The Crisis will Cause GDP to Fall by More than 10% in the Islands and by 8% along the Mediterranean Coast, but those Areas will Lead the Recovery in 2021

The Balearic Islands (-17%) and the Canary Islands (-13%), as well as the entire Mediterranean coast (-8%), are leading the falls in GDP during this crisis but are expected to recover more quickly in 2021.

The Balearic Islands (-17%) and the Canary Islands (-13%), as well as the entire Mediterranean coast (-8%), are leading the falls in GDP during this crisis but are expected to recover more quickly in 2021, boosted by the engine of the Spanish economy but also the sector most affected by the crisis, tourism.

BBVA Research’s Regional Observatory estimates that the recovery this year will depend on “the duration of the restrictions, how they impact the capacity used and the public policies to mitigate them.” In this way, after the strong GDP contractions of 2020, the Balearic Islands and the Canary Islands will be the autonomous regions with the highest growth rates, of 9.6% and 7.8%, respectively. However, their absolute GDPs will still be 5% below the levels reached in 2019.

Ismael Clemente: “This Crisis is Much Deeper but we are Better Prepared for it”

The Chief Executive of Merlin, Ismael Clemente, highlights the differences between the crisis sparked by Covid-19 and the previous recession; and advocates a speedy recovery if the appropriate measures are taken.

A much deeper crisis but one we face with invaluable experience from the past. That is how Ismael Clemente, CEO of Merlin Properties, is defining the impact that Covid-19 is having on the Spanish economy and, consequently, on real estate. The sector is using what it learned after the bubble burst in 2008 to face the pandemic now.

“This crisis is different from the previous one. The recession of 2008 was based on hyper-indebtedness and it was triggered by the real estate sector itself. This crisis has been caused by an exogenous factor, which has devastated demand and which has had a sharp negative impact on GDP, with significantly more job losses in the United States”, explained Ismael Clemente during the sectoral meeting organised by SimaPro and attended by Brainsre.news.

Construction Growth Plummeted by 8% in March, by Even More than GDP

Spain’s Gross Domestic Product (GDP) registered a fall of 5.2% in March with respect to the previous quarter, the largest in the historical series, which began in 1970. The data only includes the first 15 days of the lockdown in March, but already construction sank by 8.1%.

The country’s Gross Domestic Product (GDP) registered a fall of 5.2% in the period January to March compared to the previous quarter, the largest in the historical series, which began in 1970.

The data, according to the Quarterly National Accounts for Spain published by the National Institute of Statistics (INE), includes only the first 15 days of the lockdown in March. Nevertheless, construction growth sank by 8.1%, by more than GDP, which worsened the cooling that the sector was already experiencing. Meanwhile, real estate activity registered a decrease of 2.7%.

The Bank of Spain Warns that the Economy will Contract by Between 6.6% and 13.6%

The Bank of Spain forecasts a decrease in the growth of the Spanish economy that is unprecedented in recent history, with a decline that has already reached 9%.

The Bank of Spain forecasts a decrease in the growth of the Spanish economy that is unprecedented in recent history, with a decline that has already reached 9%. In a document published on Monday, the body calculates that activity in Spain registered a quarterly decrease of 4.7% between January and March.

For the year as a whole, the Bank of Spain has established three scenarios. Two of them are based on the lockdown lasting eight weeks – at the moment, the Government has proposed a third extension, which is pending approval, until 9 May – and the third where the State of Emergency goes on for three months.

The IMF Forecasts that Spain’s GDP will Contract by 8% in 2020 and Unemployment will Rise to 20.8%

The International Monetary Fund (IMF) has published its new forecasts for the Spanish market, where it predicts that the impact of Covid-19 will wreak havoc on the economy, never seen before, with an annual decline in GDP unprecedented since the Civil War.

In this way, in its World Economic Outlook report, the body has indicated that Spain will suffer an 8% fall in Gross Domestic Product (GDP) during 2020, whilst unemployment will rise to 20.8%. Overall, it forecasts that the Eurozone will suffer a 7.5% decrease in GDP, with the economies of Italy and Greece being the hardest hit by the coronavirus crisis, with expected drops of 9.1% and 10%, respectively. On the other hand, France and Germany are predicted to experience GDP decreases of 7.2% and 7%, respectively.

