Tag: real estate bubble

Bank of Spain: Spain’s Housing Market is Not Overvalued

9 June 2019 – Eje Prime

The Bank of Spain does not think that a real estate bubble exists. The institution’s Director General of Economics and Statistics, Óscar Arce, has assured that the bank does not consider that the housing market is “overvalued in general”. Nevertheless, he is following the sector “very closely” given its history.

Arce highlighted several differences between the current climate and the previous cycle including the fact that price rises now are not uniform across all regions or cities. In fact, according to the latest data published by the Bank of Spain, average house prices rose by 6.8% YoY during Q1 2019, driven by Madrid, Barcelona, some parts of the coast and the islands.

Original story: Eje Prime 

Translation/Summary: Carmel Drake

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

 

Sareb’s Puts Sanahuja Family’s Land up for Auction to Recover the €13M Debt it Owes

20 April 2018 – Eje Prime

A new setback for the Sanahuja family. The Company for the Management of Assets proceeding from the Restructuring of the Banking System (Sareb) has decided to foreclose six plots of land in Madrid owned by the Catalan family by means of a judicial auction with the aim of recovering the €13 million owed to it by the clan.

Five of the plots are located in Vicálvaro and the other one is in Getafe. For the latter, Sareb has set a starting price of €12.7 million, whilst for the plots in Vicálvaro, the bad bank is asking for between €2.5 million and €5.7 million, depending on the plot for sale, according to El Confidencial.

The Sanahuja family were the kings of the Spanish property sector during the era of the real estate bubble, above all, after climbing to the Presidency of Metrovacesa, the listed property developer of which they became the majority shareholders. Afterwards, Román Sanahuja (pictured above), the patriarch of the family, led the company to bankruptcy.

Now, the clan has accumulated a debt of €44 million with the Tax Authorities, according to the most recent list of large debtors published by the public ministry led by Cristóbal Montoro.

The assets auctioned are owned by the companies Parque Residencial Vicálvaro and Sanahuja Escofet Inmobiliaria, both of which are, in turn, owned by Román Sanahuja, his wife, Ana María Escofet Brado, and their two sons, Juan Manuel and Javier.

Similarly, the string of bad news has not stopped for the family in recent times. A few months ago, Javier Sanahuja was evicted from the home that he lived in in the exclusive Barcelona neighbourhood of Sarrià. In Madrid, the patriarch of the clan, Ramón, founder of Sacresa, the seed of the Sanahuja family’s real estate empire, lost the Saldaña Palace, located on Calle Ortega y Gasset. Oddly enough, that prime property was purchased by the Catalan businessman from Juan Antonio Roca, one of the brains behind the Malaya corruption case.

Original story: Eje Prime

Translation: Carmel Drake

Charme & Miura Finalise Purchase Of Valtecnic & Ibertasa

25 May 2017 – El Confidencial

A major new operation is brewing in the property appraisal sector in Spain. The private equity firms Charme Capital Partners and Miura Private Equity are about to close the purchase (to acquire a majority stake) of the appraisal companies Valtecnic and Ibertasa, according to sources close to the operation. Some finishing touches still need to be completed, such as obtaining approval from the Bank of Spain.

Charme and Miura are joining forces to acquire these two real estate services firms, which will continue to operate independently in the domestic market. In other words, the investment funds will co-invest in and take control of both companies, but will not merge them. In addition, the management teams of the two appraisal companies will continue at the helm as well as in their roles as minority shareholders.

Last year, Charme came very close to acquiring Tinsa, the largest company in the property appraisal sector in Spain, but that firm ended up being purchased by another private equity firm, Cinven, which paid Advent €300 million. Meanwhile, Miura invested in Group BC through its first fund until the end of 2015 – that company is dedicated to the outsourcing of services from financial institutions (mortgage advisory, recoveries…).

These operations represent the indirect entry of private equity firms into the real estate sector and their clear commitment to an upwards cycle. According to data from the Spanish Association of Value Analysis (AEV), the number of property appraisals grew by 13% during the first quarter of 2017, to 228,879 in total, worth €75,620 million, up by 3.1% with respect to the same period a year earlier. (…).

The number of appraisal companies has been cut in half

The appraisal sector was hit hard by the burst of the real estate bubble although, like in the property development sector, to the extent that the mortgage activity is resuming, so the volume of appraisals is also showing signs of recovery. Nevertheless, the crisis took a serious toll and led to the disappearance of lots of companies. Whilst in 2011, there were 58 appraisal companies, by the end of 2016, that figure had fallen to 37.

