UBS Publishes Report on Cities With Housing Price Imbalances

2 October 2019 – The Swiss investment bank UBS has published its annual report, the UBS Global Real Estate Bubble Index 2019, which analyses residential real estate prices in 24 major cities around the world. The bank stated that half of those cities are either facing the risk of a property bubble or are somewhat to considerably overvalued.  

For the first time, the investment bank added Madrid to its list, stating that, while there seems to be no immediate risk of a speculative bubble, the Spanish capital is suffering from an overvaluation. In 2017, an article in the Economist had already suggested that housing prices in Madrid were about 25% above fair value, and prices have increased steadily since then.

UBS’s index also noted that cities including Munich, Toronto, Hong Kong, Frankfurt, Vancouver, Paris and Amsterdam were at risk of a bubble. Zurich, London, San Francisco, Tokyo and Stockholm are also suffering from significant imbalances. Finally, prices are somewhat overvalued in Madrid, Los Angeles, Sydney, Geneva and New York.

Original Story: El Confidencial – Elena Sanz

Adaptation/Translation: Richard D. K. Turner

Revised Legislation: Socimis to Pay Tax of 15% on Retained Profits

11 January 2019 – Expansión

The General State Budgets for 2019, which are going to be approved by the Council of Ministers today (Friday) and which are going to be presented to the Congress on Monday, will include a tax charge on the undistributed profits of Socimis, to which a tax rate of 15% will be applied, according to reports made by sources speaking to this newspaper. The measure was agreed between Podemos and the Tax Authorities although the Government did not include it in the Budget Plan that it sent to Brussels in October or in the draft bills that are already being processed. The General Secretary of Podemos, Pablo Iglesias, blames the Socimis for the “rental bubble”.

This measure follows other initiatives agreed with Podemos, which cause the greatest impact of the increase in taxes set out in the budgets to fall on companies: they include a tax of 5% on overseas dividends and the imposition of a minimum taxable base of 15% in terms of Corporation Tax, which will be added to the draft bills to create the Google tax and the Tobin tax.

Socimis (Listed Public Companies for Investing in the Real Estate Market) were created by Zapatero’s Government in 2009 to revitalise the real estate market. They enjoy a very beneficial tax regime. The rate of Corporation Tax applicable to them is zero, provided they fulfil a series of requirements: their minimum capital stock is €5 million, which may be invested in a single property; a minimum of 80% of the profits obtained from rental must be distributed in the form of dividends; and a minimum of 80% of the value of the assets in urban buildings must be leased for three years. For the rents received from other types of activities, the Socimis have to pay tax at a rate of 25%.

From now on, a tax rate of 15% will have to be paid on all of the profits not distributed by these types of entities.

“We need to discourage the promotion of these types of companies that promote the bubble model, undermine the public coffers and represent a grievance for competition. We consider that the special regime afforded to the Socimis, whose main feature involves a tax rate of 0% for Corporation Tax, needs to be reversed”, said Podemos in a recent document. It regards it as “necessary to reverse Government policy, based on forcing tax regulation to create a tax haven for companies that promote a new housing bubble”.

Original story: Expansión (by Mercedes Serraller)

Translation: Carmel Drake

Fitch Points to Real Estate Bubble in Central Madrid and Barcelona

24 October 2017

The Spanish property market and the sharp increases in housing prices in the principal Spanish cities have already triggered alarms

The Spanish real estate market and the sharp price increases recorded in major Spanish cities are triggering alarms. The rating agency Fitch was the first voice to take a position on a question that has been looming for several months: is the market just frothy or are we facing a full-blown bubble?

Fitch’s opinion on the matter is clear. The agency is warning of a bubble in the centre of Spain’s principal cities, though it adds that it does not foresee a generalised bubble in house prices in the country in the short term, due to the high ‘stock’ that must still be absorbed and the restrictions to the purchase of homes.

Just to get an idea, recent data from the valuation firm Tinsa shows how housing prices increased by 20.6% in Barcelona and 15.5% in the capital of Spain in just the last 12 months. These percentages hark back to number last seen in Spain’s pre-crisis boom years.