Unemployment to Fall to Pre-Crisis Levels in Madrid

3 December 2019 – The Community of Madrid has had a series of years of growth above the average for Spain as a whole. According to the forecasts by BBVA Research, Madrid had the highest regional growth in 2018 and will continue to do so in 2019 ad 2020. Thus, in 2020, unemployment in Madrid is expected to fall to pre-crisis levels, which, until now, had only been done in the Balearic Islands and the Canary Islands.

BBVA Research stated that GDP in the Community of Madrid is expected to grow by 2.6% this year, a significant reduction in the pace of growth compared with last year (3.7%). The regional average for the country as a whole, however, only reached 1.9%. Next year, growth in Madrid is expected to fall to 2.2%, compared to the Spanish economy at 1.6%.

Original Story: Expansión – Pablo Cerezal

Adaptation/Translation: Richard D. K. Turner

Metrovacesa Explores Entering the Rental Home Sector

21 February 2019 – El Confidencial

Selling new build homes is still proving to be too much of a challenge for the times that are approaching. As such, another of the listed property developers, Metrovacesa, is evaluating its entry into the rental home sector, an option that its competitor Neinor (advised by Goldman Sachs) also has on the table. According to market sources, it is the first of the large players determined to take that step to fulfil its business plans.

Since the end of last year, the large owners of residential land have acknowledged that they are open to entering the rental market, either as owners or as turnkey suppliers for investors. The challenge, nevertheless, is disembarking in this segment without their margins being affected and therefore being forced to revise their business plans, like Juan Velayos already had to do with Neinor.

For the time being, the real estate company controlled by Santander (49%) and BBVA (21%) has recognised that it is considering rental housing as “a valid strategic option”, although it has not made any firm decisions in this regard, according to public declarations made by the property developer’s Head of Corporate Development. In its case, it will always be as a business to sell to a specialist third party operating in the residential property business.

This strategic reflection affects everyone, although the speeds of adoption will vary. In the case of Aedas, it has been working for some time on different scenarios that may open the door following the end of the current cycle, in which property developers with large land portfolios have been constituted, boosted by investment funds, because its not all about land in the main markets, nor are there infinite buyers for flats costing more than €400,000.

In the case of Metrovacesa, its numbers are the most chunky, since it has the largest liquid land portfolio in Spain, worth almost €2.7 billion, on which it estimates that around 38,000 homes could be built, according to official data. In its case, like with the rest of the listed firms, the largest volume of homes will be handed over in 2020, a short-term horizon, for which conservative estimates are beginning to be made.

The lower economic growth in Spain (2.8% in 2018 and 2.2% in 2019, according to the Bank of Spain) is another indicator of the macro-economic environment that is looming. In this situation, the potential impact that it may have on sales forecasts means that “many value alternative (rental) products as options for offsetting a likely slowdown in sales”, say sources at one of the large real estate consultancy firms.

Original story: El Confidencial (by C. H.)

Translation: Carmel Drake

Government & Podemos Agree to Allow Town Halls to Regulate Rental Prices

11 October 2018 – Eje Prime

The Government has said yes to public control of the rental market in Spain. The Executive led by Pedro Sánchez (below left) has agreed to the regulation of rental prices by Town Halls, according to explanations provided in a Budget agreement reached on Thursday by the PSOE and Unidos Podemos. The measure is established provided its application is “temporary and exceptional” and is carried out only in those urban areas where there has previously been an “abusive increase” in rents.

Rent has formed the focus of the new Government’s action plan in terms of housing. In parallel to the regulation of prices, the Executive has announced that it will advocate the extension of the minimum term of lease contracts from three years to five, and, in those cases where the owner is a legal entity, the lengthening of the commitment between landlords and tenants to seven years. Moreover, the tacit renewal of contracts will be increased from one year to three, provided the intention to not renew the agreement is communicated by either of the two parties at least six months before it is due to terminate.

