Tag: Fitch

Fitch Warns Of RE Bubble In The Centres Of Spain’s Large Cities

25 October 2017 – El Mundo

The ratings agency Fitch is warning that a real estate bubble is now visible in the centre of Spain’s large cities, although it does not anticipate a widespread bubble in house prices across the country as a whole in the short term, due to the high volume of stock that still needs to be absorbed and the restrictions facing people wanting to access a home.

Those were the findings of analysis performed for the Housing Sector in Spain report published by the entity, which explains that bubbles involving these types of localised assets are now very evident: the strong demand and limited supply of housing in the country’s main cities are leading to extreme price increases that are becoming increasingly “unsustainable”.

According to the agency, in the central neighbourhoods of Madrid and Barcelona alone, prices have recorded an annual increase of between 15% and 35%.

For Fitch, this demand is being influenced by quantitative easing, purchases by foreigners and investment decisions, given that investors are looking to benefit from the appreciation in asset prices and rental yields. Nevertheless, the agency forecasts that these “ingredients” will not influence the overall real estate market in the short term.

Similarly, the ratings agency asserts that it is “highly unlikely” that the problems in the real estate market are correlated with the economic recovery in general and it forecasts that the average discounts being applied to sell foreclosed homes are going to continue to be very high and stable over the next few years.

This situation will continue for as long as the banking sector continues to have an excess stock of housing and for as long as buyers insist on significant discounts to acquire foreclosed homes, said the ratings agency.

According to data from the company, the discount on the sale of foreclosed homes is still “high”, up to 60% on average, compared to the initial valuation, whilst discounts can range from between 50% to 75%.

In this sense, the dispersion of the discounts on the sale of foreclosed properties is decreasing. In fact, the gap between the range of discounts decreased to 25 percentage points at the end of 2016 from 35 percentage points during the period comprising 2010 and 2011. Nevertheless, it says that this reduction is not widespread.

Problems accessing housing

On the other hand, Fitch explains that access to housing will continue to be complicated because the velocity of the house price index is exceeding wage variations.

In this way, the families’ capacity to save is increasingly reduced, also due to the labour market that favours temporary contracts over permanent ones, which makes it hard for would-be buyers to save enough to make the initial down payment of 20% necessary to buy a home.

The report also underlines that access to housing over the long-term may be limited by the gradual elimination of monetary stimuli in the market and the likely scenario of higher interest rates.

Original story: El Mundo

Translation: Carmel Drake

Fitch: Banks Will Continue To Discount Their Foreclosed Assets For 2+ Years

24 October 2017 – Expansión

Fitch report / Financial institutions are selling their real estate portfolios at discounts of between 50% and 70%; those levels are expected to be maintained for at least the next two years.

“We do not expect to see a close correlation between the improvement in the macroeconomic situation and lower discounts on the sale of portfolios of foreclosed real estate assets by the banks. In fact, we expect those discounts to remain at their current levels for at least the next two years”, said Alberto Faraco and Juan David García, analysts at the ratings agency Fitch.

Spain’s banks still hold significant volumes of real estate, inherited from the crisis, which they must get rid of by order of the supervisor. To accelerate the process, entities are selling portfolios of foreclosed real estate assets to international funds and, in exchange, they are demanding significant discounts with respect to the initial value of the properties.

According to Fitch, these discounts amount to between 50% and 70% of their value and the probability that they will continue for a while yet is high. “It is likely that not even the better tone of the Spanish real estate sector will lead to an increase in the prices at which the banks are selling their portfolios of foreclosed assets, given that there is a significant over-supply, which is exercising considerable pressure”, said Faraco and García, authors of the most recent report published by Fitch.

“The foreclosed properties are competing against a stock of around 500,000 recently built homes, which are ready for sale. Moreover, they are suffering from downwards pressure in terms of prices due to the profitability premiums that buyers require of the banks to cover uncertainties in the process”, said the analysts. The entities’ real estate portfolios carry a series of risks that can detract from the profitability obtained by a potential buyer, such as the fact that the dwelling cannot be accessed until the inhabitant is evicted.

Homes that the banks are responsible for placing directly with end buyers are treated differently. Such properties are sold with lower discounts but require much more time and resources go shift, something that the entities, under pressure from the supervisor to decrease their share of non-performing assets, cannot afford.

What Fitch does expect is a reduction in the number of new assets being foreclosed by the banks, in line with the improvement in the macroeconomic situation in Spain. “In this environment, it is also fundamental that the banks adopt a new strategy that favours handling doubtful loans through debt restructurings rather than as foreclosures”, said the experts.