An analysis of the housing sector in Spain, published on Tuesday by the company, explains that bubbles in specific types of highly localised assets are already evident. Fitch highlights how high demand and limited supply in the housing market in the country’s principal cities are causing severe increases in prices, which are increasingly “unsustainable.”

As noted, annual growth in housing prices of between 15% and 35% have been limited to prime neighbourhoods in Madrid and Barcelona. Fitch believes that this demand has been underscored by quantitative easing, buying by foreigners and investment decisions, as investors look to benefit from asset appreciation and rental yields. However, the ratings agency does not believe that all this mix of  “ingredients” will influence the general real estate market in the short term.

Fitch says it is “highly unlikely” that problems in the real estate market are correlated with the economic recovery

Similarly, the agency asserts that it is “highly unlikely” that the problems in the real estate market are correlated with the economic recovery in general, and foresees that the average sale discounts of foreclosed homes will remain high and stable over the next few years.

This situation will continue as long as the banking sector continues to unload its excess of stock of houses and while buyers insist on deep discounts when acquiring foreclosed homes, the rating agency emphasised.

According to Fitch data, discounts on the sale of foreclosed flats remains “high”, up to 60% on average in relation to the initial valuation, with a range of between 50% and 75%. The dispersion of discounts on the sale of foreclosed properties is shrinking. In fact, the gap between discounts from one end to the other has been reduced to 25 percentage points at the end of 2016, from 35 percentage points in the period between 2010 and 2011. However, the agency advises out that the correction is not generalised.

Difficulties accessing housing

On the other hand, Fitch explains that access to housing will continue to be complicated because the increase in the housing price index exceeds wage adjustments.

Thus, the capacity of families to acquire property is decreasing, also due to a labour market that favours temporary rather than indefinite contracts, leading to difficulties in making the initial 20% deposit required to purchase a home.

It also underlines that access to housing in the long term may be limited due to the gradual elimination of monetary stimuli in the market and the likelihood of higher interest rates.

Original Story: El Confidencial

Translation: Richard Turner

EU: House Prices In Spain Will Rise By 6% Before 2017 YE

23 February 2016 – El Economista

Spain and Ireland, two of the European countries that suffered the most from the burst of the housing bubble, will see their property prices rise again over the next few years.

That is according to the winter forecasts published by the European Commission, which expects real house prices to increase by 6.5% until 2017 in the case of Ireland and by 6% in the case of Spain during the same period. Malta, where prices are also expected to increase by 6%, completes the podium.

Although house prices are expected to recover, the EU notes that loans taken out to purchase homes continued to decrease (in Spain) in 2015, as well as in Latvia, Hungary, Portgual, Ireland and Greece. In the case of Spain, the decrease amounted to 4% in 2015, below only Latvia and Hungary.

At the other end of the spectrum is Greece, where the EU expects house prices to fall further, in that case by 1.5%. According to the Commission’s report, Greece was the only country not to experience improvements in the financing conditions for homes, which were seen across Europe in 2015. According to the EU, the improvements in financing conditions lie behind the recovery in property prices and only Greece remains at the side-lines. In most countries, the improvement began back in 2014, apart from in Croatia, Lithuania and Italy, which all relaxed their financing conditions in 2015.

Where will prices fall?

Besides Greece, the EU predicts that house prices will fall in three other countries, namely in: Belgium, France and Bulgaria.

The Commission says that the ratio of house prices to disposable income in Spain amounted to 10.1 in 2014, well below the figure of 15.6 recorded in 2007, when the ratio peaked and also significantly above the figure of 8.6 registered in 2000. Ireland has experienced a similar evolution to Spain; there, house prices represented 13x income in 2000, increased to a peak of 16.8x income in 2007, before decreasing to 11x income in 2014.

In 2014 in Portugal, house prices stood at their lowest level since 2000: then they represented 11.2x income, compared with 9x income in 2014. And Germany has also experienced a similar trend – house prices there have decreased from representing 8.6x income to 7.2x income in 15 years.