Nevertheless, in recent years, several companies, above all in the real estate consultancy sector, have broken into this market with their own appraisal businesses. Such was the case of CBRE Valuation Advisory, Aguirre Newman Valoraciones and UVE Valoraciones in 2011. More recently, another consultancy firm, JLL, obtained approval from the Bank of Spain for its appraisal business, which operates under the JLL brand.

Valuations

On the other hand, like in the property development sector, the activity of the appraisal companies has not been without controversy, especially for the role that they played in the real estate bubble. The appraisal companies have been repeatedly accused of producing inflated appraisal values at the height of the boom and of continuing to do so even in the face of a depressed market.

In addition, concerns regarding the transparency and independence of these entities caused the Bank of Spain to force the banks and savings banks to disassociate themselves from the appraisal companies in terms of ownership. That decision resulted in the disappearance of several players, such as Tabimed (Banco Sabadell) and TVG (Abanca). Others changed activity, such as Sivasa (Banco Santander), whilst others still, such as Tasamadrid (Bankia), were sold.

Original story: El Confidencial (by E. Sanz)

Translation: Carmel Drake

KPMG Surveys 148 Directors In The RE Sector

19 May 2017 – Expansión

Directors and entrepreneurs in the real estate sector have faith in the progress of their industry. Moreover, more than half of them believe that the recovery is not very consolidated yet or is still pending consolidation, according to the conclusions of the Outlook for Spain 2017 report, prepared by KPMG in collaboration with the Spanish Confederation of Business Organisations (CEOE), on the basis of the opinions of 148 directors in the sector.

According to the report, 55% of those surveyed think that the recovery is not very consolidated yet or is still pending consolidation and 63% believe that prices will continue their upward trend.

In terms of the perception of the current situation in the sector, 28% consider it to be good or excellent, compared with 35% who consider it to be ok. The prospects for the next 12 months are more optimistic, given that 45% expect the situation in the sector to improve.

Similarly, 91% of directors confirm that during the course of this year, they are going to continue to maintain their levels of investment and may even increase them, and 27% expect to see an increase in their turnover during 2017.

Risks

Regarding the future challenges facing the sector, more than half of the directors surveyed believe that a weakness in demand is the main threat to their businesses.

The respondents also agree that investment in the sector has already reached a high level of maturity. In this way, 40% of those surveyed believe that there is a risk of a new real estate bubble forming over the next few years and one in five regarded that risk as “high”.

Over the next few months, 32% of the directors think that they will focus on international expansion and 25% consider the digital transformation as a strategic priority.

For Javier López Torres, Partner for Real Estate at KPMG in Spain, the current situation in the sector can be explained by differentiating between three scenarios or speeds: those where asset types and location are combined with liquid demand, in such a way that in “general terms”, the reactivation is already being consolidated; those where players are starting to invest and build certain asset types in specific locations; and finally, those where the absorption of specific products will be very slow, given that it does not respond to a real current demand.

Original story: Expansión (by R.A.)

Translation: Carmel Drake

The Sun Shines On Spain’s RE Estate Sector Once Again

4 May 2017 – Expansión

The Spanish real estate sector is smiling again. After years of crisis and an on-going cleanup, the main listed companies in the property sector have reported more positive figures: the earnings of these firms tripled in 2016 with respect to the previous year and their operating profit rose by 64%, driven by an increase in the number of sales and an appreciation in asset values.

Two factors are converging to generate the improvement in the real estate sector: an acceleration in the number of sales – both in the residential sector, as well as in the office and retail segments – and an increase in transaction prices and in rental costs. In 2016, 404,421 operations were registered in the housing sector, up by 13.7% compared to the previous year, but nevertheless, just over half as many as in 2007. In the same way, average house prices rose by 11% from the minimums registered in 2014, but they are still 30% cheaper than in the year prior to the burst of the real estate bubble. (…).

The combined profit of all of the companies in the RE sector – Socimis and traditional real estate companies alike – reached €1,395 million last year, compared with €407 million in 2015. In other words, their earnings tripled in just twelve months and came close to the combined profit recorded in 2007 of €1,592 million, albeit generated by very different players.

