Knight Frank: 150,000 New Homes Will Be Built Per Year By 2019

14 December 2016 – El País

The construction of new homes is going to continue to increase over the next three years to reach 150,000 units per annum. The activity will centre on Madrid, Málaga, Barcelona, País Vasco and the Balearic Islands, the provinces with the highest residential forecasts going into 2017, according to the annual Trends in the Residential Market in Spain report, compiled by the real estate consultancy firm Knight Frank. Over the next three years, new builds will gain ground to account for 30% of all sales, compared with second-hand homes, which will account for 70%. Currently, just 10% of sales involve new builds and there are only 11 units available for every 1,000 inhabitants. Moreover, the supply of new homes coming onto the market is getting completely absorbed, which means that no new home stock is being generated.

There will also be changes in terms of the type of new homes. Whilst in recent years, homes with three or more bedrooms have been the most demanded, the consultancy firm forecasts that homes with two or fewer bedrooms will start to lead the ranking once again. According to Ernesto Tarazona, Managing Partner for Residential and Land at Knight Frank, “the macro data supports this change in trend. We have fewer inhabitants and yet the number of households is growing. In other words, we have more households with fewer members; in Spain, 25% of households comprise one person and 30% comprise two people”.

Whilst the number of transactions involving second-hand homes is increasing in every autonomous community, the number of operations involving new builds is only growing in those regions with the greatest economic pull: over the last year, new build sales have grown by 40% in Madrid, by 18% in the Balearic Islands, by 5% in Barcelona and by 20% in País Vasco.

Price rises

In terms of prices, Spain registered a change in trend in 2014 and since then prices have increased by 3% on average. The lack of new developments has meant that new build homes have retained their value and have an average price of €1,750/m2, whilst second-hand homes cost around €1,500/m2. The provinces with the highest average prices (both for new build and second-hand properties) are Guipúzcoa, Vizcaya and Madrid.

The housing stock has been absorbed over the last three years, at an average rate of 20,000 new homes per year. Knight Frank calculates that just 2% of the total housing stock in Spain corresponds to new builds. Nevertheless, approximately 30% will be hard to sell due to location and conditions. (…).

The consultancy points out that the change in trend in the residential sector in Spain is already happening. “All of the segments (supply, demand, land and investment) bottomed out at the end of 2013 and started the road to recovery in 2014. This recovery was very slight in 2014 and 2015, but during 2016, the main indicators have experienced stable growth, and they have potential for improvement. As such, we are facing a new cycle of expansion in the residential sector”.

Original story: El País (by S.L.L.)

Translation: Carmel Drake

Socimi VBARE: Why Are Rental Prices Are So High?

10 November 2016 – Invertia.com

Rental prices are soaring in Spain, in particular in Barcelona and Madrid. And the question on everyone’s lips is what is happening to make rents in Spain’s two major cities increase to such an extent that they are now even higher, in certain districts, than they were during the years of the real estate bubble?

According to the latest report from Idealista, the latest price rises have turned Barcelona into the regional capital where rental prices have increased the most in the last quarter, making it the most expensive capital (€17.40/m2), followed by Madrid (€13.80/m2).

The company VBARE Iberian Properties Socimi (VBARE), which specialises in the residential rental market and which will debut on the Alternative Investment Market (MAB) next month, has been busy analysing the rental market in Barcelona and Madrid with a view to identifying residential investment opportunities for subsequent lease. As such, its President, Fernando Acuña, is well positioned to explain the drivers behind this significant increase in rents in the two Spanish cities.

According to Fernando Acuña, the significant growth in demand, both from households, as well as from domestic and overseas investors, has not been accompanied by any increase in the supply, which is “still very limited”. The expert stresses that demand for housing is greater in Madrid and Barcelona, given that more jobs are being created in those cities, as the economy gradually recovers. He also points out that demand for housing is moving away from the ownership market towards the rental market and that this change is playing an important role in driving up prices.

