2013: the perfect storm for properties.

(…) This will be the worse year in history for the property market. These are not surprising news, but they are important. Above all if we compare them with the Government´s opinion, as it continues to assure that it is a good moment to buy a property.

The real estate consulting company Horizone made it very clear yesterday, as it presented its annual report on the situation and the prospects of the real estate market. The conclusions are obvious. To start with, the building industry will destroy another 100.000 jobs in 2013. That is, 10% of the total occupation within the sector, which reaches one million workers. “No matter what measures are taken, the destruction of jobs is irreversible”, Julio Gil, managing partner at Horizone, declared.

Also, the price of properties will continue decreasing steadily. At least, a fall of 30% in all regions. “We cannot know how much property prices are going to fall, as they depend on the transfer policies of the financial institutions”, Gil assured. From the point of view of the demand the intensity of the fall will be linked “mainly to the job market”.

According to Horizone, there are other factors with push prices down: “the oversupply of properties (between 800.000 and 850.000), the increase of the VAT, the scarce financing to individuals and the mortgage interest rates, which continue to rise even though the euribor continues to fall”. As for the stock, it will scarcely diminish in the next few months.

At the end, the capacity of the real estate companies depends on their financers. Also, the marketing policy of Sareb is not clear”, Gil added. This is why small and medium sized developers will continue to disappear, in his opinion.

The director of Horizone believes that the effect of the bad bank in the real estate market “will not be very high in 2013. Any influence will only be seen at the end of the year”. In fact, “all institutions are on the loo-out”.

Anyhow, the demand would reach minimum levels, especially in the first six months of the year, “due to the advance of the purchases made in 2012, the worsening of the tax conditions and the macroeconomic deterioration”, the report details.

“It will be the worse since statistics started to be worked with”, it stresses.

Another negative figure within the sector would be the offer. Less than 44.000 properties will be authorized and 95.000 will be built, while “the number of finished properties will be below the 119.980 reached in 2012”.

With this scenario in view, the real estate future will be even blacker. “The only subsector that could hold the drain of unemployment would be the restoration”, Gil assures. But the restoration will not work “if the corresponding financing is not there”, he added. (…)

Finally, Gil proposed “the temporary suppression of the reservation of plots” intended for subsidized housing, which are not built.

Conclusion: in the real estate sector, the best thing about 2013 is that 2014 could be even worse.

Source: Expansión

Sareb pays at least 112 million Euros to banks every year for the management of assets.

The management commissions have been one of the biggest problems for the managing team at Sareb in the last few months. After hard negotiations with the financial institutions, Sareb has fixed an annual fee of 0,15% on the managed patrimony which will be paid to those banks which have received public aid, that can be increased to 0,22% depending on some incentives.

Should these objectives, established in the annual budget, be fulfilled, the bad bank will pay 112 million Euros annually to the nine institutions which have transferred their damaged assets: BFA-Bankia, Catalunya Banc, NCG Banco, Banco Gallego, Banco de Valencia, BMN, Liberbank, Caja3 and España-Duero. In total, Sareb manages 50.800 million Euros in toxic loans and awarded properties.

These institutions managed to convince the managers from the bad bank so that they increased the minimum commission by 50%. Initially, the offer of the institution was of 0,1%.

Sources close to Sareb explain that the gain obtained by the banks with these 112 million Euros will be a minimum one “as it barely helps to cover costs”. “They can really earn some money with the sale, rent, financing or recovery of those assets”, they added.

In total, the commissions earned by an institution that manages, sells and finances an asset could reach up to 6%, depending on various objectives.

Among them, the selling price is the most important one. The commission for sale could reach 3,5%, provided that they sell the property at a price 25% higher than the transfer price.

Sareb acquired the real estate assets with a discount of 52% on their value in books. In order to obtain the commission of 3,5% the institutions have to sell the properties with discounts 40% under the initial value.

Along with this fee, the bad bank offers an additional commission in case the selling institution finances the operation, in what is known as vendor finance.

Apart from the incentives, Sareb has also established minimum objectives of management and sale. If the nationalized and group 2 institutions do not comply with them, they could lose even the 0,15% established as a management minimum.

The institution designed this management and sale structure in order to be able to start working as soon as possible. The Frob created the bad bank in August and on the 2nd January it was already in operation. It has therefore had to turn to the institutions that know the assets best, the same ones that transferred them, to manage them provisionally. They should do it for one or two years.