Only 29.6% (€414 million) of the total amount was generated by traditional property companies, in other words, those that managed to emerge intact from the worst years of the crisis: Colonial, Realia, Inmobiliaria del Sur, Quabit, Renta Corporación, Grupo Urbas and Montebalito. If we take into account Reyal Urbis – which filed for creditor bankruptcy in 2013 – and Neinor Homes, the latest property developer to debut on the stock market, that percentage decreases to 18.98%, in other words, €264.8 million.

Therefore, most of the profits (70.4%) were generated by activity carried out by the Socimis, which multiplied their earnings almost five-fold in one year, from €244.6 million in 2015 to €1,131 million in 2016. (…).

The tax benefits that the Socimis enjoy, their obligation to distribute dividends annually and the attractive returns they generate compared to other investment options, have boosted their number and weight in the market.

In Spain, shares in four Socimis are traded on the main stock market and together they generated a gross operating profit of €388.5 million in 2016, up by 85.4% compared to twelve months earlier (…), with the largest, Merlin, accounting for the lion’s share of that figure (€260 million).

Large family fortunes are increasingly choosing this investment vehicle in recent times. In total, 17 Socimis debuted on the stock market in 2016 and there are currently 32 companies on the Socimi-specific segment of the MAB. (…).

The future strategy for all of these entities involves rotating their non-strategic assets and specialising in non-residential segments, specifically in: offices, retail and logistics. According to a recent report form the real estate management company Laborde Marcet, Spain closed Q1 2017 with investment in non-residential real estate assets amounting to €3,520 million.

The retail sector accounted for 42.5% of that figure and whereby recovered the high profile that it had previously ceded to the office segment; hotels accounted for 22.2% and logistics assets for 10.6%. Given these proportions, the plan that Merlin has just presented (to invest €200 million over five years on the renovation of its office and shopping centre portfolio) makes sense. Hispania is also planning to sell off its offices to concentrate on its hotel business.

Original story: Expansión (by María Hernández and Víctor Martínez)

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

Caixa, BBVA & Santander Cut Their RE Losses In YTD Sept 2016

2 November 2016 – Expansión

The property sector in Spain is recovering. Most of the indicators are showing increases in house sales, greater activity, rising prices and even shortages in the supply of properties in certain areas. Nevertheless, this improvement is not been reflected in the income statements of the banks so far; they are still trying to digest the excesses of the bubble, which they are struggling to shake from their balance sheets.

Spain’s banks recorded losses of more than €2,072 million in their respective real estate businesses during the first nine months of the year. Banco Popular led the loss ranking: the entity chaired by Ángel Ron recognised a cumulative loss of €723 million between January and September.

Beyond these huge losses, the problem for Popular stems from the fact that a small part of its business, which accounts for just 18% of its asset volume, has managed to erode almost all of the profits generated by the remaining 82% of its assets (which the entity considers to be its “core” business and which generated profits of €817 million between January and September 2016).

Behind Popular, the bank with the second largest losses in its real estate business was CaixaBank. The Catalan entity recorded losses of €517 million between January and September. It was followed by BBVA and Banco Sabadell, with losses (in their real estate businesses) of €315 million and €300 million, respectively.

Meanwhile, Bankia and Bankinter have chosen not to disclose profit and loss data about their real estate divisions.

Improvements in the market

Despite the continued losses, these aggregate figures do actually reflect the improvement in the real estate market in Spain, since they show a significant reduction with respect to the losses recorded just one year ago, according to data provided by the financial institutions themselves. CaixaBank is the entity that has managed to reduce its losses the most: the bank chaired by Jordi Gual recorded losses of €1,014 million during the third quarter of 2015, which means that the losses from its real estate business fell by 49.1% YoY in 2016.

BBVA was the second ranked entity in terms of loss reductions, although the decrease was less significant in this case. The bank chaired by Francisco González succeeded in decreasing the losses from its property activity by 24.4% in September 2016 with respect to the third quarter of 2015. The third ranked entity in terms of the reduction in losses was Banco Santander, which cut the losses from its real estate business by 22.5%, according to its own data. (…).

Profits in 2017?

“We never expected to see a full recovery this year, but it is true that the improvements are happening more quickly (than we’d expected)….sales are accelerating and the losses will no longer be as significant in the not too distant future”, according to José Antonio Álvarez, CEO at Banco Santander. (…). And with just two months to go before the end of the year, Álvarez and the heads of Spain’s other major banks are now cautious about the timing of the full recovery, prefering not to comment on whether or not 2017 will be the year when the sector finally generates profits, albeit minimal.

