barcelona, more than 30% of families rent their homes, which brings Spain closer to the European parameters, where the average number of rental homes exceeds that 30% threshold (…).

Sources at Fotocasa are convinced that this year (2018) there will be a lot of talk about the rental market once again. “The high returns that investors are seeking, the boom in tourist apartments and the change in mentality (towards renting) are going to continue putting upward pressure on rental prices, above all in the large cities”, says the firm’s Head of Research, Beatriz Toribio. In this sense, the table published by the Bank of Spain comparing yields on rental homes with those on the stock market (Ibex 35) and fixed income securities leaves little room for doubt. The latest data reveals a gross profit from rental properties of 4.2% p.a., which soars to 10.9% if we add the gain that can be obtained when a property is sold (capital appreciation) (…).

The experts offer two pieces of advice. Before choosing between traditional rental and tourist lets, investors should analyse all of the variables because it is not always more attractive for a property to be let for very short stays (refer to the comparative graph). And the Administrations are demanding that investors bet more on the rental segment, in the form of direct subsidies and tax reliefs, to encourage owners to put empty homes onto the market and that will allow them to reach maturity. “The rental market is here to stay”, says Eduard Mendiluce, CEO at Anticipa Real Estate.

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake

House Prices: How Much Upwards Wiggle Room Is There?

13 June 2017 – El Mundo

In many respects, the housing sector has been restored to its former glory: house sales are rising at an increasingly faster rate, the development of new homes has resumed and the granting of mortgages is growing apace. However, the jubilation in the residential market can be felt, above all, in the significant increase that prices are experiencing in the new real estate cycle.

House prices rose by 7.7% in YoY terms during the first quarter of 2017, according to Real Estate Statistics from the College of Property Registrars. In the historical series published by that body, that figure represents the highest increase in house prices since 2007, in what is now the third consecutive year of increases in the market after seven years of severe decreases. (…).

The Registrars highlight the favourable behaviour of the real estate and mortgage markets, but warn that this strong dynamism “does not justify any intensification of growth towards double digits anytime soon”.

The registrars reiterate in their analysis that “From a global perspective, the market is debating between sustainable growth and an intensification towards forgotten figures”. They attribute the significant increase in house prices to the consolidation of economic growth, creation of employment, low interest rates, activity in the mortgage market and overseas demand.

The main consequence of the variables listed by the registrars, which work in favour of rising prices is, clearly, the increase in the number of potential buyers of homes, as highlighted by Julio Gil, Managing Partner at Horizone Consulting Inmobiliario. “The factors that are driving the appreciation in house prices nowadays are demand-driven, with three very clear facets: pent-up demand from previous years, which is now coming into play, demand to reposition and demand to invest”, reflects Gil. (…).

Moreover, all indications are that prices will continue to rise, at least, in the medium term (…). What is not so clear is the intensity of that increase. (…).

According to the registrars “Our predictions are based on forecasts of moderate growth rates, defined to be YoY rates of around 5%-6%, although there may be cyclical periods of more intensive QoQ rates. It would seem that “the social and economic reality does not justify an intensification much greater than these amounts”. And they highlight: “The evolution in terms of the number of inhabitants, wage levels, the outlook in terms of interest rates etc. ought to put the brakes on the upwards trend, to a certain extent”.

That prediction is not shared by Gonzalo Bernardos, Economist and Director of the Masters in Real Estate Management and Development at the University of Barcelona. “House prices will rise by around 8% in 2017 if the net credit available to purchase a home does not increase; and will soar by around 13%, if lending rises by 5%”. For the time being, this expert does not see an obvious risk of a bubble and recalls that that only happened a decade ago after net credit had been increasing for 10 years by almost 20%. (…).

Looking ahead, Bernardos takes it for granted that the steep rise in house prices will be contained when the price of money increases (it currently stands at 0% in Europe). He calculates that, provided nothing changes in the international environment, this turning point in interest rates will happen at the end of 2018, which means that by 2019, the average YoY increase in house prices will be sustained at around 3%-4%-5%. (…).

Original story: El Mundo (by Jorge Salido Cobo)

Translation: Carmel Drake

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

BBVA Research: House Prices Will Rise By 3.5% In 2017

19 October 2016 – Expansión

(…). BBVA Research indicated yesterday, in its report entitled “The Real Estate Situation in Spain” for Q2 2016, that “the improvement in sales is permitting a gradual appreciation in house prices”, which are expected to grow by 2.5% this year and by 3.5% next year. It added that this rise will be accompanied by very significant growth in terms of transaction volumes, given that sales are forecast to grow by 10% this year and by 6.5% next year, to reach 475,000 real estate operations in 2017.