The President of VBARE stresses that demand for rental properties is continuing to rise, not only because there has been a change in mentality (in favour of renting), but also because many of the people who need housing cannot afford to buy homes because they do not have the purchasing capacity (due to prohibitive mortgage conditions). He gives the example of the number of mortgages being signed – highlighing that, although the figures have been growing for 25 months – according to statistics provided by the National Institution for Statistics (INE) – they are doing so from a very low base. In fact, according to INE, 244,827 mortgages to buy homes were signed in 2015; meanwhile, in 2006, the year before the real estate bubble burst, 1,768,198 mortgages were constituted in total over rural and urban properties.

According to research performed by VBARE, several other factors are influencing the consolidation of the rental market across Spain, including: “short-term circumstantial reasons (high levels of unemployment, restricted (albeit improving) access to credit, loss of purchasing power, job insecurity affecting certain age groups susceptible to buying their first homes…) as well as medium and long-term structural factors (increase in labour mobility, a change in the traditional ownership mentality as the preferred option, decrease in the average size and nature of households…). (…).

According to the Socimi, another factor at play, particularly in Barcelona, is “the record tourism figures, which have turned some of the traditional rental stock into “seasonal rental properties”, especially in the centre, which has led to a rapid decrease in supply (…).

Original story: Invertia.com

Translation: Carmel Drake

INE: Overnight Hotel Stays Reached 46.4M In August

26 September 2016 – Expansión

Overnight stays rose by 3.8% and revenues increased by almost 9% in August 2016, boosted by visits from overseas tourists. Nevertheless, domestic demand only increased in Cataluña.

Although the summer season does not officially end until October, Spain’s hotels can already say with some satisfaction that the summer of 2016 has been one of the best of their lives. The average occupancy rate reached 79% in August, the best figure since analysis of this data first began back in 1999, according to a report published on Friday by the National Institute of Statistics (INE).

In the eighth month of the year alone, 46.4 million overnight hotels stays were recorded, up by 3.8% compared with August last year, thanks to a 6.3% increase in stays by foreign tourists; overnight stays by Spanish tourists decreased by 0.3% YoY.

But it was not only a quantitative increase, given that establishments also increased their revenues. They obtained €79.57 for each available room, compared with €73.10 in August 2015. The Hotel Price Index (IPH) carried a lot of weight in that YoY increase of 8.8%. The IPH is prepared on the basis of prices that businessmen in the sector receive from all of their clients: households, companies, tour operators and travel agents. The IPH stood at 6.9% in August, which represents 1.9 points more than a year ago.

Over the last twelve months, revenues have increased by 5.2% on average, with the most acute increases being observed for three-star (9.01% YoY in August) and four-star accommodation (6.97%).

INE’s information reveals that overnight stays in July and August grew by 5.4% compared with the same two month period in 2015, thanks both to record levels of international tourists (9.6 million visited in July, up by 9.3%) as well as the gradual recovery of domestic demand. In this aggregated period, overnight stays by foreigners and Spaniards rose by 7.2% and 2.4%, respectively (…).

Original story: Expansión (by Yago González)

Translation: Carmel Drake

Bankia & Santander Lead Decrease In Mortgage Default Rate

12 September 2016 – El Economista

The economic recovery is substantially easing the burden of provisions that the banks are making against their non-performing loans. The volume of bad debts have been decreasing gradually over the last few months, thanks to the overall improvement in the financial circumstances of families and companies.

An important part of this respite is coming from the mortgage segment. Families now hold financing to acquire homes amounting to just over €525,000 million in total. Unemployment, which wrought havoc during the crisis, had increased the default rate to more than 6%. But that trend changed at the end of 2014. Since then, the default rate of these types of loans has decreased to 4.7%, on average. In other words, the volume of mortgages with delayed repayments has decreased to €25,000 million.

Not all of the banks have managed to benefit in the same way from the improvement in Spaniards’ fortunes. Bankia and Santander are the entities that have benefitted the most over the last year. Between June 2015 and June 2016, Bankia’s default rate decreased by almost a quarter, from 6.76% to 5.02%, and by nearly a half since its historical peak in 2014. Even so, the absolute percentage of the nationalised group still exceeds the system average.