The property sector in Spain has changed

The reality is that the housing market in Spain has changed (significantly), not only in terms of the decrease in the income requirement to pay for a home, but also in other aspects. The first is the decrease in the number of operations being closed each year: According to INE, 354,132 transactions were closed in 2015, which represents a similar level to 2011. However, that figure represents less than half the number recorded in 2007 (when 775,300 homes were sold).

Another aspect that has changed significantly is the size of the mortgages being granted. In absolute terms, they have decreased from almost €300,000 million in 2006 and 2007, to just over €41,000 million in 2014. On average, the size of mortgages granted has also plummeted, by 37%, to €106,655 in November 2015.

Original story: El Economista (by Inés Calderón)

Translation: Carmel Drake

S&P: House Prices To Rise By 2.5% In 2015 & 2016

3 August 2015 – La Razón

The ratings agency Standard & Poor’s (S&P) expects house prices in Spain to increase by 2.5% this year and next, and to rise by 4% in 2017, driven by the economic recovery, which is gaining strength, and low interest rates.

If these forecasts are correct, house prices will rise again after years of decreases following the burst of the housing bubble.

According to data from S&P, the downwards trend was finally broken in 2014, when prices remained stable.

The improving economic conditions and low interest rates will also push prices up in other European countries.

In fact, within the Eurozone, real estate prices are set to record the greatest increase in Ireland this year, which will see growth of 9%, followed by Germany (5%), Portugal (4%) and the Netherlands (3%).

The markets in Ireland and the Netherlands, which were amongst the worst affected by the crisis, will continue to improve in 2016, with average price rises of 5% and 3.5%, respectively.

Just like in Spain, prices are also expected to stop falling in Italy this year, although unlike in Spain, they are not expected to increase, rather they will remain stable.

Only the French and Belgian markets are expected to register decreases this year, of 3% and 2%, respectively. In the case of Belgium, the downwards trend is forecast to continue into 2016.

Beyond the Eurozone, S&P expects that prices will continue to grow from strength to strength in the United Kingdom, specifically by 7%, although at a lower rate than in 2014 (10%).

The Bank of England may increase interest rates this year and whereby curb the increases over the next few years, to 5% in 2016 and 2.5% in 2017.

In the case of Switzerland, house prices will experience a slight recovery, with an increase of 1.5% this year, after rising by just 0.1% in 2014.

Original story: La Razón

Translation: Carmel Drake

Renta Plans To Buy €500m Worth Of Buildings In Spain

23 January 2015 – Expansión

The real estate company Renta Corporación has begun 2015 with its eye once again on acquisitions. With a healthy balance sheet and the threat of bankruptcy behind it, the company has agreed an alliance with two overseas funds to buy buildings amounting to €500 million in Madrid and Barcelona this year.

Under the plans, Renta Corporación will contribute 10% of the capital and will act as the manager of the transactions, whilst the funds will provide the remaining 90%. Together, they will spend €250 million and the other half, up to €500 million, is expected to be financed by banks.

One of the funds is Kennedy Wilson Europe Real Estate, with whom the real estate company signed a partnership agreement last December. And its alliance with the second investment fund is in the “advanced” stage, explains the Chairman of Renta Corporación, Luis Hernández de Cabanyes.

The €500 million will be used to acquire a range of buildings including offices, residential properties, hotels, shopping centres and land. Renta, which has historically focused on the purchase, renovation and sale of residential buildings, will hereby enter other segments of the real estate market.

At the end of December, Kennedy Wilson Europe Real Estate and Renta Corporación closed their first purchase under the new alliance, in Madrid. The target, an office building in Calle Santísima Trinidad, will be converted into luxury homes, with a planned investment of more than €5 million.

The Chairman of Renta Corporación considers that “financing will experience an upturn over the next twelve months”. The banks “are in much better shape, from a solvency perspective, than in 2008”, he said.

Hernández de Cabanyes points out that Renta Corporación’s vocation has always been the purchase of “buildings with potential for value generation”. Now, with the help of these funds, “we have the peace of mind that comes from having more financial muscle”. It may take anything from six months to four years for the alliance between Renta and these funds to make purchases, create value and realise sales.

