Bank of Spain: Spain’s Housing Market is Not Overvalued

9 June 2019 – Eje Prime

The Bank of Spain does not think that a real estate bubble exists. The institution’s Director General of Economics and Statistics, Óscar Arce, has assured that the bank does not consider that the housing market is “overvalued in general”. Nevertheless, he is following the sector “very closely” given its history.

Arce highlighted several differences between the current climate and the previous cycle including the fact that price rises now are not uniform across all regions or cities. In fact, according to the latest data published by the Bank of Spain, average house prices rose by 6.8% YoY during Q1 2019, driven by Madrid, Barcelona, some parts of the coast and the islands.

Original story: Eje Prime 

Translation/Summary: Carmel Drake

Global Geopolitics Fuels Demand for Luxury Homes in Madrid

12 May 2019 – El Confidencial

Wealthy investors and families from China, Russia, Venezuela and Mexico are particularly active in the luxury home segment in Madrid, in particular in the districts of Salamanca, Chamberí, Retiro and Moncloa-Aravaca.

According to the College of Property Registrars, foreigners accounted for 6.7% of all residential purchases over €500,000 in the Community of Madrid in 2017, a figure that rose to 8.4% in 2018.

There are several pull-factors motivating these buyers including tax exemptions, golden visas (thanks to Law 14/2013), (relative) legal certainty, low rates of crime and affordable prices, compared to Miami and other European capitals. The language, climate and excellent transport infrastructure also play their role, as do the world-class universities and business schools in the Spanish capital.

A number of push-factors are also evident, which is where the geopolitical developments come into play. The political and economic crisis in Venezuela, the election of Andrés Manuel López Obrador as the President of Mexico in December, the political uncertainty in Cataluña and even the on-going Brexit saga, are all important reasons for wealthy buyers to turn their backs on their home countries in favour of Madrid when it comes to buying a property.

To date, since they were introduced in 2014, 2,948 golden visas have been granted for the purchase of luxury homes, with half going to Chinese citizens (1,476) and a fifth going to Russians (621).

Moreover, according to official statistics from Spain’s National Institute for Statistics, the number of Mexican residents in Spain has risen from just over 20,000 in 2014 to more than 25,200 by the end of 2018, of whom one third live in Madrid.

Meanwhile, the number of Venezuelan residents has increased from just over 32,000 five years ago to 57,120 in 2018. Nevertheless, in both cases, the real number of arrivals is higher since many move to Spain through family links making them entitled to Spanish passports.

Original story: El Confidencial (by Marcos García)

Translation/Summary: Carmel Drake

Ghost Towns Still Haunt Spain in Property Rebound a Decade After

25 November 2018 – Bloomberg

Juan Velayos’s biggest headache these days is getting licenses fast enough to hand over new homes such as the upscale condos his company is building in the northern suburbs of Madrid.

Less than 60 miles away, Ricardo Alba’s neighborhood tells a different story about Spain’s property market. The fencing instructor is one of only two occupants at a block of apartments whose development was frozen in its tracks when banks pulled the plug on credit.

“The real estate sector’s recovery in Spain is developing at two clearly different speeds,” said Fernando Rodriguez de Acuna, director of Madrid-based real-estate consultancy R.R. de Acuna & Asociados. “While one part of the country is consolidating the recovery of the sector and even expanding, another part of the country is stagnating and is showing few signs of returning to pre-crisis levels in the medium- and long-term.”

A decade after the financial crisis hit, Spain’s real estate recovery is a tale of two markets. Key cities and tourism hot spots are enjoying a fresh boom, fueled by interest rates that are still near historic lows, an economic recovery and a banking system that’s finally cleaning up its act. Private equity firms such as Blackstone Group LP are picking up once-toxic assets worth tens of billions of dollars and parsing out what’s still of value, often using their playbook from the U.S. real estate recovery to convert properties into rentals.

But travel a little beyond the bustling centers, to the outskirts of smaller villages, and ghost towns still litter the landscape — once ambitious developments, often started on agricultural land that was converted into building lots just before the crisis hit. They still stand half-finished, unable to find a buyer.

