The IMF Commends Sareb’s “Effective” Management & Divestment Progress

10 October 2017 – El Diario

On Friday, the International Monetary Fund (IMF) commended the “effective” management of Sareb and its progress in the asset divestment process, which has enabled the real estate company to liquidate 22% of its portfolio and 20% of its debt in its four years of life.

“To date, Sareb has fulfilled its objectives quite well, and the review of its business strategy seems to be well designed”, acknowledged the supervisory body in its latest report evaluating the Spanish financial sector.

Nevertheless, it adds that the company, created in 2012 to help with the clean-up of the banking sector, will face challenges in the future.

In its report published on Friday, the IMF refers to: the highly sensitive nature of Sareb’s activity to the evolution of real estate prices; the financial expenses that the entity must pay to service the debt that it took on to purchase assets back in the day; and the “stiff competition” from the banks, which are also divesting their real estate portfolios.

Even so, the body endorses the progress that Sareb has made to reduce the perimeter of assets received from the financial institutions by so much, as well as to service its commitments to repay its debt, which is guaranteed by the Spanish Treasury.

For the IMF, behind this progress, is the “effective” approach that Sareb applies to managing the portfolio, and which includes strategies for “the transformation of loans into properties, the recovery of loans, the sale of assets and the reactivation and sale of suspended projects”.

In the opinion of the institution, which is headquartered in Washington, Sareb is continuing to play a “critical role in the preservation of financial stability”, and therefore recommends greater involvement of the authorities in the preparation of the entity’s business plan.

The report that the IMF published on Friday focuses on analysing the weight that doubtful loans still play in the Spanish banking sector, which is still high despite the transfers that were made to Sareb when it was created.

In this sense, the international body echoes the initiative that the so-called “bad bank” has launched to give greater dynamism and transparency to the sale of loans, through an online platform, which is now operational, albeit in the pilot phase, on the company’s website.

Original story: El Diario

Translation: Carmel Drake

Spain Needs To Build 150,000 New Homes Per Year

27 December 2016 – El Confidencial

The International Monetary Fund (IMF) issued a warning a few weeks ago: the greatest danger in terms of a new real estate bubble on the world scale is the lack of homes. Although it seems impossible, Spain, with its housing stock of 25 million – for a population of 47 million – of which approximately one and a half million are empty, needs more homes. In fact, it needs around 150,000 new homes per year in order to have a healthy residential market. Otherwise, there will end up being strong upwards pressure on prices (of both new builds and second-hand properties), which could lead to a new and much-feared bubble.

At least that is according to the majority of the experts in the real estate sector. From appraisal companies, to consultancies, to property developers, to cooperative managers. Everyone agrees that Spain needs more homes. But, how is that possible when the country has a surplus stock amounting to almost half a million units?

“The surplus stock, or rather, the census of unsold homes is not always in the locations in which there is demand. Homes are not bricks that can be moved from one place to another”, said Juan Fernández Aceytuno, Director General at Sociedad de Tasación. “Moreover, in some places in Spain, the stock is very low and new homes need to be built to satisfy demand”, added Julián Cabanillas, CEO at Servihabitat.

But isn’t the second-hand market sufficient to satisfy demand? “When making a major investment such as buying a home, families prefer to acquire a new build than a second-hand property” (…), said Ernesto Tarazona, Partner and Director of Residential and Land at Knight Frank.

The problem, according to the real estate experts, is that hardly any new homes are being built. Since the burst of the real estate bubble in 2007, house construction has been completely paralysed. Spain went from building 800,000 homes per year to just 35,000 homes in 2013 and 2014 (according to housing permit data from the Ministry of Development) and for the market to be healthy again, we should be building around 150,000 units per year.

“House prices and sales are definitely showing signs of improvement, but we cannot talk about the stabilisation of the sector until we see a recovery in terms of construction”, said Carolina Roca, Vice-President of the Property Developers Association in Madrid (Asprima). (…).