According to Hernández de Cabanyes, the prices of buildings in Madrid and Barcelona are currently 55% of the peak values they reached in 2007. In the case of land, its current value amounts to just 25% of the prices seen before the burst of the housing bubble.

In November, Sareb, Popular, ING and Banco Caixa Geral all invested in the share capital of Renta Corporación, in exchange for the cancelation of their debt in the company.

Original story: Expansión (by Marisa Anglés)

Translation: Carmel Drake

Bank Reduces Development Risk To Levels Seen A Decade Ago

02/01/2015 – Expansión

LATEST DATA FROM BANK OF SPAIN / The sector lowers its credit portfolio for real estate development to 156.2 billion, levels not seen since 2004. The balance has fallen 52% from a record 325 billion in 2009.

The Spanish banking sector is leaving financial restructuring behind, having reduced its development risk by half, which has been a major point of weakness throughout the crisis. The sector’s credit balance declined to 156.2 billion in September, according to the latest data published by the Bank of Spain. Thus, financial institutions have placed their stock in the levels seen a decade ago, in 2004, when the housing bubble began to rise.

With this, the bank has cut 52% exposure to real estate development from its June 2009 record, when it was at 325 billion euros.


Reducing direct exposure to developers is due to several factors. Some of them reflect the fact that risk has not been eliminated in the strict sense, but that balance sheets have been transformed or moved from banks to other economic agents.

In this regard, one of the elements that explains this reduced exposure is the creation of SAREB, also known as the ‘bad bank.’ The financial institutions with public aid transferred a net development loans (with already reduced provisions) of almost 35 billion euros between 2012 and 2013. This risk has stopped pressuring state-backed groups, but has been assumed by the shareholders of the bad bank.That is, by taxpayers, through the Restructuring Fund (Frob), with a share of 45%, and healthy banks: Santander (17%); CaixaBank (12%); Sabadell (7%) and Popular (6%), mainly.

As important or more than this factor are the allocation of assets and debt swaps for property. The bank began to systematically implement this strategy at the beginning of the crisis, in order to ease the financial burden on developers and give the sector some breathing room. Currently, gross property portfolio of banks totaled at 84.5 billion, up 12.6% from 75 billion a year ago.

The transfer of loans to bad debts (considered irrecoverable and given at 100%) and sales, still emerging, of developer credit portfolios to vulture funds have also contributed to lowering stock. In October, for example, Bankia sold a loans portfolio to real estate companies with a nominal value of 335 million euros to the Anglo-Saxon hedge fund, Chenavari. Sabadell, CaixaBank and BMN are also discussing developer sales credit, which is scheduled to be closed soon.

Looking ahead, analysts believe that the activity of the real estate sector and the continuing process of risk reduction of banks will be slow. Experts from International Financial Analyst (AFI) predict that the total portfolio of developer and constructor loans, which in September totaled at 205 billion (156.2 billion in loans to developers and 48.8 billion more to constructors), will amount to 198 billion at the end of 2014. In 2015, the number should be reduced to 187 billion (with a quarterly decrease of 5.8%), and in 2016, it may even reach 179 billion euros (-4.3%).


The institutions and investment firms agree that development risk is no longer a source of uncertainty for the Spanish financial system. The arrears of these companies, with dubious loans of around 58.5 billion, is 37%. This exposure, however, is properly covered by the financial reform and restructuring of the real estate sector, which has placed the average coverage levels at around 50%. For the next year, AFI experts estimate that the default rate will remain at 34.3%, decreasing to 30.8% by the end of 2016. However, this exposure remains a major disadvantage in terms of profitability, which is the main challenge being faced by Spain’s financial system. Although not by disturbing amounts, institutions assume that they will have to keep making provisions to cover the deterioration of their real estate portfolios. For its high default rate, this risk also entails significant capital consumption as well as an increase in expenditures for the operational costs of maintaining their enormous portfolios.

Original article: Expansión (by M. Martínez)

Translation: Aura REE