The “Bioclimatic City La Encina” where Alba began renting an apartment two months ago is one such development. Situated on the edge of the village of Bernuy de Porreros, about 10 kilometers (6 miles) from Segovia, it promised to be Spain’s first environmentally-friendly town, providing solar energy and recycled water for 267 homes, comprised of two-, three-, and four-bedroom chalets and apartments. A faded billboard speaks of the dreams that were sold, including communal swimming pools and gardens for residents who would “live… naturally.”

Today, only about a dozen of the homes are occupied. One street has finished homes but half have their windows bricked up to discourage break-ins, locals said. Alba does have solar panels heating his water, but his electricity comes from the local network. On the far side of the development, trees sprout out of the middle of a street that was never paved. Brightly-colored pipes and cables protrude from the ground. Bags of plaster on a pallet have long hardened.

Spain’s housing crash was fueled by a speculative frenzy combined with loose restrictions and corruption that allowed plots of farmland in rural villages to be converted to feed a demand for homes that never truly existed, said Velayos, who is chief executive officer of Neinor Homes. At the height of the boom in 2006, authorities approved 865,561 new home licenses when even in an economic boom demand is no greater than 250,000 homes, he says.

Banks were handing out loans to developers who had little to lose if a project didn’t find a buyer because the money wasn’t theirs. The result was an almost total collapse of the market and close to $200 billion of soured assets.

About half of them were bought in 2012 by Sareb, a bad bank set up by the government to help lenders. Sareb spent about 50 billion euros to acquire assets that were once valued at twice that amount, mostly loans to developers and real estate. Among the latter are also 97 of the 267 properties at La Encina. None of them are currently for sale as Sareb works through legal issues and construction of many isn’t finished.

Other assets were picked up by deep-pocketed investors such as Blackstone, which has 25 billion euros invested in Spain, according to Claudio Boada, a senior adviser at the firm. The New York-based company — the world’s largest private markets investor — is doing what it did at home after the financial crisis: renting out homes instead of selling them in a bid that fewer people can afford to own. Spain had a relatively high home ownership rate before the crisis but it has since come down.

Blackstone’s Bet

“We’re holding most of what we own and looking to rent it out for the foreseeable future,” said James Seppala, head of real estate for Europe at Blackstone. “There’s a meaningful increase in demand for rental residential around the world, including in Spain, driven by home ownership rates coming down.”

Private equity investors also backed a new breed of real estate developers that are bringing a different rigor to the industry. Companies such as Neinor and Aedas Homes S.A.U. are more tech-savvy when assessing markets, and emphasize industrial production techniques to improve efficiency. They’re behind a surge in licenses for new homes to 12,172 new homes in July, the highest monthly total in a decade.

But demand is uneven: Madrid is enjoying its most robust year of home construction since 2008 with an average of 2,151 licenses awarded per month in the first seven months of the year. In Segovia, just 27 minutes from Madrid on the state-run bullet train, an average of 25 homes licenses have been approved per month in 2018, compared with an average of 180 homes a decade earlier.

The volume of residential mortgages sold in Spain peaked in late 2005 before hitting a low in 2013. Since then they have gradually picked up, with 28,755 sold in August, a seven percent annual increase.

Velayos, chief executive officer at Neinor, said business is starting to pick up beyond Madrid and Barcelona to smaller cities and the coast. His company plans to hand over 4,000 homes by 2021, more than 12 times as many as in 2017. The biggest challenge has been getting licenses approved on time. Velayos had to cut his delivery target for 2019 by a third as often understaffed local councils cause bottlenecks in the production process.

More significantly, Spain’s real estate is now funded by investor’s equity and not credit, said Velayos. Neinor was bought by private equity firm Lonestar Capital Management LLC from Kutxabank SA in 2014 and went public in March 2017. Aedas is backed by Castlelake, another private equity investor, and was floated the same year. Metrovacesa SA, owned by Spain’s biggest banks, held an initial public offering earlier this year.

Shares of all three developers have declined this year at more than twice the rate of the local stock index, a reminder that the market’s recovery remains fragile, with higher interest rates and an economic slowdown on the horizon.

For the Bioclimatic City La Encina, that means it may take longer still until Alba gets new neighbors. Prices for half-finished chalets were slashed by half, according to residents. Some now sell for as little as 16,700 euros, half the cost of a mid-range car.

Alba doubts such cuts will lure buyers. Then again, that may not be a bad thing, he says in summing up the development’s advantages: “It’s very peaceful.”