And that is not an easy task, according to Roca. “In order to reach that figure (of 150,000 new homes per year), we not only need land, but we also need to restore the productive and entrepreneurial fabric of the sector, given that the majority of the players in the property development and real estate sectors have disappeared. Very few property developers are actually building homes at the moment, and those that are, are doing so using own funds for the most part, given that although financing to individuals has recovered, it has not for property developers to the same extent. Not even with the entry of new players such as investment funds will we reach those figures”, laments Roca.

“The construction of 150,000 homes per year seems like a reasonable figure. Nowadays, around 500,000 homes are sold per year, of which, only 10% are new builds. During the boom years, new builds accounted for 50% of all house sales and it is likely that the percentage will end up stabilising at around 30%, which means that 150,000 homes per year seems reasonable”, acknowledged Juan Velayos, CEO at Neinor Homes, one of the new players in the sector. (…).

“Nowadays, everything that is built is sold. Off-plan homes are sold out in a matter of weeks”, said Ernesto Tarazona who, nevertheless, recognises that a very important segment of potential buyers is being left out of this timid recovery. “Nowadays, anyone wanting to buy a home for €160,000 in Madrid is going to be disappointed; they just can’t. There isn’t any land available to build houses at those prices”, comments Juan José Perucho, Managing Partner at the Ibosa Group. (…).

Original story: El Confidencial (by Elena Sanz)

Translation: Carmel Drake

The IMF Reports Spanish House Prices Bottoming Out

9/01/2014 – El Mundo

In its “Multi-Country Report”, the International Monetary Fund (IMF) indicates that housing prices seem to be reaching the rock bottom level in Denmark, Ireland, the Netherlands and Spain, the four countries which have had experienced significant house-price falls in recent years.

The report reminds that the four analyzed countries share similar monetary policy. It also remarks that the most acute price slumps were seen in Spain and Ireland, which additonally suffer high unemployment rates. The IMF staff assignes this fact to a huge loss of jobs in the home-building industry.

Fall in prices had an impact on consumption. Household debt has had increased during the real estate boom (these countries saw sudden property prices upsurge in years 2000-2007 due to easy access to financing) and housing equity has had shrunk during the recession, the IMF reports. What is more, both residential and non-residential investment did not escape the hit. In turn, financial institutions restricted their loan-eligibility conditions.

According to the Fund, the four analyzed countries should address the real estate sector in the context of reactivation and reduction of the impact of the crisis. To achieve that, they are advised to focus on macro-economic policies, rental market, undertake tax reforms for pensions to fight liquidation gap and adopt measures which would help to make the mortgage debt healthier.

“It is essential to guarantee that the mispolicy which has led to the real estate bubble will gradually vanish”, the report concludes.

 

Original story: El Mundo (by Pablo Ramos)

Translation: AURA REE

House Prices Versus Earnings: Spain Still Expensive

21/10/2014 – El Economista

Spain’s housing values still post above the historical average, states latest Global House Price Index update on ‘House Price to Income’ by the International Monetary Fund (IMF).

The indicator applied by the organization (Q2 2014) shows that prices in Spain remain 15% above the average corresponding to its historical series. The Price to Income ratio is calculated by dividing mean home value in an area by disposable income of a household.

Looking closely at the ranking by countries, the cheapest housing is found in Japan, if compared to the wages of its population, with a  price deviation of -40%. Similarly, South Korea reflects the deviation at -37%.

On the other hand, Belgium, Australia and Canada have the most expensive properties marking a deviation ratio of more than 30%. Due to such high prices, these countries and France have been warned by the IMF about a possible housing bubble.

Also, in case of the United States, as the country had lived through a housing bubble before the financial crash, now its prices post 10% below the historical average.

Compared to rent, house prices are expensive in Spain. Buying a property in Japan is much more reasonable than renting, while just the opposite happens in Canada, New Zealand or Norway.