This report echoes data published by Spain’s National Institute of Statistics (INE) and the Bank of Spain, as well as by property registrars and several appraisal companies. One of them, Tinsa, recently indicated that house prices rose by 2.4% in September, with a strong increase in rental prices. Nevertheless, BBVA Research went a step further and said that this positive trend will continue well into next year, and may even accelerate thanks to job creation, improved confidence, the opening of the credit tap and demand from overseas buyers.

All of this will reinforce the effect that the price rises seen in recent months have had in terms of encouraging the market and investors who do not want to miss out. In this sense, BBVA Research said that “the path observed in terms of residential property prices is generating positive expectations, which will become a new factor that will support the demand for housing”. As a result, the sector will manage to offset some of the forecast deterioration in other factors next year, such as economic growth (which will slow by almost one percentage point in 2017, according to the main analysts, including BBVA itself), the moderation in global growth and the expected increase in oil prices.

Knock-on effect

Nevertheless, this increase in prices and transactions is not isolated, but rather is generating even greater positive effects in other aspects of the market. In this way, permits for new homes have recovered at a rate of almost 35% across Spain as a whole and by more than 100% in regions such as the Canary Islands and La Rioja. As a result, 90,000 new permits are expected to be signed next year, with housing starts at record highs compared to recent years.

In addition, the market for land is also enjoying more activity, with a 19.2% increase in the surface area sold during the first half of the year. This increase has also been accompanied by an increase in land prices (5.9%) following an increase of 4.3% in 2015, which reflects the outlook for the sector. Meanwhile, the purchase of land has undergone a significant change in recent years, given that at the start of the crisis, the major investors were individuals and now 70% of buyers are companies, thanks to the return of credit to the market.

Original story: Expansión (by Pablo Cerezal)

Translation: Carmel Drake

IPE: House Prices Will Rise By 5% In 2016

18 July 2016 – Expansión

The recovery of the real estate sector began in 2015, and we are now (in 2016) seeing the consolidation of the end of the crisis, with increases in: property prices, the number of transactions, the number of housing permits and rentals, spreading across the whole country.

After seven years of crisis in the sector, the improvement in 2015 might have seemed like a mirage to many, a temporary bounce or a small sign of stabilisation. Nevertheless, the figures for 2016 are showing that the outlook is strong and that the housing market still has great potential, which means that we no longer need to talk about “blossom in the greenhouse” or an incipient recovery, but rather future growth.

The scenario outlined by the Institute of Business Practice (IPE) in its next edition of the Real Estate Pulsometer, shows a very favourable outlook for the sector, in which average transaction prices will grow by 5% and the volume of sales will increase by 13.9% with respect to 2015. All of this will act as a driver for the rest of the sector, which is also being boosted by construction activity. Thus, the number of projects launched will increase by 9.3% and the number of permits for new homes will grow by 13.9%. It seems that the sun is already shining on all of the major indicators in the real estate market.

In addition to this data, we are seeing a gradual and increasingly rapid recovery of the rental market; a strong increase in the yield on homes; and a clear recovery in the non-residential sector, which set record breaking figures in 2015 and is following a positive trend so far in 2016, with fewer operations, but higher prices.

The indicator that best indicates the recovery of the real estate sector is the number of transactions, which grew by 11.1% in 2015 and which is forecast to rise by 13.9% this year. In addition, the increase in sales does not depend only on purchases by those with significant savings…, which was the main driver of the market in years gone by, but in very specific areas.

More mortgages

During 2016, the opening up of the bank loan tap will drive mortgages up by 10.5% (compared with a miniscule increase of 0.6% in 2015), which will allow buyers to return to the market in search of primary residences, even if they only have small amounts of savings. This means that the improvement in the market will extend to other provinces and neighbourhoods that have not featured on the radars of investors in the past.

In addition, this recovery will also affect plots of land, as well as garages, offices and storerooms, to reach 787,839 operations (up by 10.2%) compared with last year. In total, more than half of these transactions are expected to involve homes.

Based on the data to May, the highest increases in house sales are being seen in the Balearic Islands (where purchases grew by 38.6% between January and May, with respect to the same period last year), followed by Murcia (28.9%), País Vasco (24.3%) and Extremadura (21.7%), according to INE. Nevertheless, the Institute of Business Practice forecasts that, during the year, Madrid, Cataluña, Valencia and the Canary Islands will also see some of the most significant increases. (…).

Original story: Expansión (by Pablo Cerezal)

Translation: Carmel Drake