Original story: Bloomberg (by Charlie Devereux)

Edited by: Carmel Drake

Núñez i Navarro Invests €25M in Site of Former Metalarte Factory to Build 80 Homes

19 October 2018 – Eje Prime

Núñez i Navarro has not forgotten about its land on the site of the former Metalarte factory. The property developer chaired by Josep Lluís Núñez is going to invest €25 million in the construction of a residential development in the Barcelona municipality of Sant Joan Despí.

The company is planning to build eighty homes, in total, with parking spaces and storerooms in the same property, which will be constructed between this autumn and 2021. 61 of the homes in the development will be private, whilst eleven will be social housing units and seven will be granted to the Town Hall of Sant Joan Despí by the Catalan company.

Núñez i Navarro acquired the former Metalarte factory in 2001. Almost twenty years later, the property developer is recovering the land to build its second residential project in the Barcelonan municipality. The company has just carried out a comprehensive renovation of the farmhouse where the Trias de Bes family used to spend its summer holidays to convert it into a school.

At the moment, the Núñez i Navarro group has twenty-three projects underway, corresponding to an investment of €250 million in Cataluña. Barcelona, Sabadell, L’Hospitalet de Llobregat and Sant Joan Despí are the cities chosen by this unlisted property developer to build 947 homes, two hotels, a co-working centre and 69 commercial premises or offices.

In fact, the company is one of the firms in the sector that has best overcome the crisis, with its low debt policy. Proof of that is the investment effort that it has undertaken in the Catalan region over the last five years, where it has disbursed almost €400 million.

Original story: Eje Prime 

Translation: Carmel Drake

Sevilla: The Slow Re-awakening of the Real Estate Sector in the Andalucían Capital

2 August 2018 – Eje Prime

Sevilla, the third largest Spanish city by population, is seeing the first signs of recovery in its residential market (…).

The capital of Andalucía, which is home to almost 690,000 inhabitants, has seen its population decrease on a gradual basis since 2012 when it exceeded 702,000 inhabitants. The slow but progressive decline of the population is probably one of the reasons why house prices have not risen there and why new builds account for an all but residual percentage of the market.

Nevertheless, some of the data does indicate that Sevilla is jumping on the bandwagon in terms of the improvements in the real estate market that are being seen across Spain: a sharp increase in prices in 2017, an on-going rise in sales and, finally, investment in the city by groups of the calibre of Habitat and Ayco.

The city of NO8DO, Sevilla’s traditional motto, saw its population peak at 710,000 inhabitants in 2003, before falling below the 700,000 threshold in 2007. That figure rose above 700,000 again in 2009 before reaching a decade high of 704,000 in 2010, but it has fallen continuously since then to the current figures.

Real estate dynamism

Despite that, the dynamism in terms of house purchases has been considerable in recent years. In 2013, operations in the sector were still registering strong decreases, with a fall that year of 24.4% to just 4,715 house sales. However, the rises have been unwavering since then: up by 12.1% in 2014; 11.3% in 2015; 15.1% in 2016 and 14.1% in 2017, with a total of 7,732 sales.

According to data from the Ministry of Development, during the first quarter of this year, 2,234 house sales were recorded in the city, of which more than 95% corresponded to second-hand homes. With just 98 sales, new homes accounted for just 4.4% of the residential activity during the first quarter.

Nevertheless, and despite this growing activity in terms of sales, residential prices in Sevilla remain stagnant. In recent years, average appraisal prices per square metre in the fourth quarter of each year have decreased steadily, with the exception of 2014 only, when they rose by a measly 0.3% (…).

Currently, house prices amount to €1,468.70/m2 on average (€1,754,40/m2 for new builds and €1,464/m2 for homes aged five years or more). That value is 26.3% lower than the prices in Sevilla in 2012 and 35.9% lower than the peaks of 2007, before the outbreak of the crisis, when the average house price amounted to €2,316.10/m2.

Governed by the socialist Juan Espadas since June 2015, the weight of social housing in the city is greater than that of many other Spanish cities, at least based on data for the first quarter of 2018. In this sense, 177 of the purchases recorded in the city between January and March involved social housing properties, which accounted for 7.9% of the total.

New projects

Habitat is one of the companies that has invested in the Sevillan market this year. In July, the property developer announced a €30 million investment in a new development in the Andalucían capital comprising 199 homes. The acquired land is located in Mairena del Aljarafe, one of the fastest growing areas in the local residential market (…).

