Fotocasa: Rental Housing Prices Rose by 1% In May

29 June 2016 – El Economista

The average price of rental housing in Spain rose by 1% in May, to €7.36/m2/month, placing rental prices at levels not seen since October 2012 (€7.38), according to the latest data from the real estate portal Fotocasa.

In YoY terms, rental prices rose by 5% in May, the steepest increase since January 2006, when fotocasa.es began to compile these statistics.

The monthly increase in rental home prices recorded in May continues the trend recorded during 2015, the year when rental prices began their recovery after eight years of widespread decreases.

In monthly terms, rental prices increased in 15 autonomous regions in May, meanwhile, in YoY terms, they rose in every Spanish region.

“The rental market is slowly gaining ground in Spain. Despite the re-opening of the credit tap and the marked decrease in prices, there is still a very significant segment of the population that cannot afford to buy a home and is therefore forced to rent. Higher demand, together with the high returns that this market offers, are causing a widespread recovery in prices across the country”, explained the Head of Research at fotocasa.es, Beatriz Toribio.

Since rental prices peaked in May 2007 (at €10.12/m2/month), they have recorded a cumulated decrease of -27.2%. In this sense, four autonomous regions have recorded price decreases of more than 30% since their maximums five years ago.

Aragón is the region where residential rental prices have decreased by the most (by -40.2%), followed by Castilla-La Mancha (-35.3%), Cantabria (-34.9%) and Comunidad Valenciana (-30.3%).

Price rises in 15 autonomous regions

By autonomous region, price rises were recorded in 15 regions in May, with the increases ranging from 3.9% in the Balearic Islands to 0.1% in Cataluña and La Rioja. Meanwhile, prices remained stable in Navarra and fell by -0.1% in Aragón.

In terms of the price ranking, Madrid (€10.29/m2/month) replaced the País Vasco (€10.18) and Cataluña (€10.23) as the most expensive region to rent a home. At the opposite end of the spectrum, Extremadura (€4.53/m2/month) and Castilla-La Mancha (€4.69/m2/month) are the two regions were rental prices are most affordable.

Original story: El Economista

Translation: Carmel Drake

RE Default Rates Closed 2015 At Lowest Levels Since Jun ’12

21 March 2016 – Expansión

There was a significant decrease in the default rate of both property developers and individual mortgage borrowers last year.

Defaulted payments by real estate developers…are diminishing. Last year, the default rate of this segment fell by almost nine percentage points, to close the year at 27.5%. That was the lowest level since June 2012, when the ratio stood at 27.4%.

Since the peak of 38% in December 2013, the ratio of doubtful real estate loans has reduced by almost 11 basis points, and the volume of non-performing assets has decreased by almost €47,800 million. This decrease is explained less by recoveries and more by the sale of (provisioned) non-performing loan portfolios to opportunistic funds, as well as the multi-million exchanges of debt for assets, which have decreased the default rate in exchange for filling the banks’ balance sheets with property.

Also, during Q4 2015, financing to property developers experienced a slow and steady decline, indicating the first signs of a slow down, decreasing by just half a percentage point since September. Nevertheless, it is worth noting that the property loan balance now stands at €135,190 million, well below the peak of €324,439 million it reached in 2009.

Improvements in mortgages

Another segment that registered some improvement in credit quality in 2015 was that of mortgages for the acquisition of homes by individuals. That default rate decreased by almost one percentage point, to close the year at 4.8%.

This decline occurred despite the fact that loans continued to decrease during the year, by 3.8%. Since the peaks of 2010, the total mortgage balance has decreased by €101,193 million to its current level of €531,256 million.

Stagnation in January

With respect to the general default rate in the sector, which stood at 10.1% at the end of 2015, having decreased by 2.5 p.p. during the year, the Bank of Spain released the data for the beginning of 2016 on Friday. In January, the decrease in the default ratio came to a halt and the default rate stagnated.

During the month, the total loan balance decreased by €8,472 million, whilst the doubtful asset balance decreased by €903 million.

Original story: Expansión (by M. Romani)

Translation: Carmel Drake

Significantly Fewer Homes For A Much Smaller Population

7 March 2016 – Cinco Días

The real estate sector is preparing to undergo a comeback this year after the burst of the real estate bubble caused house prices to depreciate by 35% since 2008 and more than half of its productive fabric was destroyed. The cranes have returned, albeit, in moderation, for the time being. And the demographic projections support this caution, given that between now and 2029, Spain is expected to lose one million inhabitants.