 

Graph source: IMF

Original article: El Economista 

Translation: AURA REE

The IMF Believes in Looming End of Price Adjustment

28/05/2014 – ExpansionPro

Senior economist of the International Monetary Fund (IMF) Paulo Medas said yesterday the end of housing prices correction in Spain “is very near”, however he reminded the sector “still requires a lot of work”. In his annual report on Spanish economy, he stated “we do not know whether the prices will fall further or not but everything points to the final bottoming-out of values”.

He underlined the unsold real estate supply load creates great pressure on the market.

In spite of all that, he told there are “positive” signs of emerging recovery for the property market.

Likewise, Medas reckons there is no jeopardy of new real estate bubble, even with the significant increase of foreign investment.

According to general director of Sociedad de Tasación, Juan Fernandez-Aceytuno, in terms of prices, the market will hit the rock bottom level in 2015. “The moment of touching the bottom is essential as then the transaction number will shoot up”.

During his hearing at the Madrid Real Estate Conference included in the SIMA programme, he indicated that the decisive factor for mortgages rebound will be the purchase of mortgage-backed securities and bonds.

 

Original article: ExpansiónPro (by Mercedes Seraller, Miércoles 28 de Mayo 2014, pp. 25)

Translation: AURA REE

The IMF and the EU urge the bad bank to revise its business plan in depth.

Spain walks in the right direction in the restructuring of its banking system, but it may not declare victory yet. This can be applied to the bad bank, as it is progressing but needs to revise its business plan in depth. The European Commission, the ECB, the rescue fund Mede and the European Banking Authority believe so. They all presented the second revision of the financial aid awarded to Spain by the Eurogroup. The IMF, independent consultant in this process, also shares this opinion.

The European authorities bless the steps taken to create the bad bank. “The Spanish authorities had to comply with a very demanding calendar and have succeeded in the design, the implementation and the methods of Sareb in time”, according to the statement issued yesterday. Also, the bad bank “has received the first and biggest transfer of assets from the nationalized institutions, such as Bankia, NCG Banco, Catalunya Banc and Banco de Valencia. These groups transferred around 89000 flats and 13 million square meters of land.

The IMF also highlights the “solid service agreements with the participating banks in order to manage the transferred assets.” Bankia has already started selling properties from Sareb.

Apart from this, it is vital “to establish political priorities” in order to fight all unresolved challenges, “such as completing a business plan which needs to be improved”, the Fund adds.

Brussels and Frankfurt establish that Sareb will only be successful if it is based on a “solid” and “up to date” business plan. It is therefore “highly important that the plan remains robust and believable based on the more up to date information”.

The institution presided over by Belen Romana has already started this process and has hired KPMG, who will redesign the business plan in two months, as advanced by Expansion. The first one was drafted by Frob, before the arrival of Romana and with the assessment of Alvarez & Marsal. Romana believes it needs to adapt to the real estate market reality and that it is necessary to prepare packages of assets to be commercialized among investors.

Europe and the IMF agree and stress that the updating is necessary as the previous plan was prepared with the figures included in the balance sheets of banks on the 31st December 2011. The information on the value of those assets and its current state is much more precise right now. Anyhow, the international institutions believe that the timeframe planning is one of the weaknesses of Sareb.

The revision of the EU and the IMF identifies other pending issues, such as the reform of the banking supervision and the savings banks regulation. The Fund urges the Bank of Spain to establish “specific calendars” which detail the proposal to make the supervision stricter.

The institution lead by Christine Lagarde is tougher on the draft of the savings banks law, in line with the troika. All agree that it is necessary to grant incentives to the old savings banks so that they hand over the control of the banks who took on their activity. The international institutions believe that the savings banks should gradually leave the financial sector and invest in other activities to compensate risks. This would also be the only chance to expel the politicians from the financial sector.

Source: Expansión