Localised bubbles

Besides the banks’ assets, Fitch is observing an overall improvement in the fundamentals of the Spanish real estate market, with prices on the rise. “Despite the recovery, we do not see the risk of a new real estate bubble in Spain arising anytime soon. There is a large supply of homes that still needs to be absorbed. Nevertheless, we are seeing very localised bubbles in premium areas of certain neighbourhoods of Madrid, Barcelona and the Balearic Islands”, they explained.

Original story: Expansión (by Andrés Stumpf)

Translation: Carmel Drake

Blackstone Sells c. €300M Of Catalunya Banc’s Mortgages

8 May 2017 – Expansión

The banks’ non-performing assets are finally starting to generate returns for some of the entities that backed them during the worst moments of the crisis. Four and a half years after Catalunya Banc fell victim to the excesses of the real estate sector and was intervened by the State, and two years after Blackstone finalised its purchase of a portfolio of doubtful mortgages from the Catalan entity, which is now owned by BBVA, the US firm has shown that what were once toxic assets, are toxic no more.

And it has done so through the sale of some of the mortgages that it bought from Catalunya Banc. In fact, Blackstone has created a securitisation fund, with a nominal portfolio of €400 million in loans, and has placed it amongst investors at a price that represents selling almost €300 million of the total without a discount, according to official documentation submitted by the company.

Given that Blackstone purchased mortgages from Catalunya Banc worth almost €6,400 million nominal and that it paid €3,600 million for them, the fact that it has now sold the majority of the securitisation fund at its nominal value implies that investors no longer consider them to be problem loans and that they are willing to buy them without demanding an additional return for any higher risk.

Of course, there are several factors that have contributed to this. “Blackstone has included the best loans from the portfolio in the securitisation fund”, say sources in the market, who insist that the US firm still owns the majority of the loans it purchased two years ago.

In addition, the management of the loans plays a role, given that 82.75% of them have been restructured, according to figures from Fitch, which means that they have been granted grace periods or parallel financing since Blackstone took over the portfolio.

Different tranches

The result of these two factors is that Tranches A and B of the securitisation fund have been sold to investors without any discount on their nominal values. They will pay annual interest of 0.9% and 1.9%, respectively, until 2022 (from April of that year, the yield will rise to 1.6% and 3.3%).

The two tranches amount to €288 million, i.e. they represent 72% of the total fund. Meanwhile, Tranches C and D, which contain the worst mortgages and which have the lowest solvency rating, have been sold for 98% and 93% of their nominal values and will pay interest of 2.5% and 2.6%, respectively, for the first five years. Tranche E, the most risky, has been subscribed in its entirety by Blackstone, at a significant discount. (…).

Original story: Expansión (by Inés Abril)

Translation: Carmel Drake

Fitch: House Prices Are Going to Rise At A Faster Rate Than Salaries

20 February 2017 – El Economista

On Thursday, the ratings agency Fitch warned that access to housing in Spain is going to gradually worsen as a result of the difficulties facing the labour market.

In its report about the outlook for the real estate and mortgage market in 2017, the ratings agency forecasts that house prices in Spain are going to rise at a faster rate than salaries, which means that the accessibility of housing is going to deteriorate.

“Fitch expects the accessibility of housing to gradually worsen given that any recovery in salaries will be lower than the increase in house prices, taking into account the challenges facing the labour market”, said the agency, which added that access to the real estate market will be “especially difficult” for first-time buyers.

Fitch expects the positive trend observed in house prices, which rose by 4% during the third quarter of 2016, to continue thanks to “robust economic growth”, the maturity of the mortgage market and foreign demand, which currently accounts for 13% of transactions.

Nevertheless, it says that the two-speed market will continue, given that the “bulk” of the recovery will focus on homes whose quality and location place them above average.

Slow down due to floor clauses

On the other hand, Fitch thinks that the legal uncertainties surrounding the floor clauses and the reform of the mortgage market will slow down the growth experienced since 2014 for the granting of loans to buy homes.

“The rate of growth in loans will slow down from the levels seen in 2015 and during the first half of 2016, given that Spain’s banks will adopt a more cautious approach in the face of the legal uncertainties that are affecting the mortgage market”, said the agency.

Nevertheless, it considers that the rise in house prices and the favourable loan environment, thanks to low interest rates, are still offsetting the repayment of loans in progress.

Finally, Fitch thinks that Spain’s banks will continue to reduce their exposure to toxic assets by divesting their non-strategic businesses, such as their non-performing loans and foreclosed properties.