Sareb still has to decide what it will do once this period is over. Its decision will depend on the conclusions of the due diligence work lead by the law firm Cliffford Chance, with a team of 600 professionals from law firms, real estate agencies, technology and audit companies.

One possibility which is being looked upon within the sector is the creation of one sole managing team which depends from the top executives from Sareb. Another possibility would be for the purchaser of Bankia Habitat to coordinate the task.

The institutions started to market a batch of 13000 properties among individuals in February. This will not be the priority channel, as most of the assets within Sareb (non developed properties and credits) should find an acquirer in the institutional market. (…)

Source: Expansión

RPT- Spain’s banks face more pain from property clear-out.

Banks in Spain may take bigger losses than they hoped this year on real estate repossessed from borrowers, as they compete for buyers with Sareb, the agency tasked with clearing up the weaker banks after a property crash.

Banks were left holding hundreds of thousands of houses, half-built commercial and residential developments and plots of land after borrowers and developers ran into trouble when the property boom turned to bust in 2008.

Property-related losses eventually forced the government to secure a 40 billion euro ($53 billion) bailout for its banks from Europe.

Last year, the banks wrote down foreclosed property on their books by around 40-50 percent after government decrees forced them to make provision for losses and reflect lower market values. The clean-up helped them start selling housing at discounts, mainly to individuals, but with the country in a deep recession and unemployment at 26 percent, demand for property is weak even at knockdown prices.

But now lenders face competition for buyers from Sareb, the “bad bank” set up to manage up to 60 billion euros’ worth of assets from bailed-out lenders, which put its first lot of 13,000 properties up for sale at the end of January.

Since Sareb, set up at the request of Brussels, is taking over assets from rescued banks at discounts that are steeper than those forced on the sector by the government, the fear is that its disposals will push down prices and clog up the market.

Yet if Spain’s healthier banks turn to private equity firms and hedge funds to help shift their assets, they might have to swallow more losses too. Four investment bankers in Madrid said funds typically demanded discounts of 60-80 percent.

“The sale of secured assets to investors would likely be done at prices below those of the Royal Decrees (the government-enforced clean-up), with big discounts,” said Fernando Acuna of Taurus Iberica, which markets banks’ properties and advises them on portfolio sales.

“The discounts from the decrees were more in line with the prices seen in the normal consumer market.”

But what is normal once Sareb is selling in volume? Early estimates had put the properties Sareb would house at 89,000, though Sareb said that could change.

There are about 200,000 repossessed properties in Spain, on top of 1 million newly built homes for sale, rating agency Fitch estimated in December, adding that banks had on average been selling properties last year at half the price they were originally valued at.


Property prices have already slumped 35 percent from a 2007 peak, according to real estate valuations group Tinsa, and Fitch forecast recently they had another 15-20 percent to fall.

Banks able to take another hit could now start selling portfolios to investors to move quickly with disposals, bankers said.

Santander, which has said it wants to aggressively shed property assets this year, is setting aside 1 billion euros in its 2013 budget to cover possible portfolio sales at a “significant discount”.

“If we can get in there before the Sareb starts achieving cruising speed, so much the better,” Chief Executive Alfredo Saenz said in January during a results presentation. Capital gains from sales of other items would offset the hit, he said.

U.S. funds Centerbridge, Apollo, Fortress, Lone Star and Cerberus are among those actively circling the Spanish market for property assets, investment bankers said.


Not all Spanish banks will want to take more immediate pain from their property problems, with Santander and rival BBVA , the country’s top two banks with large overseas operations, better able to weather writedowns than most.

Selling to individuals is slower than shifting portfolios but typically costs less, because individuals are not necessarily looking to turn a profit like funds are.

BBVA for example said it had sold 12,000 foreclosed properties last year at an average 40 percent discount, mainly by selling them piecemeal.

But asset values risk dropping the longer properties sit on banks’ books, and lenders may struggle to sell anything beyond their better assets to individuals at attractive prices.

House prices have fallen more sharply on the Mediterranean coast, where developers erected kilometres of resorts that now stand empty, than in city areas, according to Tinsa.