Another active player in the city is Ayco, which has acquired a batch of buildable plots this year in the municipality of Camas (Sevilla). In total, that company has purchased land spanning 18,000 m2, where it plans to build around 200 homes.

Another emerging business for the city is the office market, which closed 2017 with 919,173 m2 of space leased, up by 4% YoY, and approaching the records of 2013, according to a report by the Sevilla-based consultancy Inerzia (…).

In the commercial sphere, the Torre Sevilla project is the most important in the city at the moment. Six years after inheriting this macro-project, CaixaBank has let 100% of the office space and the shopping centre is on the verge of opening its doors.

Aenor, Deloitte, Everis, Orange and the Chamber of Commerce are some of the entities present in the 18-storey office block, which account for just half of the skyscraper. The rest of the tower is occupied by a hotel managed by Eurostars, belonging to the Hotusa Group.

Original story: Eje Prime (by C. De Angelis)

Translation: Carmel Drake

Bankia Puts €450M Rental Property Portfolio Up For Sale

27 June 2018 – Expansión

Bankia is going to start a sales process for a portfolio of rental properties with a market value of €450 million, reports Reuters, citing two sources familiar with the operation.

The entity chaired by José Ignacio Goirigolzarri expects the interested groups to present their non-binding offers over the summer, so as to finalise the process with definitive offers from September onwards, indicates one of the sources.

This portfolio of rental properties forms part of the €4.9 billion in assets and loans foreclosed during the crisis that Bankia is trying to eliminate from its balance sheet.

At the end of March, Bankia had a gross exposure of around €16.6 billion on its balance sheet comprising non-performing loans and assets. The bank’s objective is to reduce its non-performing assets by around €9 billion.

Original story: Expansión

Translation: Carmel Drake

La Llave de Oro Buys Land in Ibiza to Build 65 Homes

8 May 2018 – Eje Prime

La Llave de Oro is on a roll in the office and residential sectors in Spain. After purchasing a plot of land on which to build offices in the 22@ district of Barcelona from Metrovacesa last June for around €20 million, the group is continuing to explore new destinations into which to expand its business. The latest has been the purchase of a plot of land in Santa Eulària des Riu, in Ibiza, on which it will build 65 homes, according to Ferrán Marsá, CEO of the group, speaking to Eje Prime.

According to Marsá, the project in Ibiza is currently being reviewed, although the plans are for the building work to begin imminently. In addition to homes, common areas, car parks and swimming pools will also be built on the plot.

Moreover, this is not the group’s only project on the Balearic Islands. In Palma de Mallorca, the company is immersed in the construction and subsequent sale of a development comprising 16 homes and parking spaces at number 16 Calle Alber, in the Es Rafal Vell area. La Llave de Oro also has a sales office in Palma de Mallorca.

Nevertheless, the group’s main business is focused in Cataluña. La Llave de Oro is currently building fifteen homes at number 286 Calle Pallars, in Barcelona, as well as another 30 homes (plus two commercial premises and a car park) in Nou Rubí, in Rubí.

La Llave de Oro is also working on a 95-home development in Plaça Europa, in l’Hospitalet de Llobregat. There, the company is also going to build a commercial premise, two social rooms and 106 parking spaces. It will be one of the developments that incorporates the greatest number of new features in terms of customisation and energy ratings.

To reach the 450 homes that La Llave de Oro plans to hand over in the coming years, the company has also started work on the construction of almost 60 homes at number 179  Passeig Taulat, in Barcelona, as well as on 90 homes in Sant Cugat del Vallés, which correspond to the second phase of the Volpellers development.

Diversification strategy 

Although La Llave de Oro is going to continue to focus on the development and construction of primary residence homes in Barcelona and the first metropolitan ring, the company is also going to keep looking for opportunities to diversify its revenues. One of the businesses that the group is firmly backing is the hotel sector, as well as the office segment.

The company opened a hotel on Avenida Drassanes in the Catalan capital in 2012, the Andante Hotel, with 134 rooms and which it manages directly. This model involving the development and subsequent management of a hotel, whose results have proved very satisfactory, is what the firm wants to replicate in at least two or three more establishments.