Original story: El Economista

Translation: Carmel Drake

Hispania Gets Ready To Debut On The Bond Market

17 January 2017 – Cinco Días

The Socimi Hispania is planning to join the bond issues undertaken in recent months by other major players in the sector, including Merlin and Colonial, with the aim of diversifying its financing. To this end, it has already started to sound out the ratings agencies. Its objective is to obtain an investment grade rating for its securities.

Hispania Activos Inmobiliarios is studying the option of debuting on the capital markets with a bond issue to refinance some of its gross debt, which currently amounts to €631 million, according to sources familiar with the operation.

The Socimi has already started the process to request a rating from the ratings agencies, with the aim of launching the operation during the first few months of the year.

The firm has made contact with the three large players –Standard & Poor’s, Moody’s and Fitch–, although it will not need a rating from all of them, rather from just one of them or two at most. The aim is to achieve an investment grade rating – BBB – or Baa3 – , which would allow it to debut on the capital markets at a reasonable cost.

Hispania, in which the magnate George Soros owns a 16% stake, will thereby join the other bond issues undertaken recently by other companies in the sector.

The Socimi Merlin Properties – which forms part of the Ibex 35 – went to the market in October with a 10-year bond placement amounting to €800 million. The current yield on that debt is 2.3%. It has a Baa2 rating, which is one notch above the limit that separates junk bonds from investment grade securities, according to Moody’s nomenclature. Moreover, Merlin has assumed another €1,550 million in bonds from two bond issues made by Metrovacesa, with which it completed its merger at the end of October. (…).

Hispania’s current debt has an average maturity period of 7.2 years and €497 million of the balance is due to be repaid from 2022 onwards. The current average debt cost is 2.7%. Hispania also has hedges in place to avoid any surprises if interest rates rise. 96% of its debt is guaranteed. (…).

In general terms, the optimal balance sheet structure of these types of companies rests on three pillars: bank debt with an additional guarantee – in the majority of cases, properties from the company’s portfolio – , unsecured financial loans and listed debt.

With the proceeds that it raises from the bond issue, Hispania plans to repay some of its current debt balance. It would thereby take advantage of the good conditions in the market with liquidity and the environment of low interest rates. This company, created in 2014 under the special tax regime for Socimis, is led by Concha Osácar and Fernando Gumuzio, and is managed by Azora. In addition to Soros, its shareholders include the funds Fidelity, FMR, Tamerlane and BlackRock.

Hotel specialist

Hispania’s portfolio of real estate assets closed the third quarter of 2016 with an appraisal value of €1,680 million. The Socimi owns 36 hotels in Spain with 10,407 rooms. 68% of the value of those assets is located in the Canary Islands and 64% is managed by Barceló, with which it has signed a strategic alliance. The Socimi recently purchased three properties in the Cala San Miguel in Ibiza (pictured above) for €32 million.

Original story: Cinco Días (by A. Simón and R.M. Simón)

Translation: Carmel Drake

Rajoy Will Give Tax Breaks To Banks That Lease Empty Homes

29 November 2016 – Expansión

Housing will be one of the first major agreements of the new legislature. The PP has reached “an agreement with the opposition” to approve a non-binding proposal to establish guidelines for real estate policy until 2021. This initiative, which will be debated by the Development Committee in Congress on Wednesday, includes an important new feature: it will incentivise the occupation of empty homes owned by financial institutions, public companies, Public Administrations and “other owners” by the “most vulnerable” families. For example, those on low incomes and those who have been evicted from their homes.

To achieve this, “tax incentives, agreements with large home owners and exchanges of land” will be approved, according to sources in the Popular Parliamentary Group. “All of the parties support the agreement”, which will give rise to a new Housing Plan, to be agreed, as always, with all of the regional governments.

The tax benefits that will be approved have not been defined yet because the PP still needs to agree them with the opposition. Moreover, the Ministry of Development, which is piloting the reform is in the middle of handing over powers and is not in any rush. “The left-wing parties like the idea. The agreement that we are going to reach on Wednesday is generic and we will have to do further work to iron out the details”, say the same sources.

In the face of initiatives to penalise owners of empty homes, such as those introduced in Cataluña, País Vasco and Andalucía, the new housing agreement will seek to “promote mechanisms of cooperation so that available unoccupied homes, owned by the Public Administrations, public companies, financial institutions and other owners may be occupied by the most vulnerable members of the population” according to the text in the Proposal, which has received a favourable report from the Ministry of Development.

The banks will be the main target for these measures. The appraisal company Tinsa calculates that the financial institutions own more than 80% of the stock of empty homes. In its most recent report, based on data as at 2015, Tinsa calculates that the banks own a surplus of more than 300,000 (empty) homes. In addition, the ratings agency Fitch says that at the end of last year, the financial sector owned “around 150,000 unsellable (new) homes”.

