Developers Focus on Spain’s Largest Cities as Smaller Towns Are Left Behind

8 November 2019 – The recovery of the Spanish property market since its nadir in 2013 has been relatively slow and concentrated in the country’s largest cities. In that year, developers applied for just 34,000 construction permits to begin work on the development of new homes. The year 2006 saw the last decade’s peak of a staggering 860,000. Last year, municipalities issued 100,351 new permits, when market sources state that Spain’s needs between 100,000 and 150,000 per year to keep up with demand.

The recovery, however, has been limited to the country’s largest urban centres. Major developers have so far largely ignored Spain’s smaller cities and towns, leaving any needed construction there for much smaller, local builders with limited financial capacity.

Last year, developers concentrated the majority of their investments (51.6%) in just five provinces: Madrid, Barcelona, ​​Malaga, Alicante and Bizkaia, which together account for just 36% of the country’s inhabitants. Ten provinces account for 65% of the homes built, while another 40, which account for 45% of the country’s total population, saw just 35% of the requests for new construction permits.

Original Story: Cinco Dias – Alfonso Simón Ruiz

Adaptation/Translation: Richard D. K. Turner

Ibiza Exemplifies the Real Estate Market’s Recovery

25 April  2019 – El Confidencial

The real estate market on the Balearic Islands, and especially the well-known Ibiza, have exemplified the market’s recovery since the beginning of the financial crisis, just over a decade ago.  Aided by geographical constraints, limiting any potential growth on the islands, housing prices have increased significantly over the past four years.

Burgeoning demand by foreign buyers has pushed prices on Ibiza to a level that is 38% above the previous historical highs seen in February 2008 (for existing housing).  Other Balearic municipalities are also clawing their way back up, though at a reduced pace.  Fotocasa stated that prices on Calvià are 1.6% above pre-crisis levels while prices in Palma de Mallorca are just 1.3% below.

That growth has led to Ibiza to have the third most expensive property prices in Spain, behind San Sebastian and Sant Cugat del Vallès (near Barcelona), and ahead of Barcelona, Santa Eulalia del Río (also in the Balearic Islands), Pozuelo de Alarcón and Madrid. All have prices exceeding 3,000 euros per square meter. The Balearic Islands also has the second highest levels of real estate activity in Spain, with 13.41 sales per thousand inhabitants, only surpassed by the Valencian Community with 15.88 and ahead of the Community of Madrid, with 11.63.

Prices in the Canary Islands are currently 22.1% below the high of May 2007 (2,155 euros per square meter), while prices Madrid are 27.4% below its high of June 2006 (3,970 euros). On the other hand, prices in Navarra are still 53.3% below their previous highs, followed by La Rioja (-53.2%) and Murcia (-50.5%).

Original Story: El Confidencial – E. Sanz

Translation/Summary: Richard D. Turner

The Basque Real Estate Market Has its Best Semester Since 2010

8 August 2018

Housing sales rose by more than 7%, with 10,166 operations in the year to June, the highest level in eight years.

The Basque property market is continuing to gain rhythm as it traverses its fifth consecutive year of growth. Between January and June, more than 10,000 homes were sold in Euskadi (the Basque country), most of which were existing homes, the same as in the first half of 2010 and increasingly close to the 15,000 sold at the beginning of 2007. The economic improvement and the rebound in employment are stimulating demand and pushing up prices, softened in part by the low cost of credit.

Some experts are already warning of a potential new housing bubble like the one that caused the crisis to explode in 2007, even though the wounds from the last crisis have yet to fully heal. Last year, activity in the Basque construction sector grew again after nearly a decade of contraction, thanks to a recovery in housing construction. The sector is also seeing hopeful data regarding employment, which grew strongly in the second quarter of 2018 despite the slowdown in hiring in the Basque industrial sector.

The key to the maintaining the continuity of this virtuous cycle lies in the purchasing power of workers, especially young people. Salaries are the engine of the economy; hence the growth of the real estate market is linked to the progress of the economy in general. High prices, in this case, are a handicap that slows down the recovery of the sector. In this, the low cost of credit is a boon, which can encourage many families to take the plunge.