In the face of some apparently overly optimistic estimations from certain players in the real estate sector about the evolution of the market this year, experts and other operators, such as the national trade association of property developers APCE emphasise the need for prudence and restraint when taking on new projects.

The truth is there are many reasons to be optimistic. House prices seem to have bottomed out across most of the country, sales are continuing to maintain the good tone with which they closed last year and the return of financing has resulted in a higher volume of solvent demand. If the improvement in the labour employment continues in the short and medium term, then property developers will be in no doubt that 2016 will be the year of the return of construction with figures showing the market taking off, after it lived the worst crisis of its recent history.

But, as always, there are risks and threats that cannot be ignored. The most short-term factors will be those relating to the good performance of the economy: employment, credit and interest rates are three key variables. Plus, the political climate. (…).

However, one of the variables that was critical during the previous real estate boom and which all Governments and economic agents must bear in mind is that of demographics.

At the end of this year, the National Institute of Statistics (INE) will update its long-term population projections, which it does every two years. The last update, at the end of 2014, drew devastating conclusions that the real estate market cannot ignore if it wants so avoid another phase of runaway growth, with the undesirable effects on price, supply, indebtedness, activity and employment. Thus, in 2015, INE’s first prediction was fulfilled. It was the first year during which the number of deaths exceeded the number of births, and so began the population decline that INE has forecast will happen over the next 15 years, which will amount to 1.02 million inhabitants (2.2%) in total and will amount to 5.6 million inhabitants over 50 years. In this way, there will be 45.8 million residents in Spain in 2024 and just 40.9 million in 2064.

The reduction in the population will happen as a result of this gradual increase in deaths over births, a trend which, if nobody remedies it, will become even more accentuated, above all from 2040 onwards, and which will not be mitigated even by the flow of migration. Not even considering that over the same period there will be a net positive migration balance of 2.5 million people  (the difference between immigrants who arrive in Spain and Spaniards who move overseas). The truth is that the baby boom generation, the largest in Spain’s recent history, explains to a large extent how the most prolonged period of rising prices and house sales last century was created from the end of the 1990s. (…).

Gómez-Pintado has already launched a study at APCE to calculate, in the most comprehensive way possible, what the demand for homes will be by autonomous region between now and 2017. “The purpose of the study is to establish ranges of need for housing and to avoid constructing in places where there is no demand”. (…).

Although the study has not been completed yet, Gómez-Pintado revealed that his projections will fall in the intermediate range, between the most pessimistic, i.e. those who calculate demand of just over 60,000 homes per year, and those who are convinced that almost 250,000 new homes may be built.

According to Josep Oliver, Professional of Applied Economy at the Universidad Autónoma de Barcelona, not even the pull on demand for housing from foreigners can justify the construction of 250,000 homes per year. (…).

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake

Fotocasa: Rental Prices Rose By 3.6% In 2015

29 January 2016 – Cinco Días

At the beginning of the economic crisis, rental housing became the preferred option for those who could not afford to buy a house, either due to personal circumstances or because of the credit lockdown. Those people were called tenants by obligation, but increasingly they have been joined by tenants of conviction, citizens who can actually afford to buy homes, but who instead choose to be tenants because of their reluctance to take on debt (a mortgage) with a 20-year (or more) term.

And as the short and medium term outlook has improved, the creation of employment has accelerated and financing has returned, a new group has joined two these two categories of tenants – namely, buy-to-let purchasers. There are even cases involving tenants as buyers (of other properties) – they are people who manage to save up enough money to buy a home, but who decide to let it out and continue as tenants themselves elsewhere. (…).

In addition, the figures are beginning to show that this market could be facing one of the best moments in its recent history. The internet portal Fotocasa.es has just published its annual report about the rental sector, in which it concludes that last year, the average price of homes for rent increased by 3.6%. That represents the first YoY increase since 2007 and the highest that year too, which is when the portal began compiling these statistics.

For the company’s managers, the increase in rents is the result of the explosion that the (rental) sector has experienced in recent years, as well as the change in mentality in favour of rental properties. “Moreover, the high returns that this market offers, up to 5% according to our data, have encouraged many investors to buy homes for the purpose of letting them out”, explains Beatriz Toribio, Head of Research at Fotocasa.es.