With this reform, it will be much easier for banks to free up their empty homes. Firstly, because they will receive guaranteed income from the State in the event that they allocate them as social rental properties. Secondly, because although the lease payments will be relatively low, the tax benefit will have a compensatory effect. Thirdly, because when the entities exchange properties for land, they will remove those assets that are hard to divest from their balance sheets and they will only include new properties in better locations and with better outlooks.

INE estimates that there are 3.5 million empty homes in Spain, but that almost all of them are owned by individuals. Tinsa says that, of all of the residential properties constructed since 2008 (that have never been lived in), only around 11,670 are owned by professionals, but they are not being marketed. That figure represents 3.9% of the total commercial stock (389,000 homes in 2015). (…).

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

Fitch: Banks Are Selling Homes With Record Discounts Of 65%

27 October 2016 – Expansión

The housing market is improving, supported by the strong macroeconomic outlook. Nevertheless, this increased optimism is not being reflected in the prices at which banks are selling their foreclosed properties.

According to a report from Fitch Ratings, which will be published today, banks have continued to sell homes during the first half of the year at prices that represent an average discount of 65% on the original appraisal value – the highest ever. “This is because the majority of the assets that have been sold recently are lower quality products, those for which demand was lowest during the worst years of the crisis”, explains the report prepared by the ratings agency’s analysts Christian Gómez, Juan David García and Beatriz Gómez. And the outlook is not much rosier. In Fitch’s opinion, there will only be a reduction in the discounts being applied to these assets if the recovery in the housing market improves significantly.

In this sense, Fitch highlights the role being played by the servicers and other firms that specialise in the management of these types of assets. Specifically, the banks sold the managers of their real estate portfolios to funds such as Apollo, Värde and Cerberus. They now operate as independent firms in the financial sector and “they have had a positive influence on the management of residential mortgages and on the real estate sector in general since they entered the market three years ago”, said Fitch.

“They will have an increasingly strong influence in Spain due to their competitive advantages (more technological capacity and international experience) than the banks”, it added. Fitch estimates that between €20,000 million and €30,000 million of problem assets relating to the real estate sector are now being managed by these platforms, which prefer to reach a consensus with the borrower before pursuing legal channels.

Potential for more lending

The ratings’ agency noted that new mortgage lending grew by 38% during the second quarter of the year compared with the same quarter last year, thanks to the economic recovery and the improvement in financing conditions. Fitch expects this trend to continue because the total volume of credit currently represents just 30% of its pre-crisis levels, and other factors are also at play. This recovery is significantly lower than that seen in other countries, such as Italy, Germany and France, whose credit volumes now represents 80% of their pre-crisis levels.

Original story: Expansión (by D. Badía)

Translation: Carmel Drake

Fitch: Banks Selling Foreclosed Homes With Discounts Of 67%

14 October 2015 – Expansión

Banks are now selling homes with an average discount of 67% of the value they had before they were foreclosed. This data, which relates to the first half of the year, represents a historical record, according to a report that Fitch will publish today, to which Expansión has had access.

“The depreciation of properties sold after they have been foreclosed is high, at around 67% of the initial valuation”, says the credit ratings agency.

Given this reality, Fitch believes that the recovery of the residential sector has not yet affected the market for houses sold by banks, and that “it is unlikely that it will benefit” from this improvement in the real estate market “in the short or medium term”, according to the report, prepared by its analysts Juan David García, Christian Gómez and Beatriz Gómez.

“Unsellable” homes

Fitch emphasises that there is still an enormous stock of “empty and unsellable” homes, above all “in areas that are expected to suffer from the structural imbalances in the Spanish economy for longer”.

“Given their poor locations and conditions, a considerable number of new homes have little hope of securing a buyer”, says the agency, which increases its estimate of the number of unsellable new homes to around “150,000”. That figure represents a quarter of the 600,000 unsold new residential properties in Spain.

Not surprisingly, the agency notes that the recovery in the housing market is happening “at two speeds”, in such a way that the trend will vary. “Whilst the properties in prime locations in city centres will enjoy a gradual recovery – influenced by the improvement in the economic environment and the recovery in credit –, those “problem” properties linked to mortgage foreclosure procedures and those located in peripheral areas with low levels of economic activity, will continue to see price adjustments and high losses” on their valuations.

Political risks

Fitch’s report also warns about the possible negative effect that the new legislation (against vacant homes owned by banks) may have on the value of those properties. Moreover, the associated (political) risk is on the increase”. The analysts cite the case of Cataluña by way of example, where the Generalitat has introduced a new annual fee for homes that have been unoccupied for more than two years without adequate justification.