In terms of the office sector, La Llave de Oro used to own a portfolio of almost twenty rental properties, prior to the crisis, which it sold to Goldman Sachs two years ago to raise funds for its property development and construction business, in a deal worth €90 million.

Now, La Llave de Oro is expressing interest in returning to that business segment through the construction and rental of several office buildings in Barcelona. Its purchase last year of a 3,300 m2 plot in the 22@ district of the Catalan capital for €22 million forms part of that strategy. The group plans to build 17,400 m2 of office space on that plot, which used to be owned by Metrovacesa (…).

La Llave de Oro group recorded turnover of €125 million in 2017, compared with €140 million in the previous year. Its workforce comprises 200 professionals (…).

Original story: Eje Prime (by C. Pareja)

Translation: Carmel Drake

EU Concern Over Rapid House Price Rises in Spain

21 March 2018 – Eje Prime

Spain is now one of the countries in the European Union (EU) where house prices are growing the fastest. The Spanish residential market ended 2017 with an average growth in prices of 7.2%, exceeding the YoY variation rates in most of the continent’s major economic powers such as Germany, France and the United Kingdom, according to data from Eurostat.

This data, together with the bubble that the country suffered during the final years of the last decade and the beginning of this one, have raised concerns beyond Spain’s borders. There, according to reports by Cinco Días, observers see that the pattern of the previous bullish phase is being repeated.

During the third quarter of the year, for example, house prices across the EU markets as a whole increased by 4.1% in nominal terms. Out of all the countries in the Union, five stood out for their double-digit growth, namely: the Czech Republic (12.3%), Ireland (12.0%), Hungary (10.2%), the Netherlands (10.2%) and Portugal (10.4%).

Established economies such as the German, French and British saw their house prices rise by around 3%. Specifically, the price of housing in France grew by 3.1% last year; in the United Kingdom, the increase amounted to 2.8%; and in Germany, 1.8%. Meanwhile, Italy continued to see price decreases in its residential sector, with a reduction of 2% YoY last year. By city, London, Amsterdam, Madrid and Dublin are going to be the metropolises where prices grow by the most in 2018, with double-digit rises forecast, according to a study by Dbrs.

Original story: Eje Prime

Translation: Carmel Drake

CaixaBank: “The Banks Have Lost €150bn Due to ‘Real Estate'”

26 January 2018 – Eje Prime

The banks have lost no less than €150 billion due to real estate. That is according to Juan Antonio Alcaraz, Director General of CaixaBank, speaking on Thursday. Moreover, the director described a panorama that has “changed radically” in the mortgage market, basically because “people no longer think about buying (a home) and, even less so, about taking out a mortgage”, said Alcaraz.

The current situation of the banks with respect to real estate is that of reconstruction. “Our portfolio has recovered somewhat, but it is much smaller than before”, acknowledges the director, who recalls “the years when 900,000 new homes per year were being built in Spain, whereas now just 80,000 p.a. are being constructed”.

In 2017, CaixaBank undertook property developer loan operations worth between €15 billion and €20 billion. The decline in demand for these types of loans from banks has had an impact on the emergence of “new players, which have caused the figure of the property developer loan to disappear for certain vehicles”.

Moreover, at the meeting between professionals in the sector at Madrid’s IESE, Alcaraz recalled that there is still a shortage on the demand-side for the purchase of new build homes in Spanish society: “Three-quarters of the transactions closed in the residential sector involve second-hand homes”. That fact had an impact in 2017 given that Spain’s banks granted “around 60,000 new mortgages”, much fewer than in the past.

In terms of the emergence of real estate projects, which have been booming in recent years with the arrival of new property developers, the CaixaBank representative says that “there is not a single project that has not been performed for lack of financing”, although he clarifies: “The problem is what type of projects we are talking about and what is being financed”.

“On the stock market, there is space for many more companies in the sector”. Having recently arrived from London, where he works as a Director of Real Estate Investments for the bank Crédit Suisse, Jaime Riera spoke about overseas funds, the largest investors in the Spanish property market. “The whole world understands that it is a cyclical sector and that, leaving aside the recent political events, there is consensus over the strong performance of the real estate business”, said Riera. Nevertheless, the executive has diagnosed “less potential for transactions in the retail sector”.