In the first half of 2018, 10,166 homes were sold in Euskadi, according to the INE’s data, the best result since the first half of 2010. Despite the slowdown in June, with a year-on-year decrease of 6.7%, operations grew by more than 7% in the first six months of the year. This would maintain last year’s pace and lay the foundations for a fifth consecutive year of growth.

The Basque real estate market bottomed out in 2013 when there were fewer than 11,000 transactions during the year as a whole – and just 6,300 between January and June. The trend changed in the second half of 2014, and the market began to see increasing signs of reactivation and consolidation in the following years. In 2017, just over 17,000 homes were sold in the Basque region, and the figure is expected to near 20,000 this year, practically double that of 2013, and not far from the record year of 2007, when 26,000 homes were sold.

The sale of new housing increases

Most of the sales have corresponded to existing housing. Around 80% of the transactions in the first half of the year involved previously existing homes. However, there has been a clear upward trend in the sales of newly built homes, which saw two consecutive monthly increases in May and June. For the semester as a whole, the sale of new flats increased by 10% compared to January-June 2017, higher than the average for real estate market in general.

On the other hand, although transactions involving existing homes do not directly affect the operations of the construction companies, those sales are also a reflection of the dynamism of the market and, although this is not always the case, a sign of an improvement in the perspectives and economic capacity of many families.

The acceleration of the real estate sector is supported by an increase in mortgage loans, which rose by 8% last year and continue to rise in the first half of 2018. The market is waiting to see the effect of the expected change in Euribor rates. Those rates fell below zero at the beginning of 2016, but have since started to rise again, albeit very slowly. For now, Euribor rates are still negative, generating savings for mortgage holders, but experts they agree that this will not be the case for long. The ECB hopes to put an end to the currently ultra-low interest environment, which would push Euribor upwards.

Although this factor can be a brake in the medium term, in reality at the moment, it serves as an important stimulus for the market. The fear that the cost of mortgages will increase, in many cases, leads to a decision to bring forward any planned purchases, to take advantage of the banks’ low rates.

The rise in sales has been particularly pronounced this year in Araba, where 450 homes more homes were sold more than in the first half of last year, reaching roughly 1,900 operations. Bizkaia (Biscay) recorded an increase of 300 homes compared to the first six months of last year, exceeding 5,200. In Gipuzkoa, whose capital has the most expensive flats of the three territories, there was a slight decline in the number of sales in the year to June, with just over 3,000.

In the whole of Spain, housing sales rose by almost 11% between January and June, according to INE data, which confirms that, in general, the Spanish market is somewhat more dynamic than the Basque market. In any case, the semester closed out with a smaller advance than the one in May, 13% than in April, above 15%.

Much of the slowdown was produced by the tepid data in June when sales in Spain rose by an anaemic 1.8% while avoiding the downturn in the Basque country. In April, the Spanish real estate market saw its best growth since the beginning of 2007, recording an increase in sales of 30%. The strong start to the year, therefore, gives some leeway for the type of retrenchment seen in June, and experts believe that growth will continue for the rest of the year.

Original Story: Deia – Adrián Legasa

Photo: Oskar M. Bernal

Translation: Richard Turner

 

Has Spain Learnt Anything From The RE Crisis?

17 September 2015 – Mercado Financiero

Standard & Poors published a report at the end of 2007, which predicted a 22% decline in the construction sector over the next 3 years in Spain. A year later, the decrease in the number of job offers in the real estate and construction sectors amounted to 57%.

In the years before the crisis, Spain shared in Europe’s prosperity, where belonging to the middle class was an outmoded concept. Buying a new house, changing car and travelling constituted the basic premises of an economic model dominated by the real estate sector.

During the decade between 1997 and 2007, the construction sector drove more than half of the country’s economic growth, and accounted for 23% of total employment, according to a study by Rafael Doménech, Chief Economist for Developing Countries at BBVA Research.

Specifically, in 2007, construction accounted for 21.7% of the Spanish economy’s GDP. Seven years later, in 2014, the weight of the sector had decreased by almost half, to account for 10.5% of GDP.

