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.

CRUISING SPEED

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.

FORECLOSURES ON THE RISE

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

The granting of mortgages drops by 30% confirming more properties currently being acquired in cash.

The number of mortgages granted during the month of November in Spain dropped by 31,6% annually, down to 19.115 units. This figure is similar to the previous month´s and means remaining at a historic minimum level, according to the National Institute for Statistics (NIS). This figure refers to dates in which the sale of properties increased, so this confirms the idea that more and more properties are being paid for in cash.

There was a time when the number of monthly mortgages exceeded the number of property sales. This was due to the fact that the mortgage activity was even higher than the purchase one, as there were many mortgage operations which were not linked to a purchase (refinancing, for example).

Nevertheless, for the last few months, the figures supplied by the NIS show a change in trend. According to the NIS figures, the number of sales was 25% higher than the number of mortgages. In 2007 the situation was in reverse, as the number of mortgages was 50% higher than the number of sales.

The fall in property prices, linked to the increase in mortgage differentials, allows the purchase of properties in cash. This is happening mainly within the cheap properties, where buyers can face a purchase without a mortgage, whose average interest rate increased up to 4,39% in November. This has also allowed that the average amount per mortgage is declining at a slower pace than the price of properties. The average mortgage decreased by 4% annually, while property prices are decreasing more than 10%. (…)

Source: Idealista

Housing prices only fell by 10% in 2012, according to the Ministry of Public Works.

Housing prices dropped by 10% in 2012, according to the official figures of the Ministry of Public Works. That is, according to the rating companies, which are the ones supplying the figures to the Government, through its trade association Atasa.

The average price per square meter of free homes reached 1531,2 Euros at the end of the year, with a quarterly variation of -2,2%.

The mentioned devaluation of 10% is lower than the ones registered by the public notaries (-12,7%), the National Statistics Institute (-15,2% in the third quarter) and the rating company Tinsa (-11,3%). The experts in the sector consider that the statistics provided by the Ministry are not very reliable to measure the real drop of the value of residential properties in Spain. In reality, analysts do not rely a 100% on the above mentioned figures.

According to the historic trend of the Ministry, prices accumulate a descent of 27,1% from their maximum level, reached during the first quarter of 2008. Housing prices dropped by 7,8%, while prices for second hand homes did so by 10,4%. State subsidized housing reduced its prices only by 1,1% (…)

Source: Expansión

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

“The Economist”: Properties are still overvalued by 20%.

The adjustment of property prices is far from finishing. According to several studies, it has not even crossed its equator. The Economist has been the last one to certify that there remains a long way downwards, as it states that property prices in Spain are still overvalued by 20%, after having adjusted its prices by 24,3% since the maximum levels reached in the last quarter of 2007.

This means that after five years of falls, the final sales could go on until reaching a devaluation of more than 44%. Properties will end up costing half their price than during the boom.

This goes along with the conclusions of Spanish experts, who declare that prices will drop an additional 30% during the next five years.

The British publication certifies that Spain closed 2012 with the biggest drop in property prices of all the countries included in the study, with a drop of 9,3%, higher than the Netherlands (-6,8%), Ireland (-5,7%) and Italy (-4%).

“The problems property owners are facing have worsened all throughout Europe”, the magazine declares, adding that “the agony is deeper in Spain”. It also establishes that “the Spanish collapse reflects a surplus of properties built during the real estate boom”.

The information indicates that , opposite to the tendency seen in Spain, other parts of the world are experiencing important increases in real estate prices, such as South Africa (5%).

Meanwhile, the Spanish National Institute of Statistics (INE) certified that the sale of houses decreased by 6,1% in November, down to 25.655 operations. This is a surprising relapse, as there were supposed to be increases in the last two months of the year, due to the end of the tax benefits from January 2013 on. This indicator breaks the upwards tendency generated during the three previous months.

The sale of properties was able to end a 17 month period of falls in August, when it increased after the government announced the end of the tax benefits on the purchase of properties and the increase of the VAT for newly built homes from 4% to 10% from January 2013 on.

Source: Expansión

The rural properties, a wealth reserve for investors.

In a scenario of drop of sales within the real estate sector, there is a product which keeps its demand, avoiding the fall of prices. Those are the rural properties.

According to a report drawn up by Tecnitasa, the average price of homes in Spain has dropped in the last five years, around 31%, while the price of rural properties has only decreased in 7%. “Housing reached its peak in the second half of 2007, starting to drop from that moment on. Nevertheless, the rural properties continued increasing their prices until the beginning of 2010.”

This drop in prices has not slowed down operations as it has in the rest of the real estate sector. While the number of mortgages on homes has dropped more than 82% in the last six years, the drop on rural properties has been of around 55%.

“It is surprising that, according to the National Statistics Institute, the number of mortgages on rural properties has dropped by more than 20% in the last year, but the amount of them has seen an important increase, in percentages which had not been seen in the last six years”, Tomás González, director of Rural Properties at Tecnitasa, explains.

“Those properties in Madrid and surroundings with more than 200 hectares are easier to sell than an 80 square meter apartment”, Jorge Villalón, manager at Fincas Villalón, assures. “The are customers who commission us to sell rural and residential properties in cities and are only able to sell the first ones”, he adds. As with most of the real estate products, there are many different types of properties and prices within the rural properties, which are established depending on the area. “These are very mixed products with prices that go from 2500€ per hectare in dry land in Aragon to 300000€ per hectare in greenhouse farms in Andalusia.”

This diversity also affects the different types of buyers. “There are two profiles: the farmers, who demand plots for agriculture and livestock; and investors, which are mainly interested in the farming activity”, Tomas Gonzalez explains.

The crisis has not eliminated property buyers, but has changed their profile. “Weekend getaway properties do not interest developers anymore, who are now the sellers, and are seducing top executives in international banking who are interested in investing in rural assets”, Jorge Villalon comments.

These new owners look, in general, for properties located near the main capitals like Madrid, so that they can use the property as a second residence. “Before the crisis, people were looking for properties of 2000 hectares. Now, they do not want those dimensions, but something smaller at a distance of maximum two hours from Madrid by car”, the owner of Villalon stresses.

Source: Expansión

Most of the Spaniards believe that property prices will continue to fall.

Not only the real estate market experts believe that property prices will continue dropping, in spite of the adjustment of 30% experienced since the beginning of the crisis. Spaniards believe it as well. According to the last Consumer Trust Indicator (CTI) published in December by the Superior Center of Scientific Studies, more than half of the interviewees (52,7%) believe that property prices will continue falling for the next 12 months. Another 37,1% believes that prices will remain unchanged. Only 4,9% foresee an increase in prices.

These percentages, compared to the figures of November, indicate that more people believe that property prices will continue to fall. (…)

Currently, those anticipating more discounts on property prices based their answers on a lesser demand: 40,9% base their response on this factor.

31,4% establish that the descent of purchasing power will be the cause for the fall of property prices and 27,8% declare that the excessive offer will affect prices.

With this scenario, the answer to the question “are you planning to purchase a home in 2013?” is quite obvious. Up to 97,3% rules out this option, while only 2,1% declares an intention to buy a property (…).

Source: El Mundo