The decrease in Bankia’s default rate has come at a time when the bank is significantly reducing the volume of loans it grants to acquire homes. In the case of Bankia, the cut in the volume of financing is similar to that recorded in the sector. It has decreased by 4.3% in twelve months (…).

Since 2012, the nationalised group’s strategy has involved rebalancing its credit portfolio, with a drop in mortgages and an increase in loans to SMEs and individuals.

In the case of Santander, the default rate has decreased by 0.81 percentage points to 4.59% over the last twelve months, allowing the bank to maintain a ratio that it slightly lower than that of its rivals. In 2013, the Cantabrian entity’s default rate (6.7%) exceeded the sector average. Since then, the decrease has been gradual.

The group chaired by Ana Botín has also reduced its portfolio of doubtful debts, whilst its volume of mortgages has decreased by 3.4%. In fact, of the major entities that have published their data so far, Santander and Bankia are the ones that have reported the most significant decrease in financing.

Three banks, BBVA, CaixaBank and Ibercaja, have gone against the trend in the sector, suffering slight increases in their respective default rates. The first has been hurt by the incorporation of Catalunya Banc in April 2015, which is leading to an increase in its impairments, even through the operation to acquire the entity excluded the most harmful mortgages. They were transferred to a fund owned by Blackstone with certain government guarantees provided by the public rescue fund (Frob).

Despite the increases, CaixaBank and Ibercaja have two of the lowest default rates in the sector. In both cases, the default rate of home loans to individuals fell below 4% at the end of June this year.

For most entities, the volume of loans are falling at rate of less than 2%, as a consequence of the boost in new business and the open war to secure clients. At Unicaja, the decrease has been less than 1%.

Market share

BBVA is still the leader of this segment, with more than €89,437 million loans granted to households to buy a home, representing a market share of 17% (…). It is followed by CaixaBank, with financing lines amounting to €88,557 million (17%) and Bankia with €62,200 million (12%). Santander is ranked fourth, accounting for less than 10% of the mortgage market. (…).

The main entities have a combined balance of foreclosed homes amounting to more than €17,000 million. The bank that holds the largest portfolio of foreclosed homes is BBVA, with almost €4,500 million. CaixaBank is ranked in second place, with more than €2,762 million, whilst Bankia, in third place, has €2,700 million. (…).

Original story: El Economista (by Fernando Tadeo)

Translation: Carmel Drake

Bank of Spain: Default Rate Falls To 9.44% In June

19 August 2016 – Expansión

Yesterday, the Bank of Spain published provisional data for 30 June 2016, which shows that the default rate decreased for the fifth consecutive month, to 9.44%, its lowest level since June 2012. The figure includes the change in methodology for classifying Financial Credit Establishments (EFC), which are no longer included within the category of credit institutions. In this way, the default rate has now been below the 10% threshold for the fourth consecutive month.

The decrease in the default rate has come despite the fact that total credit in the sector rose by 1.2%, the first increase since November 2015. Specifically, total credit increased by €15,682 million to €1.298 billion. “The decrease in the default rate coincides with the strong growth in new loans to SMEs and households”, said José Luis Martínez, spokesperson for the Spanish Banking Association (AEB).

Doubtful debt

The doubtful debt balance sank to €122,508 million, down by €3,689 million compared with the previous month, its lowest level since June 2011. Financial entities have decreased their combined doubtful debt balance by more than €70,000 million since the peak in 2013, when it exceeded €200,000 million.

Therefore, the clean up of the financial sector is now a reality. Nevertheless, some entities have performed the process more quickly than others. In the last year, Sabadell and Bankia stand out as the entities that have got rid of the most doubtful assets, having reduced their doubtful balances by almost a quarter each. Specifically, the Catalan entity has reduced its doubtful debts by 23.9% and Bankia by 23.2%. Three other Spanish entities reduced their doubtful balances by at least a fifth between June 2015 and June 2016, namely: Liberbank (22.4%), Abanca (22%) and CaixaBank (20%).

Several factors have contributed to the reduction in the doubtful debt balance. As well as the macroeconomic improvement seen in recent years, the entities have accelerated their portfolio sales to large funds.