Funds are also interested in the best real estate, such as commercial developments or upscale flats in the centre of big cities, but they might also help banks shift less attractive ones at heavily discounted rates, bankers said.

Foreclosures are also still rising – up over 18 percent in the first nine months of 2012, court data shows – adding to the pressure to sell existing stock. And developers are still collapsing, with major real estate firm Reyal Urbis filing for insolvency on Tuesday.

While banks have no firm timelines to rid themselves of properties, keeping big exposures could also hinder their funding prospects as they try to cut their reliance on central banks and turn to bond markets instead.

“Spanish banks seeking to target international investors as a source of funding must now reduce their exposure to real estate assets to help regain investor confidence,” Fitch analysts Carlos Massip and Juan David Garcia said in a December report.

Source: Reuters

The “harmful effects” of the assignment in payment.

Although there are many mortgaged families with difficulties to make ends meet who see the assignment in payment as the end of their hardship, there are many voices who alert of its danger. Yesterday the Foundation of Finance Studies (FEF) warned that the assignment in payment has “harmful effects” on the payment culture and causes the appearance of individuals that, “although they are solvent”, they get rid of the debt by endorsing the financial institution the downfall of the housing prices.

The Foundation proposes the development of other alternatives such as developing in Spain the norms of second opportunity, that is, an insolvency law especially adapted to individuals which “provides a quick, cheap and reasonable solution to insolvency”. The Foundation stresses that the lack of information “could result in a hasty legal reform” with negative consequences. It also points out that the number of mortgage loans is not available, nor is the number of evictions. “It could happen that the social problem is not well marked out”, it indicates.

The FEF thinks that the legal reforms should never be applied “with retrospective effects, except those which provide a clear technical improvement”. This is why they stand for going ahead with the reform while taking into account the payment expectations of the mortgage deeds and modifying as well the procedural process, as well as shortening the periods for any foreclosure process.

(…) Another strong bet of the Foundation would be to take adequate social measures against evictions with the financial sector sharing the costs “in proportion to the individual responsibility in the problem”

The conclusions of the Foundation are based on the idea that the Spanish mortgage market is suitable and has been able to meet the strong demand of homes of the last few years.

Source: ABC

Housing prices will fall another 20% before reaching their minimum level, according to Standard & Poor´s.

Housing prices have still a long way downwards ahead. The risk agency Standard & Poor´s considers there will an adjustment of 20% based on the ratios “price-revenue” and “price-rent”. Its forecast is in line with those published this weekend by The Economist, which considers that prices in Spain are overvalued by 20%.

The agency foresees that the nominal price of properties in Spain has dropped by 7,8% this year and another 6% in 2014, and therefore does not predict improvement signals in the real estate market on the short term in view of the high number of assets pending to be sold.

In a report on the residential sector in Spain, the company believes that four years will be needed before Spain achieves a balance between the offer and the demand of real estate assets.

In fact, the recession in Europe is pushing down real estate prices in most markets, which means that in Spain, along with the increase in unemployment, the tax consolidation and the tensions in the financial markets, the recovery of the residential real estate market is still far away.

The firm, as well as The Economist, indicates that Spain is still affected by an excess offer of assets with an estimated number of unsold properties of 700.000.

According to the Financial Sector Evaluation Program of the IMF, the real estate stock will reach one million properties this year.

Even though interest rates have been reduced, the growth of mortgage loans is diminishing. The agency also stresses the recent liquidity injection in Spanish banks, the disinvestment of financial institutions in real estate assets and the subsequent decrease of prices this year.

In a scenario very much affected by the precarious Spanish labor market conditions, Standard & Poor´s claims that, even though the debt rate of Spanish families is decreasing, the deleverage process will be slow.

In view of the correlation of the real estate offer and demand in Spain, the agency believes that there could be a certain degree of overvaluation of the real estate assets before prices reach an equilibrium.

The forecast of Standard & Poor´s join those made by other experts. The consulting agency R.R. de Acuña & Asociados are more aggressive as they believe that the price of properties will face a drop of 30% or even more during the next five years -between 2013 and 2018-. Fitch, on the other hand, published a few days ago a report which foresees an additional drop of 15%. Arcano Capital mentions a correction of 10% during 2013, while there are no figures from the Spanish National Mortgage Association, although there is talk of reaching the minimum level this year.

Source: El Confidencial