By autonomous region, only the Páis Vasco recorded a slight decrease in rental prices, of -0.3%. By contrast, last year, rents shot up by 10.7% in Cataluña, where much of the demand is concentrated.

Rental yields

Idealista has also just published a study, which shows that real estate investments, across all products, offered higher rates of return at the end of 2015 than they did a year before, with the exception of offices. (…). To calculate the average gross return on a rental home, Idealista divides the average sales price of homes, in m2, by the average rent requested by owners. In the residential sector, this calculation results in a gross yield of 5.5%, above the figure in 2014 (5.3%).

Similarly, the study analyses the returns generated by other products, such as retail outlets, which are currently the most profitable investments, with an average yield of 7.3%, followed by offices, at 6.6% (6.7% last year).

By contrast, garages were once again the assets that generated the lowest returns, at 4.4%; however this figure represents an improvement with respect to the return obtained a year before (3.6%). Once again, as is usual in this sector, returns vary significantly by region.

Llérida is the most profitable city in which to rent a house, since the average gross return for landlords there last year amounted to 7.9%. It was followed by Las Palmas (6,4%), Palma de Mallorca (6,2%), Alicante (6%) and Huelva (5,9%). Yields in Barcelona amounted to 5.4%, a tenth higher than the returns in Madrid (5.3%). Orense (3.4%), San Sebastían and La Coruña (both 3.6%) were the least profitable cities for leasing a home.

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake

Eurostat: Spanish House Prices Rose By 4.5% YoY In Q3 2015

21 January 2016 – Cinco Días

The evolution of house prices across the European Union varied significantly between countries during the third quarter of 2015, just as it did between different regions in Spain. In this way, the data published yesterday by Eurostat, the EU’s Office for Statistics, shows that house prices rose by 2.3% on average in the Eurozone and by 3.1% across the EU as a whole, compared with the same period in 2014. If the evolution of house prices is measured with respect to the second quarter of 2015, then they rose by 1.0% on average in the Eurozone and by 1.3% across the EU as a whole.

Spain stands out in the ranking by country, with an average increase of 4.5% between July and September compared with the same period last year. As such, house prices here rose by almost twice the average recorded in countries that share the euro currency. Moreover, that figure represents the greatest increase since the last quarter of 2007. The increase amounted to 0.7% with respect to the previous three months. The highest YoY increases amongst State members during Q3 2015 were recorded in Switzerland (13.7%), Austria (9.3%), Ireland (8.9%) and Denmark (7.2%).

By contrast, the countries that recorded the most significant price decreases were Letonia, with a YoY decline of 7.6%, Croatia (-3.0%), Italy (-2.3%) and France (-1.2%).

Economic recovery

A comparison of the evolution of real estate prices and GDP in the Eurozone, as well as in the rest of the EU, shows that in global terms, houses are currently being sold at higher prices in those countries in which the economic recovery is well underway and where employment is also on the rise.

Moreover, the improvement in access to credit in general terms across the whole of Europe is driving up property sales, such as in the case of Spain, and so the logical result is that prices are also rising. (…).

Other noteworthy statistics include the fact that house prices rose by 5.6% YoY in both the UK and Germany in Q3 2015. (…). Meanwhile, in France and Italy, house prices depreciated by 1.2% and 2.3% YoY in the same period (…).

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake

‘High Risk’ Mortgages Account For 15% Of New Loans

4 January 2016 – Cinco Días

For the first time since 2008, all of the major indicators in the real estate market, including house prices, ended last year on a positive note. The improvement in employment was, undoubtedly, the factor that contributed the most to the increase in the sales volume and prices of homes. The second was credit. Not only did the number of operations continue to increase, also the Bank of Spain even highlighted in one of its reports that there had been a certain “relaxation” in the criteria for granting some kinds of loans.

One of the statistics that the supervisor publishes analyses the characteristics of new mortgages. According to this data, during the third quarter of 2015, the percentage of mortgages granted with an LTV of more than 80% increased to account for 15% of all new home loans granted. These mortgages are classified as high risk, since if the property decreases in value, the mortgage holder runs the risk of entering into negative equity, which is when the debt or liability (the mortgage) exceeds the value of the asset (the home).