On the other hand, the agency believes that this will result in “aggressive mortgage foreclosure strategies by creditors looking to get rid of problematic real estate assets from their balance sheets”. And that will also affect the banks, of course.

Finally, Fitch addresses the rising trend in mortgage lending, something that “is driving prices up”. “Mortgage lending is growing at an annualised rate of 20%”, says Fitch, whose analysts think that this increase will continue over the coming months.

The agency expects competition to intensify between lenders, but under no circumstances does it foresee a return to the figures recorded during the real estate boom.

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake

S&P Increases Spain’s Rating To BBB+ With “Stable” Outlook

5 October 2015 – Expansión

On Friday, the credit rating agency Standard & Poor’s (S&P), one of the world’s three main players in this sector, together with Fitch and Moody’s, announced an increase in its rating for Spain’s long term sovereign debt from BBB to BBB+, with a “stable” outlook. In this way, the agency rewarded Spain for the impact that the structural reforms approved in recent years have had on the economy.

In a statement, S&P said that “the increase in the rating reflects our view of the behaviour of the Spanish economy over the last four years – we consider that it has been strong and balanced, and that it is gradually benefitting the public finances”. The agency has been particularly encouraged by the two employment law reforms that have been approved since 2010 (under the governments of Zapatero and Rajoy), which have, in its opinion, improved the competitiveness of Spain’s exports and its service sector.

“The rating from S&P is a sign of confidence in the future of the Spanish economy and an acknowledgement that the political uncertainties do not carry significant weight”, said the Minister for the Economy, Luis de Guindos, yesterday, after S&P made its statement. In reality, the agency is not quite so optimistic – it says that there is still “considerable uncertainty” over whether the next government to emerge, following the elections on 20 December, will continue or even increase the pace of reforms that are still required to improve the economy and fulfil the growth and deficit targets in the medium term. “It is unclear just what a potential change in government would mean for the Spanish economy’s primary weakness, its unemployment rate”, it said.

S&P does not see much danger in the secessionist challenge and believes that Cataluña will continue to form part of Spain; furthermore, it expects that the tension between the central Government and the regional authorities will gradually dilute. However, it warns that a hypothetical independence would hit the Spanish economy hard, including its GDP per capita, its foreign trade balance and the public finances.

Risks still remain

Nevertheless, there are also some purely macroeconomic factors that could divert the country from its positive path…”We would consider reducing the rating if economic growth does not reach our projections; if the monetary policy does not manage to stop the deflationary pressures from eroding the fiscal performance and growth in Spain; and if, contrary to our expectations, net debt exceeds 100% of GDP”. The agency expects this ratio to decrease as the economy improves, and forecasts that it will peak at 98.4% this year and drop to 98% in 2016.

Similarly, the agency says that it is important to remember that certain exogenous factors have favoured the (recent) economic recovery, such as for example, the price of oil and the euro exchange rate.

For the time being, Standard & Poor’s expects nominal GDP to grow by around 4% over the next three years. Last Wednesday, the agency improved its growth forecast for Spain in 2015 by 2 p.p., from 3% to 3.2%, and by 1 p.p. in 2016, to 2.7%. Its estimation for 2017 is 2.4%. (…).

Original story: Expansión (by Yago González)

Translation: Carmel Drake

Fitch: House Price Recovery Will Be Slow & Uneven

15 September 2015 – El Economista

According to the ratings agency Fitch Ratings, the latest data shows that the decrease in house prices in Spain “has now bottomed out”, however, it expects the rise to be “slow and uneven”. Moody’s thinks that the banks will be the main beneficiaries of the expected rise in house prices.

The agency notes that house prices increased by 4% during the second quarter of the year with respect to the same period in 2014 – the largest increase since 2007, according to figures released last week by the National Institute of Statistics (INE).

In this regard, it highlights that house prices have increased in inter-annual terms for the last five consecutive quarters, and as such are in line with its latest forecasts, which predicted that prices would stabilise between 2014 and 2015, after seven years of decreases.

Fitch notes that the recent decrease in mortgage costs suggests that a surge in household loans will pave the way for a gradual recovery in house prices.

However, it warns about the impact that the number of foreclosed homes is having on the market, since they are affected by the weakness in the Spanish residential market, including a stock of between 500,000 and 600,000 empty new homes, the high level of unemployment and the limitations on demand due to low salaries.

For this reason, it believes that the recovery in house prices at the national level will be “limited” this year, with “significant” variations between regions and with a section of the market still experiencing “difficulties”.

Original story: El Economista

Translation: Carmel Drake