Another way in which the banks have shrunk their large doubtful balances has been through foreclosures, especially of unpaid loans to property developers overdue by more than one year.

Original story: Expansión (by D.B.)

Translation: Carmel Drake

Bank Of Spain: Loans To Families Rose In H1 2016

2 August 2016 – Expansión

First increase since 2010 / The appeal of consumer loans and lower mortgage repayments is leading to a change in the decreasing loan balance trend. However, business financing decreased due to the political uncertainty.

(…) The latest figures from the Bank of Spain and the financial institutions show that the trend in terms of credit is changing, which could make 2016 the year of recovery in the credit sector.

In this sense, loans to families across the sector grew by 1.04% in June and recorded a half year increase, of 0.02%, for the first time since the start of the crisis. In addition, eight of the eleven Spanish entities that have now presented their results, reported increases in gross loans to clients during the first six months of the year.

These figures show that for the first time, the volume of new loans granted by the entities exceed the volume of repayments, thanks to the liquidity measures led by the European Central Bank (ECB) and the need for entities to grow volumes to offset their decreasing margins.

The last time that Spanish financial entities increased their total loan balance to families was during the first half of 2010, when the international financial crisis had not yet reached the Spanish sector.

In this way, families then held financial debt with Spanish banks amounting to €724,100 million, i.e. €117 million higher than the €723,993 million balance at the end of 2015.

Boost from consumption

This rise comes mainly due a boost from consumer credit in recent months, thanks to the economic recovery and the gradual reduction in unemployment. In this way, the outstanding consumer loan balance increased from €162,000 million at the end of 2015 to €171,00 million at the end of June 2016.

This €9,000 million growth offset the incessant deleveraging of households away from mortgages, which have decreased from more than €549,000 million in December last year to almost €541,000 million at the end of the first half of this year. In other words, a difference of €8,000 million, below the growth in consumption.

These figures reflect a deceleration in the decrease of the outstanding mortgage balance, which has been falling at a rate of more than €25,000 million in recent years. In 2016, repayments have slowed and the granting of new mortgages has increased, as reflected by the new credit data.

The change in the trend of loans to households has not affected financing for companies. That decreased by 1.6% during the first 6 months of the year – from €918,199 million to €903,378 million – due to the opening of other alternatives such as MARG and the issue of bonds, and the deceleration in demand caused by the political uncertainty. That was one of the main concerns expressed by Spanish bankers during the presentations of their half year results. (…).

By entity

(…)The increase in Bankinter’s loan balance (13.7%) was noteworthy, although that figure was impacted by the acquisition of Barclays Portugal, given that the entity does not segregate those numbers. It was followed by Abanca,which reported that its financing balance grew by 4.1%; CaixaBank, with a rise of 1%; and Santander España, with an increase of 0.8%. (…).

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake

Bank Lending To Individuals Peaked In April

8 June 2016 – Expansión

The banks are stepping on the accelerator to sign new loan contracts. In April, the rate of new mortgages and consumer loans granted by Spanish financial institutions reached levels not seen since before the rescue (of the sector) in 2012. Nevertheless, new operations to large companies declined during the month, which meant that the total volume of new loans granted in April decreased by 7.9% to €34,600 million, according to data from the Bank of Spain.

In this way, Spain’s banks are clearly focusing on three areas to secure new business and whereby improve their returns:

1. Mortgages: the volume of new mortgages to buy homes amounted to €5,173 million in April, twice as much as last year and the highest monthly figure since December 2012. Even so, that figure does include renegotiations. If we exclude those, the amount of new money granted for mortgages during April amounted to €2,920 million, i.e. 45% more than during the same month last year and the second highest monthly figure in the last year. The banks hope to offset the low profitability of the mortgages granted during the years of the real estate boom with these new mortgages.

2. Consumer credit: Another segment that the financial entities are pushing hard is that of consumer credit, in light of the high interest rates being offered (c. 7.52%), according to the latest figures from the Bank of Spain. In this way, the financial sector granted €2,330 million of new financing to consumers in April, almost 50% more than a year earlier and the largest volume since May 2010.