The figure of 15% does not represent a series maximum, but it does fall at the top end of the range. The statistic was first published in 2004, when of this type of (high risk) mortgage accounted for 15.40% of the total volume of mortgages granted. By 2006, at the peak of the previous reale estate bubble, such mortgages reached their maximum, representing 18% of all new operations. It was not until the end of 2008, when the approaching crisis began to give its first clear warning signs, that these high risk mortgages decreased to their minimum level, of 10.30%.

The experts agree that this figure of 15% does not represent a concern yet, but they are certain that the Bank of Spain will be more vigilant this time around regarding entities that may be tempted to abuse such loans. The same sources explain that banks tend to end up granting high LTV mortgages, representing almost 100% of the appraisal value, when they relate to homes that have been held in their portfolios for a long time. Furthermore, they use these more favourable terms to speed up sales “although that does not mean that they do not perform the relevant solvency studies of the clients to which they are granting the loans” say sources at one appraisal company

Moreover, the fact that property prices are now on the rise once again dispels this higher risk, to a certain extent. On average, new mortgages now represent 62.4% of the appraisal value of properties, with an initial term of 22.8 years and an average interest rate of 2.5%.

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake

What Can We Expect From The Housing Sector?

30 November 2015 – Cinco Días

It goes without saying that the real estate sector was the most vilified during the crisis. Blamed for almost all of the problems that ended the greatest economic boom in recent history, the sector has been striving to rise from the ashes since the end of 2013. International investors returned to Spain first, attracted by the low prices – according to statistics, property prices have now decreased by between 30% and 40% since their peaks.

Next, came a rise in the number of transactions, driven by improvements in the labour market and expectations of an economic recovery. Following this increase in sales, came a moderation in the price decreases and, finally, the cranes returned to the urban landscape of the large cities, albeit in a very piecemeal way. The housing stock, i.e. the huge surplus of new homes (389,00 units in total, according to a recent study from Tinsa), has stopped representing such a problem in certain cities and therefore, the moment to return to property development has arrived.

The problem is that the crisis has practically destroyed the real estate sector along the way. Today, sales represent just one third of their levels in 2006, firms are constructing only 4% of their historical peak volumes and instead of property developers and construction companies, the business has now diversified and is in the hands of the banks, Sareb and new servicers.

Macro-economic figures

The truth is that the key macroeconomic figures are starting to show real signs of the real estate recovery. Employment is growing by more than 3% and the flow of financing is increasing. Mortgage lending continued to increase at rates exceeding 20% in September, which means that it has now been recording double digit increases for 16 consecutive months.

Nevertheless, the experts warns that the “exit from the crisis is not going to be the same for everyone”, says Luis Corral, CEO of Foro Consultores. “There is a dual market. The euphoria being seen in Madrid, and to a lesser extent in Barcelona, contrasts starkly with those places where the surplus has not yet been digested and, therefore, nobody wants to build there”, he says.

The evolution of these two variables, employment and credit, will determine whether the recovery strengthens or stagnates at its current modest figures. Demographics are working against it, since the rate of household creation that was seen at the end of the 1990s, which really spurred on real estate demand, is not expected to be repeated, according to the population projections made by Spain’s National Institute of Statistics. That is why nowadays, almost no-one, except from the sector association Asprima and the appraisal company Tinsa, dares to venture a projection about what demand for homes will be like in the future. Both entities forecast that between 200,000 and 250,000 homes will be constructed over the next few years.

New Projects

Prudence is one of the key words that everyone is talking about in the market at the moment. Prudence in terms of projections, lending, construction etc.

Refurbishments

Moreover, the logical evolution for Spain’s stock of more than 25.5 million homes involves renovations and refurbishments. The vast majority, almost 95% of homes, do not comply with basic energy efficiency criteria and many established neighbourhoods in large cities could be rejuvenated with good urban renovation and renewal projects, with the corresponding boost to activity and employment that such projects would involve.

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake

INE: Mortgages Increased By 25.8% In August

28 October 2015 – Público

The number of new mortgages signed for house purchases increased by 25.8% in August, compared with the same period a year earlier, as 19,272 new loans were granted. Nevertheless, and according to the data published yesterday by the National Institute of Statistics (INE), if we compare the figures in August with those of July, then the number of new mortgage signings decreased by 11.9%.

The total volume of mortgages granted to purchase homes in August amounted to €2,010 million, an increase of 26.5% YoY, but a decrease of 11.9% compared with the previous month. Moreover, the average size of those mortgages increased by 0.6% YoY to amount to €104,318, although in comparison with July, this figure represented a decrease of 0.1%.