No one ever talked about the risk premium; the word eviction was effectively invented in 2008; and purchasing property was a very profitable business, since prices always increased.

Over-valued assets?

Excess demand gradually drove up the price of properties. According to the Bank of Spain, at the end of 2008, the price of a typical home (measuring 93.75 m2) was 6.5 times greater than the gross disposable income of an average household.

That magnitude dissipated during the second quarter of 2008 when house prices began to fall and the declining trend continued until the middle of 2014, when the first price rise was recorded after 24 quarters of decreases.

But the issue goes much further than that. During the years before the crisis, the Spanish economy was characterised by the following: a high inflation differential with respect to the Eurozone; a lack of competitiveness; and the high price of real estate assets that encouraged their purchase. Pillars of growth that IESE described as “unsustainable”.

Growth is returning

In 2015, seven years after the crisis began, the positive macroeconomic outlook seems to be indicating the end of the recession. Such trends are also being seen in terms of house prices, which despite the sharp downward trend, have now reversed. With the 4% increase experienced in Q2 2015, house prices have now recorded five consecutive quarters of YoY increases.

In this context, what we should really be asking ourselves is: Are we at the beginning of a new real estate bubble? Rafael Doménech…says that the spike in house prices during the second quarter of the year (a 4% YoY increase) is “the typical rebound following an over-reactionary adjustment”. Moreover, he is certain that the market is not returning to its old tricks again.

Meanwhile, the Head of Research at the Bank of Spain, José Luis Malo de Molina, says that “the adjustment in the housing sector has, in theory, come to an end” and that “the outlook points to the start of a possible recovery”. Likewise, Malo de Molina believes that the recovery in transactions is leading to an increase in the number of permits for the construction of new homes. (…).

In any case, the Spanish economist Santiago Niño Becerra argues that Spain will never again construct more homes than in France, Germany and Italy put together, because of easy credit fuelled by cheap money. “I think that the future of the real estate sector will centre around the renovation and conversion of properties for rent, together with very carefully planned construction”.

Original story: Mercado Financiero

Translation: Carmel Drake

Spain House Sales Rose Last Year (For First Time Since 2010)

11 February 2015 – Bloomberg

Spanish home sales increased last year for the first time since 2010, adding to signs that the property market is recovering from the worst recession in the country’s democratic history.

Transactions rose by 2.2 percent from a year earlier to 319,389 units, according to data compiled by the National Statistics Institute. That’s still far below the peak in 2006, when 955,186 properties were sold.

“We are out of the operating room but we are still in the hospital,” said Fernando Encinar, co-founder of Idealista.com, Spain’s largest property website. He said 2013 was “the worst year of all for Spanish real estate sales, so any comparison will look good.”

More than two years since applying for a European Union rescue of its banking system, Spain has become one of the fastest-growing economies in the euro area as exports surge and investment rebounds. The country is poised to have the highest growth since 2007 this year.

Tinsa, Spain’s largest homes appraiser, said today that home prices fell 2.7 percent last year, taking the drop since values peaked in 2007 to almost 42 percent.

Original story: Bloomberg (by Sharon Smyth)

Translation: Carmel Drake

Homes: New Builds Are Returning To Cataluña

28 January 2015 – Expansión

Cataluña started to construct between 4,300 and 4,500 homes last year, putting an end to seven consecutive years of decline in the number of new homes started.

At a press conference, the President of Barcelona’s Developer Association, Lluís Marsa, explained that since 2006, when 126,000 homes were built, the number of new builds has decreased year after year to a minimum of 3,036 homes in 2013.

Although the increase in the number of new builds since 2013, compared with the estimated closing figures for 2104, reveals a growth rate of 48%, Marsa recalled that in absolute terms, the number is still very modest, and so the sector “is still a long way” from what would be considered normal, he said.

The Developers’ Association estimates that Cataluña should be building between 20,000 and 25,000 new homes each year, but Marsa did not hazard a guess as to how many years it would take for the region to reach that volume, although he did say he was certain that the trend would continue to be positive in 2015.