3. SMEs: The financial sector is also focusing on its business with SMEs, where the banks are waging a battle to secure new clients. Nevertheless, the loan volumes there did not reach record levels in April – €11,710 million was granted, which was 14% more than a year earlier, but lower than the figure in December – like in the cases of mortgages and consumer credit, but the price at which new loans are being granted did, averaging 7.52%, the lowest level seen in recent months.

However, the banks have encountered a more complex panorama in the market for medium-sized and large business. Regarding the former, the volume of new loans grew by just 4% in April, whilst in the case of the later, the volume of loans granted declined by 40%. According to Fernando Alonso, Director of Companies and Corporations at BBVA, speaking in a recent interview, the “political uncertainty may well be delaying investment decisions at the corporate level”.

For the first time, the Bank of Spain provided data about renegotiations in its figures for April; it also gave details about loans to companies by amount; deferred credit card payments – also at record highs -; and overdrafts to households and companies.

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake

Demand For Rental Housing Will Soon Exceed 500,000

19 May 2016 – El Mundo

Demand for rental housing from the population cohort aged between 20 and 39 will exceed half a million within the next few years in Spain, in a market in which 15% of homes are already occupied on a rental basis.

That was one of the findings from the XVII Annual Meeting of Esade Alumni’s Real Estate Club, which focused on the residential rental market in Spain and Europe and its viability from the point of view of operations, financing and capital markets. The meeting was attended by more than 150 specialists from the real estate sector.

The President of Esade Alumni’s Real Estate Club, Eduard Mendiluce, said that residential rental properties represent “an investment in the future” and he made reference to the business models that operate in other European countries, where a couple of companies manage stocks of 200,000 and 300,000 homes.

Eduard Mendiluce, who is also CEO of Anticipa, said that the residential rental market “is here to stay” because it responds to structural changes and he said that we do not currently have a stock of residential homes for rent of the quality that meets demand.

Meanwhile, the Professor of Applied Economics at the Autonomous Universiry of Barcelona, Josep Oliver, explained the reason for that demand. According to data from INE, 42% of young people aged between 20 and 39 live with their parents, approximately five million people, of which 2.3 million have a job. “From this group, we can expect to see a demand for 500,000 rental homes in Spain over the next few years”, he said.

Similarly, the Director of Diversified Industries and Real Estate for EMEA at JP Morgan, Guillermo Baygual, analysed the market from the point of view of investors, who “are looking to obtain returns with minimal risk”.

Within the European framework, he made reference to UK legislation, which most protects the interests of owners and Dutch legislation, which is the most favourable towards tenants. In turn, the CEO of Sogeviso, Pau Pérez de Acha, made reference to social rental housing, given that in Europe the average proportion of rental housing allocated for that purpose amounts to 12%, whilst in Spain, that figure ranges between 0.8% and 2%.

Similarly, the CEO of Immeo, Thierry Beaudemoulin, analysed the German rental market, where just 45% of the population live in their own homes, one of the lowest rates in Europe. (…).

Finally, the Director for Strategy and Business Development at Acciona Real Estate, Luis Morena, also predicted a positive future for the residential rental market.

This will involve the elimination of tax incentives for house purchases; the maintenance cost of home ownership, which is similar to rental cost; and the recovery of the labour market, which is increasing geographical mobility and therefore demand for flexibility in terms of the residential real estate market.

Moreno pointed to insufficient financing to buy a home as another one of the key factors that will influence the increase in the percentage of residential rental homes in Spain in the short term. Currently, 15% of Spanish homes are occupied on a rental basis, whilst in 1970 that figure accounted for 30% of the available stock of homes.

Original story: El Mundo

Translation: Carmel Drake

Banks Still Own Problem Assets Amounting To €213,000M

5 May 2016 – Cinco Días

Spain’s banks still have a heavy burden weighing down on them following the burst of the real estate bubble: they now own foreclosed assets worth €84,000 million, taken on since the start of the crisis.

According to the Bank of Spain in its financial stability report, published on Wednesday, that figure “has remained stable since December 2012, always ranging between €75,000 million and €84,000 million”.