Another established connoisseur of the British market, Fernando Bautista, European Director of Real Estate Investment at Citi, highlighted at the same meeting that the weight of the real estate sector on the British stock exchange “is much greater than on the Spanish stock market”. For that reason, and after recalling that “without Anglo-Saxon demand, we would not be talking about the Socimis today, or about Neinor and Aedas”, said that “there is room for lots more companies on the Spanish stock market”.

The legal certainty of the new mortgage law

Drafts are already being prepared by the Government for the processing of a new mortgage law, news that is welcomed by the banks. “A new law would give us the legal certainty that we do not have at the moment”, said Alcaraz, who indicates that “the crisis has generated a very high degree of uncertainty over residential assets and mortgages. That is very harmful to us in economic terms”.

Original story: Eje Prime (by Jabier Izquierdo)

Translation: Carmel Drake

JLL: Real Estate Investment Rose by 45% in 2017 to €14bn

11 January 2018 – El País

The volume of real estate investment in Spain broke records once again in 2017, closing the year at €13.989 billion, up by 45% compared to 2016, according to data from the international real estate consultancy JLL. And investors were not averse to any of the market segments, although two really stood out in 2017. On the one hand, the retail sector (stores and shopping centres), which saw investment of €3.909 billion, up by 31% compared to 2016 – that represents a historical figure thanks to the 35 operations that were closed during the year. And on the other hand, investment in hotels, which increased by 75% with respect to 2016.

Not even the political crisis in Cataluña deterred hotel investment from beating its own record by the end of 2017, with investment of €3.907 billion, representing an increase of 79% with respect to 2016 and comfortably exceeding the historical record set in 2015, when investment amounted to €2.614 billion, according to the study of this market conducted by the consultancy firm Irea. And that despite the slowdown in Cataluña, where no transactions have been closed since the referendum was held on 1 October. Nevertheless, “the impact of the uncertainty in Cataluña will make it hard for the investment data seen in 2017 to be repeated”, says Miguel Vázquez, Partner in the firm’s Hotels division.

For the time being, the incessant arrival of tourists in Spain (the country welcomed more than 82 million foreign visitors in 2017, almost 10% more than in 2016) is continuing to spark investor interest. In fact, in 2017, investment in holiday hotels comfortably exceeded financing in the urban segment (69% vs 31%), rebalancing the trend seen in 2014 and 2015.

Moreover, destinations that had remained quiet following the crisis were revived. Málaga rejoined the list of investors’ preferred destinations, accounting for 15% of total investment with 18 transactions amounting to €516 million. The Canary Islands retained its position as the favourite investment destination, accounting for €939 million of investment, representing 27% of the total volume. Madrid was the main destination for urban investment once again, with €637 million (including existing hotels and the acquisition of properties to convert them into hotels), ahead of Barcelona, which recorded €422 million.

Last year in Spain, 182 hotels were sold, containing 28,813 rooms, compared with 147 hotels and 21,646 rooms in 2016. That represented an increase not only in terms of the number of assets but also in the average price paid per room, which amounted to around €119,000, approximately 30% higher than the average price paid in 2016. In 2017, conversion projects and transactions involving land for the construction of hotels recorded a combined investment volume of €478 million, representing an increase of 139.8% compared to 2016, according to Vázquez.

Offices and residential assets

Offices were the third favourite assets for investors, accounting for investment worth €2.210 billion. Nevertheless, it was the only segment that recorded a decrease in absolute terms with respect to the prior year, with investment in this asset class falling by 20%. That reduction was driven by data in Madrid, given that investment in the Spanish capital fell by 38% with respect to the previous year – €1.374 billion – whilst in Barcelona, the investment volume amounted to €835 million, equivalent to an increase of 60%. Nevertheless, according to Borja Ortega, Director of Capital Markets at JLL, “that decrease was not due to a decline in investor interest, but rather a lack of product on the market and the fact that the previous two years saw record-breaking figures”.

Investment in land also stands out, since it amounted to a record volume of €109 million in Barcelona and €193 million in Madrid; moreover, that trend is expected to continue in 2018.

But it was investment in the residential sector – the purchase of entire buildings and land – that really soared in 2017. It amounted to €2.082 billion, which represented an increase of 160% with respect to the €802 million recorded in 2016. In Cataluña, residential investment amounted to 145% to reach €444 million.

Original story: El País (by S. L. L.)

Translation: Carmel Drake