In any case, builders understand that, gradually, the market is returning to normal, since “the price correction process has now been completed”.

One example of this is the study presented today by the entity, in collaboration with the the Housing Ministry, the Town Hall and Barcelona’s Provincial Council.

The study analysed 815 housing developments in the province of Barcelona, covering 20,165 homes and concluded that only 24.1% of the properties were pending sale, i.e. 4,859 homes.

Although this study analyses the supply of new housing only, and not the stock (of second-hand homes) accumulated in recent years, the data serves to verify that the few developments that are currently being built in Cataluña are being located only in areas with proven demand.

In this way, from the supply of 4,859 homes in the province, 924 are located in the city of Barcelona. It also highlights the current supply in cities such as Terrassa (where 377 new homes are up for sale), Sabadell (250 homes), Badalona (485 homes) and Sant Cugat de Valles (133 homes).

The price per square metre in the province of Barcelona decreased by 7% in 2014 with respect to 2013, and amounts to €3,046.

In contrast, in the city of Barcelona, where there are homes for sale in 166 developments, the average price per square metre is €5,000, down 4.1% from 2013, according to the study.

Nevertheless, there are important variations between districts, since a buyer could expect to pay €9,146 per sqm (13.1% more than in 2013) for a new build in Sarria-Sant Gervasi, versus €3,034 per sqm for one in Sant Andreu.

Meanwhile, Marsa complained about the difficulties that developers face when trying to access credit from banks to start or finish developments, and he pointed out that the restructuring of the banking sector has substantially reduced the number of entities and even more significantly decreased the number banks willing to lend.

The high level of unemployment and the strict requirements that still apply when it comes to applying for mortgages are just two of the other difficulties that individuals face when they want to buy a new home.

Likewise, Marsa said that although during the ‘boom’ years, 50% of all homes sold were new builds, they now barely account for one in three sales, and he forecasts that second-hand housing will continue to gain ground over the next few years.

Original story: Expansión

Translation: Carmel Drake

Fitch: Recovery In Housing Market, But No Rapid Rise In Prices Or Mortgages

15 January 2015 – Expansión

The ratings agency Fitch believes that the downward trend in house prices in Spain is coming to an end after seven years, but that unemployment and the real estate “stock” mean that there will not be a rapid recovery in prices.

Fitch explains that the stabilisation of house prices and of the mortgage market is a reflection of the macroeconomic recovery in Spain and the growing willingness of banks to lend to the most creditworthy customers.

However, despite the efforts made by the European Central Bank (ECB) and the “cheap money” that has been made available to Spanish banks, Fitch does not expect there to be a rapid recovery in the number of mortgages loaned, Efe reported.

According to the ratings agency, the depreciation in the value of foreclosed and sold homes has amounted to 70% in certain cases with respect to their initial valuations.

Similarly, the price range in which banks are selling foreclosed homes has also declined considerably, says Fitch.

Fitch’s analysis suggests that the discounts on forced sales are higher in the coastal regions, such as Andalucía and Cataluña, and that further price cuts are required to find buyers for foreclosed properties and those linked to mortgages signed before the financial crisis.

Nevertheless, although mortgage lending is returning, the high level of unemployment and the housing surplus mean that we should not expect to see a rapid rise in prices.

Furthermore, Fitch points out that 768,000 homes built between 2002 and 2011 remain empty, and that the real estate sector has now bottomed out in terms of prices, as indicated by data published by the National Institute of Statistics (INE), which indicate price increases of 0.8% in the second quarter of the year, the first increase since the outbreak of the crisis.

Original story: Expansión

Translation: Carmel Drake

TINSA: House Prices Fall By 3% In 2014 And May Bottom Out In 2015

 14 January 2015 – Expansión

The price of finished housing (new and used) declined by 3% year-on-year in 2014, compared with a 9.2% decrease in 2013, according to Tinsa’s General and Major Markets IMIE Index, published today. The appraisal company believes that prices could break even during the first few months of 2015.

The five areas analysed in the study show that the deterioration in prices has moderated over the last year. Specifically, the ‘Metropolitan’ area recorded a decline of only -0.2%, compared with -11.5% in 2013.