Original story: Expansión (by Nicolás M. Sarriés)

Translation: Carmel Drake

The Lara Family Sells Roca Junyent’s HQ For €55M+

3 October 2016 – Expansión

The Lara family, owner of Planeta, has sold the historical headquarters of Roca Junyent on Calle Aribau in Barcelona for more than €55 million. The buyer, a real estate fund linked to the Swiss bank UBS, will maintain the long-term lease contract with the law firm Miquel Roca, which occupies eight of the building’s twelve floors. The four remaining floors are leased to the medical centre QMS (Quality Medical Service).

The building has a surface area of 11,000 sqm, of which 8,600 sqm are used offices, 1,360 sqm are used as a commercial space on the ground floor, which is occupied by QMS, and a basement measuring 1,270 sqm.

The Lara family’s real estate company, Inversiones Hemisferio, bought the building from Colonial in 2007, just before the burst of the real estate bubble for €55 million and it has now sold it for a slightly higher figure.

This operation confirms that investment prices of buildings in Barcelona have now returned to their pre-crisis levels, driven by a shortage of assets for sale and the priority of large funds to invest in the real estate sector.

Despite the strong international demand to invest in cities such as Barcelona, the volume of investment in the city’s real estate sector is lower so far in 2016 than it was this time last year. In 2015, the Catalan capital broke records, with total investment of €2,000 million. Of that, 85% came from international buyers.

Despite the sluggish first half of 2016, which the sector attributed to the lack of assets for sale and the political uncertainty, the second half of the year has started with more movement in the investment market and all indications are that the final quarter of the year will be very busy in terms of the closure of operations whose negotiations are already being finalised.

Original story: Expansión (by M. Anglés and J. Orihuel)

Translation: Carmel Drake

Sareb Sells 25% More Tourist Homes Than It Had Forecast

5 September 2016 – El Mundo

This summer, Sareb has taken advantage of the fact that savers have limited alternative investment options and that its assets are well priced…to boost property sales.  (…).

Unlike other commercial companies, the aim of Sareb (in which the State holds a 45% stake) is to reduce its balance sheet by selling off all of its assets, which primarily comprise non-performing or risky real estate loans and involve more property developers than individual borrowers, inherited from the former troubled banks.

In this case, the typical clients of the company chaired by Jaime Echegoyen (pictured above) are large financial investors specialising in generating profits from assets that the banks are unable to maintain. Nevertheless, with the activation of demand in the second-hand real estate sector, the bad bank is trying to take advantage of every opportunity and in April it put 2,237 homes up for sale (to private investors) along the coast.

The commercial objective is much lower and the bad bank does not intend to liquidate 100% of its supply. Nevertheless, between sales and reservations, the company has managed to offload 330 homes this summer for a total amount of €31 million, which represents a 25% increase with respect to its budget. The company has not revealed the prices at which it acquired these assets from their original owners.

Sareb, which uses sales companies belonging to or related to Bankia, Banco Sabadell, CaixaBank and Santander, will extend the campaign that it launched in April by at least another month to try and maximise the returns from savers interested in acquiring properties at good prices. The prices of the homes put up for sale in 20 provinces across nine autonomous regions started at €32,000 for a flat in Torrevieja (Alicante) and went up to €866,000 for a 342 sqm family home in Calviá (Palma de Mallorca) with five bedrooms, four bathrooms and a swimming pool.

Neither of those properties have been sold yet. Half of the homes in the portfolio are located in Valencia, where several now extinct entities, such as Bancaja (Bankia) and Caja de Ahorros del Mediterráneo (CAM, nowadays part of Banco Sabadell) undertook very intense activity in the run up to the burst of the real estate bubble. Specifically, the province with the highest number of properties up for sale is Castellón, with 791 homes. (…).

Last year, Sareb owned 105,000 properties, 80,000 loans and 375,000 collateral properties. Nevertheless, the Bank of Spain issued new regulations, which come into force in October, requiring the bad bank to individually value each asset on a regular basis using a methodology validated by the supervisor; that forced the bad bank to update the value of all of its assets. Sareb was thus required to perform an additional clean up amounting to €2,044 million, an operation that followed other similar measures already undertaken in 2013 and 2014, amounting to €968 million.

For that reason, the entity needed a recapitalisation, which its shareholders undertook converting €2,170 million of subordinated debt into capital, which it used to finance the acquisition of toxic assets from the rescued banks. (…).

Original story: El Mundo

Translation: Carmel Drake