Housing Crash Turns Spain’s Young Into Generation Rent

30 November 2016 – Bloomberg

Having witnessed the meltdown in the country’s property market at the height of the European financial crisis, more young Spaniards are turning their backs on their parents’ dream of owning a home. The emerging trend is leading Merlin Properties Socimi SA to bet it can overtake Goldman Sachs Group Inc. and Blackstone Group LP in the rental market. Spain’s biggest real estate investment trust is planning to almost double the units it has for rent by the end of the year, Chief Executive Officer Ismael Clemente said in an interview.

“Young Spaniards today don’t have a culture of ownership — they no longer see renting as a bad thing,’’ he said.

The real estate crash and resultant bank bailout spurred many millennials to question the received wisdom that a Spaniard’s house is not just a home but also a haven for savings. The crisis sent unemployment soaring, stripping away the economic certainties of a safe job and income and the relentless rise in property prices that had underpinned the country’s passion for home ownership.

“The concept of owning a home in Spain was almost religious, but that’s changed for an entire generation of young people who have seen people losing their homes, prices dropping and losing access to credit,” said Fernando Encinar, co-founder and head of research at Idealista SA, which operates an online platform to buy and rent homes. “That has made renting a more attractive option, especially in big cities such as Madrid and Barcelona.”

Credit Explosion

Spain’s adoption of the euro in 2002 drove down long-term interest rates to power a surge in mortgage lending that jumped more than fourfold from 2000 to its 2010 apex. The top of its property boom saw Spain building more houses than Germany, France and the U.K. combined, and house prices soared in tandem with the credit explosion. After rising 71 percent between 2003 and 2008, when home prices peaked, they then plunged 31 percent before starting a slow recovery in late 2014.

The number of homes listed for rent has risen from 9 percent of the total number of available homes in big cities in 2000 to as much as 25 percent in 2015, according to Idealista. The proportion of Spaniards renting a home has risen to 22 percent from 19 percent in 2007, according to data from Eurostat, the European Union’s statistics office.

That compares with a European Union average of 30 percent. Even so, home ownership continues to dominate with 78 percent of Spaniards describing themselves as owners. That’s slightly down from 81 percent in 2007 but above the EU average of about 70 percent.

No-Brainer

For Guillermo Garcia, a 26-year-old restaurant entrepreneur, the decision to rent instead of buying a three-bedroom apartment in central Madrid was a no-brainer.

“Owning a house is not a sign of success,” he said. “I don’t have to live like my parents did. I don’t want to sign away my life like that.”

For Merlin, the rising popularity of rentals represents a business opportunity.

“Until now, there has been no professional landlord in Spain and the quality of the rental sector has been very poor,” Clemente said in the interview.

As part of Merlin’s business combination with Metrovacesa SA announced in June, the two will also merge their portfolios of rental apartments. Merlin and the former shareholders of Metrovacesa will combine the properties and add more apartments to create a landlord with 10,000 rented homes, dwarfing the 6,000 units owned by Blackstone in Madrid and the close to 5,000 homes owned by Goldman Sachs.

Clemente, who wants to list or sell its residential unit — Testa Residencial — within three years, sees the switch to renting as part of a wider generational change that’s also underway in his own home.

“My children don’t have a culture of ownership,” he said. “They rent their mobile handsets from Telefonica, they listen to music on Spotify and they simply no longer see renting as a bad thing.’’

Original story: Bloomberg (by Maria Tadeo and Sharon R Smyth)

Edited by: Carmel Drake

Financial Institutions See 2015 As “Year Zero” Of The Recovery

9 February 2015 – El Mundo

Many banks (49%) believe that financing will return to normal between 2016 and 2018

Although many large banks are already taking positions in the real estate sector to benefit from its recovery, with transactions such as Operation Chamartín led by BBVA, or Santander’s increase of its stake in Metrovacesa, the financial sector does not believe that 2015 will be the year that marks the full recovery of the real estate sector. That is the conclusion of a study conducted by the consultancy KPMG, based on the views of more than 200 sector experts in the Spanish market.

According to the document, 2015 is going to be “year zero” in terms of the start of recovery of the Spanish real estate sector in Spain – 80% of Spanish banks and Sareb do not expect credit for housing and other real estate activities to flow normally this year, despite the fact that according to data published by the Bank of Spain, consumer loans and mortgages recorded a slight increase towards the end of 2014, for the first time since 2007.

Many financial institutions (49%) expect that financing will return to normal between 2016 and 2018, whilst 31% do not expect that it will happen for more than two years.

By that time, i.e.. from 2018 onwards, 79% of the banks surveyed (plus Sareb, the bad bank) expect that the stock of real estate assets, which is still being accumulated in Spain and which continues to weigh down on the results of the financial sector, will be absorbed.

Nevertheless and despite the high levels of unemployment, demand could increase significantly from 2016, according to 51% of the financial institutions that have participated in the study.

The sector is divided in its assessment of how this demand will behave and there is no consensus as to whether there has been a change in the mindsets of young people following this economic crisis. 50% of the banks surveyed (plus Sareb) believe that young people (aged less than 35 years) in Spain will continue to prefer to buy a home rather than rent one and most of the rest (44%) think that there will be a change in the home buying trend and that young Spaniards will chose to rent rather than buy as we learn from the past.

Nevertheless, there is complete consensus amongst respondents as to the involvement of financial institutions in supporting the recovery of the real estate market and the importance of their role as lenders, given that the other methods that are currently being used to close transactions – such as direct lending or investment by specialist funds – are necessary but not sufficient for the sector to fully recover.

There is also strong consensus (85%) that the old financing model of high leverage, which generated the property boom in Spain will not be repeated.

Construction reduces its weight over total GDP

According to estimates by the National Construction Confederation (Confederación Nacional de la Construcción or CNC), the construction sector accounted for around 23% of Spain’s GDP in 2007; by 2013, that weight had decreased by more than half (to 10%). The study, conducted by KPMG’s Real Estate team, concludes that 82% of the players involved in this business (banks, Sareb, companies, investors and the public sector) believe that construction’s contribution to national wealth will exceed 10% within five years, however it will have to reach 15% for it to really constitute a recovery. The majority of the participants in the survey agree that employment will be generated in the sector over the next five years. More than half think that the construction sector will provide work for more than 7% of the active population and more than a third believe that this figure will amount to 10%. But everyone agrees that the figure will not reach the level (14%) seen before the crisis.

Original story: El Mundo (by María Vega)

Translation: Carmel Drake