The ‘Balearic and Canary Islands’ recorded a decrease of -2%, which is not far off the -3.2% recorded in those regions in 2013; and ‘Capitals and Major Cities’ recorded a fall of -2.8%, versus a reduction of -11% in 2013.

“The most significant variations over the last twelve months were recorded in ‘Other Municipalities’ (-4.7% year-on-year) and on the ‘Mediterranean Coast’ (-4.5%)”, said Tinsa.

From the highs of 2007, the IMIE, which stood at 1,343 points in December (the same level as in July 2003) has recorded a cumulative decline of 41.2%.

The evolution of prices in 2015 will depend on the economic situation and the level of employment, which will determine demand, says Tinsa. “If growth forecasts are fulfilled, the labour market stabilises and the proposed improvements in lending are realised, then the average price of housing in Spain may break even during the first few months of the year, with a year-on-year variation of around 0%”, it concludes.

Original story: Expansión (by M. G. Mayo)

Translation: Carmel Drake

Housing Sector To Improve Region To Region RECOVERY / Large Cities Are Initiating The Climb Out Of The Crisis

26/12/2014 – Expansión

Housing recovery will be asymmetrical, as it is in the real estate market — experts and industry players are convinced. Areas where fewer new homes remain unsold and price adjustments have been significant will take less time to return to normal levels than in the more built-up provinces.

What happens in big cities is often a leading indicator of the coming trend. And in Madrid, housing price adjustment has been more than 40% and things are starting to move again in the real estate market. That is, investors have already become more active, considering that home value drop will not deepen much further. The same thing is happening in Barcelona and major cities in the Basque country. The surprise is that real estate consultants and economists already see the light at the end of the tunnel in Mediterranean tourist destinations such as the Costa del Sol – which always falls and recovers before the average of other Spanish regions – and parts of Levante, the eastern coast.

Specifically, there are already 20 provinces that are on the road to recovery, after seven years of continuous descent. This is much better than the 2013 scenario, in which only eight provinces were showing signs of improvement. This was noted in a report by Deloitte in which the exit speed of the real estate crisis is measured by region.

According to the study, the Spanish provinces with the best real estate score are in order as follows: Madrid, Álava, Barcelona, Guipúzcoa, Vizcaya, Navarra, Cantabria, Zaragoza, Lleida, Baleares, Segovia, Valencia, Asturias, Huesca, Burgos, Valladolid, Palencia and Soria. That is to say, these are the regions where the real estate market will see the greatest recovery, i.e. more and more cranes, construction projects and mortgage subrogation will begin to pop up.

On the opposite end, Almería, Ciudad Real, Toledo and Castellón will take the longest to recover, “due to both their worse relative position in macroeconomic terms and weaker real estate sector activity, heavily penalized by oversupply.” Yes, it is remarkable that this tail-end has shrunk from having 21 provinces in 2012 to only four this year. The remaining areas (25 provinces) are at a midpoint, meaning they will recover in ‘a second phase’”.

It is also important to note that 18 of the 20 provinces that will get out of the housing crisis early are situated in the North. The other two are the Balearic Islands and Valencia (see chart). And none of the southern provinces will recover in the first of the three exit phases of the housing crisis that Deloitte has set. “The North will climb out of the crisis faster than the South, since it is not so contingent upon tourism. Furthermore, in the North, urban residential development has not been as significant as in the South,” said the Director of Deloitte Real Estate, Javier Garcia-Mateo.

The regions with the highest housing stock are Valencia (164,000 homes), Andalusia (102,500) and Castilla-La Mancha (83,700). Together, these three regions account for more than half the housing surplus at the end of 2014, according to the Real Estate Institute Business Practice Pulsometer, which estimates the stock of unsold new homes at the end of 2014 at 652,000, 14.8% less than in 2013. On the opposite side, Extremadura (3,238), Navarra (3,854) and Baleares (7,965) have the lowest number of homes remaining unsold. Catalonia has a surplus of 12,977 homes, less than half that of Madrid (27,198).

Original article: Expansión

Translation: Aura REE