In addition, the PSOE and Unidos Podemos have agreed that damage deposits (fianzas) to enter rental flats will be capped at a maximum of two months and that the signing of bank guarantees will no longer be demandable by landlords. In the event that an owner wants to recover his home before the term agreed with the tenant, then that scenario must be formally explained in the contract in force.

More funding for the development of rental housing

The agreement, which will now have to be approved by Congress, includes a measure that supports the development of public housing. In the event that it receives the green light from the chamber, the Government will increase the housing budget for next year to €630 million. In 2020, it will increase that pot further still to €700 million and in 2021, to €1 billion. According to the text, in ten years, Spain will invest between 1% and 1.5% of its Gross Domestic Product (GDP) in public housing.

One of the objectives of the public housing plan is “to avoid “homes” from being sold to vulture funds or sold for a profit”, so as to ensure that “particularly vulnerable people” have the possibility of accessing a rental home.

Original story: Eje Prime

Translation: Carmel Drake

ICG Makes €105M Investment in Eroski Spanish Hypermarkets

31 May 2018 – Property Magazine

Intermediate Capital Group (ICG) will invest €105 million in six Spanish hypermarkets. ICG has partnered with Inmobiliaria Armuco S.L., a real estate company 45% owned by Eroski, a food retailer in Northern Spain, to acquire five of its hypermarkets and one more completely owned by Eroski in a primary sale and leaseback transaction underpinned by 21-year, CPI-linked, triple-net leases.

The assets are located in the Basque region of Spain and each rank in the top quartile in terms of Eroski’s trading performance. According to Savills, Spain has enjoyed a return to growth in excess of 3% for the last three consecutive years and is predicted to outperform the Eurozone, in terms of GDP, for the next three years.

Chris Nichols, Managing Director of ICG Sale and Leaseback, commented: “We are pleased to have partnered with Eroski on this transaction and to have acquired six assets in strategic priority locations for Eroski. We have a pipeline of deals, and are actively looking for further opportunities in this space, both in Spain and across the wider European market”.

ICG was advised by Savills and Eversheds.

Original story: Property Magazine

Edited by: Carmel Drake

S&P Warns of Deceleration in Catalan Housing Market

7 February 2018 – El País

The Spanish real estate market is going to continue growing, but the Catalan crisis may have a negative effect on the housing market in the region. “Although Barcelona has recorded some of the highest property prices since the start of the recovery, in 2018, Cataluña could see a recession in its real estate market”. That is what the ratings agency Standard and Poor’s (S&P) thinks, according to its report about the real estate market in Europe, which indicates that “economic growth should continue to be strong this year and next, but the political uncertainty may have a more negative impact on companies and consumers. The main risk is the impact of the Catalan crisis, given that it is the largest economic centre in Spain, accounting for 20% of the country’s nominal GDP”.

Leaving aside Cataluña, the agency indicates that the strong economic conditions in Spain will continue to drive up the volume of house sales and will help to reduce the stock of homes. In fact, it forecasts that the volume of transactions in Spain will grow by around 8% this year.

Moreover, although interest rates bottomed out at the end of last year, they will continue at very attractive levels for house purchases. Nevertheless, the agency points out that accessibility ratios continue to be high, even though the number of years of salary needed to buy a home has decreased from 7.7 years at the height of the boom to 6.6. years in 2016. And it adds that second-hand house prices are going to continue to increase, although to a lesser extent that over the last two years.

The S&P agency considers that the Spanish economy will exceed the figures recorded in 2017, when average prices increased by 4.2% YoY in the last quarter, according to data from Tinsa. The city of Madrid exceeded Barcelona with an annual increase of 17% compared to 14.8% in the Catalan capital, where prices fell by 1.7% during the last three months of 2017. The volume of transactions amounted to 455,000 during the first 11 months of the year, compared with 375,000 in the previous year. Purchases by foreigners accounted for 17% of the total.

Original story: El País (by S. L. L.)

Translation: Carmel Drake