89.2% of the mortgages constituted in August had variable interest rates, compared with 10.8% that had fixed interest rates. Euribor was the reference rate used for the constitution of most new variable rate mortgages, specifically it was used in 91.8% of the new contracts of this type.

The average interest rate (at the beginning of the contract term) for mortgages granted to buy homes was 3.25%, i.e. 13.4% lower than the rate recorded in August 2014. The total number of mortgages registering changes to their conditions in the property records in August amounted to 13,205, i.e. 14% fewer than in August last year.

By autonomous region, the following CCAAs registered the highest number of new mortgages for homes in August: Andalucía (3,722), Madrid (3,450) and Cataluña (2,545). The autonomous regions that recorded the highest YoY increases were: La Rioja (up by 65.9%), Valencia (58.3%) and Navarra (36.5%). On a YoY basis, only two regions recorded decreases, namely Aragón (-5.2%) and the Balearic Islands (-2.1%). (…).

Meanwhile, the autonomous regions that loaned the most capital for the constitution of mortgages for homes were Madrid (€489.4 million), Andalucía (€331.4 million) and Cataluña (€304.5 million).

The experts expect the number of house purchases to keep increasing

The leading real estate websites in Spain expect house sales to continue to increase over the coming months, given the normalisation of the sector and the decrease in prices following the burst of the real estate bubble. (…).

The experts at fotocasa.es think that this positive trend will continue during 2015 and into 2016, but they add that we should be “cautiously optimistic” since the current figures are still a long way off of the levels recorded in 2005. “The mortgage statistics are very closely linked to the increase in credit from the banks and the significant decrease in house prices that we have seen in recent years”.

Original story: Público

Translation: Carmel Drake

RR de Acuña: Spain Still Has 1.6M Unsold Homes

19 October 2015 – ABC

A common remark between experts in the real estate sector is that the market will not fully recover until the residue of unsold homes originated during the boom years has been fully absorbed. The actual number we are talking about is difficult to quantify. In July, the Ministry of Development said that the number of unsold new homes decreased last year to 535,734 properties, 5% fewer than during 2013.

In the context of a strong slow down in the sale of new homes (down by -36.6% until July), the number of unsold second-hand homes becomes particularly important when we want to determine how long it will take the sector to absorb the legacy left over from the real estate bubble.

A few weeks ago, the real estate consultancy RR de Acuña y Asociados published this year’s version of its annual statistics on the Spanish real estate market, in which it indicated that this excess amounts to 1.6 million homes. Specifically, the consultancy firm estimates that the balance of unsold new homes amounts to 502,000 (261,000 fewer than in 2011) and the balance of unsold second hand homes amounts to 1.15 million, 189,000 units more than four years ago. Of all of those homes, 688,000 are located in metropolitan areas, 331,000 in coastal regions and 657,000 in other regions, where there is “no demand whatsoever”, a cutting finding from the study.

Two-speed market

On the basis of these figures, taking into account the stock of homes and the current demand volumes, the report estimates that it will take an average of six years to absorb this stock. However, the variation by geographical region is significant: in the areas along the east coast, especially in Valencia, Castellón, Murcia and Almeria, the estimated time for the absorption of the real estate stock ranges between 6.5 and 10 years. Whereas, in Madrid, the País Vasco (Vizcaya and Vitoria) and certain parts of Cataluña, such as Barcelona and Gerona, the time is notably less, ranging between 1.5 and 3.5 years.

“Spain continues to be a two-speed market….” Says Fernando Rodríguez de Acuña, Project Director at RR de Acuña y Asociados. Madrid, Barcelona, Málaga and Alicante account for most operations: together they accounted for 39.4% of all activity during the second quarter of the year. The capital (Madrid) is particularly significant, as it accounted for 14% of all transactions. (…).

What needs to happen to completely drain off this stock of homes? The report forecasts that this excess will decrease by 120,000 homes over the next two years, albeit at a slow pace. Growth in potential demand depends on the financial institutions completely eliminating “the credit restrictions”, as well as the ability of “solvent” potential buyers to take on debt. The study points out that “half of the jobs created in 2014 were temporary, part time and poorly paid”. Rodríguez de Acuña says that “salaries need to be doubled to achieve the right balance” and he cites a study performed recently by his firm, which concludes that almost 60% of people cannot currently afford to buy an average home.

Original story: ABC (by L. M. Ontoso)

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