Of that amount, 37.6% relates to land, 25% to finished buildings, 22.3% are foreclosed assets resulting from the acquisition of homes, and 5% are buildings under construction.

In the last year, land has decreased by 0.5 points, finished buildings have dropped by 0.43 points, homes have increased by 1.8 points and buildings under construction have remained stable.

But beyond these properties, the banks’ exposure to non-performing assets and problem loans amount to almost €213,000 million in Spain’s financial sector as a holw.

The banks have lots of “non-performing assets on their balance sheets, which do not generate any revenues for the income statement, but which do require financing”, said the financial supervisor, which has published data relating to 2015 year-end.

“A hindrance to solvency”

The Bank of Spain also warns that “although these two indicators have decreased, by 14.5% as a whole, over the last year, they still represent a significant percentage of the total assets of the banks in their business in Spain and they place negative pressure on the income statements of the entities, reducing their profit generation capability and therefore, representing a hindrance to increasing the solvency of the institutions”.

In terms of total loans that have been refinanced or restructured, that balance amounted to €205,000 million at the end of last year, which represents a YoY decrease of 6.4% compared with the end of 2014.

Of the total amount of loans whose initial terms have been adjusted, “51.5% relate to non-financial companies and 46.2% to households”, said the Bank of Spain.

Original story: Cinco Días (by Juande Portillo)

Translation: Carmel Drake

ST: Its Still Too “Early” To Talk About A “Complete Recovery”

21 April 2016 – El Economista

The CEO of ST Sociedad de Tasación, Juan Fernández-Aceytuno (pictured above), said on Tuesday that, despite the clear stability that we are seeing in terms of house prices, it is still “early” to talk about the “complete recovery and normalisation” of the market, and he warned that the recovery will only be an “objective” for as long as the net mortgage volume balance continues to decrease.

Those were the words of Fernández-Aceytuno during the opening session of the XXIII Meeting of the Finance Sector, an event organised by Deloitte, ABC and ST Sociedad de Tasación, at which he presented the five key indicators of the real estate sector.

Fernández-Aceytuno indicated that although there has been a double-digit increase in the number of appraisals commissioned by financial entities to support mortgage requests, the volume of mortgages granted in 2015 was “similar to the volume granted in 1998”, i.e. the lowest level in the series detailing mortgage activity prepared by the Spanish Mortgage Association.

Moreover, he said that in 2015, cement consumption amounted to 11.5 million tons, “similar to the levels seen in the 1930s and almost six times lower than the historical peak”.

“It would be interesting to validate and understand that real estate cycles in Spain are 16 years long, eight years of price and activity decreases, followed by eight years of rises”, said Fernández-Aceytuno, before going on to list the five key indicators for determining at which point we are in the cycle.

The five key indicators of the real estate sector

The first is the relationship between mortgages and transactions, regarding which he noted that during times of growth and recovery, the number of mortgages exceeds the number of transactions. “In Spain, that relationship was reversed in 2011; the good news is that since 2015, the number of mortgages granted has grown more quickly than the volume of house purchases”, he said.

Similarly, he indicated that the relationship between the percentage of appraisals commissioned by financial institutions for own assets and loan collateral has varied “significantly” from those commissioned by end clients to support new mortgage applications.

In terms of the creation of new households, Fernández-Aceytuno highlighted that, according to sources at La Caixa, almost 75,000 new households were created in Spain last year, which represents just 20% of the historical maximum. According to the Bank of Spain, the reference figure should amount to around 250,000 new households per year.

Similarly, he said that the New Home Census for 2016 compiled by ST-Sociedad de Tasación reported around 5,400 new homes for sale, compared with the 45,000 resulting from the calculations published by the Ministry of Development.

The variables that determine this difference are: the age of the home, its rental yield and the preference of property developers and banks to sell their homes in more favourable economic environments.

Finally, in terms of the evolution of outstanding mortgage balance, he said that currently the figure for the volume of loans being repaid exceeds the figure for the granting of new mortgages. “Although the latter increased at a higher rate in 2015, for as long as the net mortgage volume continues to decline, the recovery will just be a goal”.

Original story: El Economista

Translation: Carmel Drake