Tag: residential market

The Economist: Homes In Spain Are Still Overvalued By 8%-18%

22 April 2015 – El Confidencial

Five years ago, housing in Spain was overvalued by more than 50% and every year since then, the Economist has considered that house prices still need to decrease further.

House prices in Spain have decreased by between 30% and 50% – the range varies depending on the source consulted and the type of assets being considered. According to the statistics and the experts, this decrease has now come to an end. But, what if prices are still inflated?

That is what the weekly British publication The Economist thinks; and it has been warning against the overvaluation of house prices in our country for the last five years. The publication says that house (prices) in Spain are still inflated by between 8% and 18%. By almost 10% on the basis of the net income of citizens and by almost 20% if we take into account the relationship between the price of house sales and rentals. This overvaluation comes despite the fact that the publication calculates that prices have decreased by 31.3% since the peaks recorded in the fourth quarter of 2007.

In 2010, The Economist created an index that was based, precisely, on the relationship between the sales price of properties and rental, and the net income of citizens in different countries to calculate reasonable house prices. Then, homes in Spain were overvalued by more than 50% and in every year since then, the publication has considered that house prices still need to decrease further.

Having said that, our country is not unique in this sense. Not surprisingly, homes are much more overvalued with respect to the average earnings of their citizens in countries such as Canada (by between 35% and 89%), France (25%-29%), Belgium (50%-55%) and Australia (39%-61%).

However, the data from The Economist reflects that if any further decrease takes place, then it will come in dribs and drabs – prices (in Spain) have decreased by just 0.2% in the last year, the smallest decline recorded in any of the countries analysed, and below those registered in Greece (6.1%), China (-5.6%), Singapore (-3.9%), Italy (-3.8%) and France (-2.1%).

By contrast, Ireland, a country that had a very similar real estate bubble to that experienced in Spain and where prices have decreased by almost 40% from their peak levels, heads up the ranking for highest price increases with a 16.2% year-on-year rise, followed by Turkey (16%) and Hong Kong (11.9%).

Original story: El Confidencial (by Elena Sanz). Refer to original story for table showing ‘The Economist House Price Indicators’ by country.

Translation: Carmel Drake

Deloitte Strengthens Its Financial-RE Team

22 April 2015 – Expansión

Deloitte hires nine new professionals / The consultancy firm has recruited a team from Quadratia, a company that specialises in the residential RE sector

Deloitte expects to see a boom in the sale of homes and land to overseas funds; and it wants to become a leader in that market. The consultancy firm has recently strengthened its financial-real estate team by hiring new professionals from the specialist company Quadratia. The new recruits include the Managing Partner of that consultancy firm, Gonzalo Gallego, who joins as a Real Estate partner in the Financial Advisory team.

This move comes as a result of the belief that following the purchase of real estate platforms, shopping centres, individual buildings and loan portfolios, the opportunistic funds are going to focus their attention on the residential market this year and next. “We are seeing an increasing focus by real estate investors on the residential market, where they are interested in buying land, homes and other properties on the coast”, said Enrique Gutierrez, partner in the Transaction and Restructuring Advisory team at Deloitte. Gutierrez is responsible for the department where increasing weight is being given to the real estate sector. The RE team at Deloitte is led by the partner Alberto Valls, who Gallego will report into. In total, Deloitte’s Transactions team comprises more than 300 professionals.

Valls explains that, in the same way as has happened with other types of assets, “history is repeating itself and there is a lot of conviction amongst opportunistic investors that now is the time to enter the residential sector”. These types of funds are specialists in acquiring assets that carry higher risk and therefore, represent opportunities for extracting higher returns. “In a year from now, higher returns will be obtained. Once the situation stabilises, other more conservative, institutional investors will enter (the market)”, he adds.

In this context, investors are focusing their attention on banking assets: “(Many of the banks’) balance sheets are still fully loaded with debt from property developers and other foreclosed assets, and there are 400 funds willing to invest in Spain. No other segment has as much potential as the residential market”, says Gallego.

The banks are adopting two approaches to unblock the real estate plughole: the sale of homes in their networks, which accelerated every month in 2014 thanks to the mortgage war; and the sale of portfolios to funds. Deloitte estimates that there have been 30 transactions involving the transfer of (property) developer loans over the last year and a half.

The consultancy firm explains that the banks take three parameters into account when they put these types of portfolios on the market: time, cost and price. If the result of this equation shows that it will be more expensive to foreclose assets in the future than sell them at a discount now, then they put them on the market.

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake

A Peak Inside The Luxury Homes On Juan Bravo, 3

12 March 2015 – Expansión

The Socimi and the North American management company are investing €120 million to rescue the most exclusive residential project in the city. Designed by Rafael de La-Hoz, its 50 apartments will cost around €4 million (each).

Three months ago, the Socimi Lar España and the North American management company Pimco agreed to purchase the company Juan Bravo, 3. The agreement will result in the revival of one of the most exclusive residential projects in Madrid, which has suffered from the full force of the real estate crisis.

“It was a transaction that was in the market and we were not the only interested party. Nevertheless, many funds dropped out when they saw the complexity of the project. There were lots of stakeholders: from the judge overseeing the bankruptcy process to the former owners of the company and its creditors”, explains Jorge Pérez de Leza, who heads up Lar España.

The Socimi proposed that the company be brought out of bankruptcy, rather than be liquidated, through the purchase of the remaining loans from its main creditor (Santander). In total, both partners invested €120 million in the land and (associated) loans, as well as in a residential building adjacent to the plot, which used to belong to the former owners of Juan Bravo 3. “The existing creditors are going to be paid, which is the innovative part (of the transaction), and we hope that the bankruptcy proceedings will be lifted within the next few days”, said Pérez de Leza.

The investment has been made through a company whose share capital is owned split 50:50 between Lar and Pimco, one of the largest fund managers in the world. “When Pimco joined the Socimi as an ‘anchor investor’, it suggested that we make a number of joint ventures in the Spanish market. Pimco wants to continue investing in Spain and we think that the next wave of investment will be in the residential market”, predicts the director. With this project, Lar does not exceed the threshold set for Socimis (that no more than 20% of the assets in their portfolio may not generate returns) and therefore it does not rule out continued investment in the premium residential sector.

After closing the acquisition of this land, Lar España hired the architectural firm Rafael de La-Hoz, which had also been appointed by the former managers to design the project. “Juan Bravo 3 offers the opportunity to construct a new building concept with four façades. The homes, from the garages to the bedrooms, will be completely new. As such, we will have almost total freedom in terms of the form (it takes) and we will be able to do without elements such as common areas and patios”, says Rafael de La-Hoz.

This architect will be responsible for designing the block of homes, which will contain between 50 and 55 units, on a plot of land measuring 26,203 square metres. “Last summer, we conducted a study in the market to see what type of project would fit best and we identified that there is room for luxury (properties) in this area. Therefore, each home will measure at least 250 square metres and on average, will measure between 400 and 450 square metres, as well as having three parking spaces”, says Jorge Pérez de Leza.

The homes will have an average price of €10,000/m2 (prices will range from €8,000/m2 to €12,000/m2 depending on the floor). “It will be different to anything else that exists in the area. There will be common areas with a gym, spa and a space for events. We are going to customise the product and for that reason, we have created a specific team of technical architects to advise clients in their choice of materials and the distribution of their homes, as well as on implementation costs and timings”.

Buyers

The sale of these homes will begin this summer, although the developers have already received a number of requests. “We expect 60% of the homes to be sold to foreigners; and the remainder to be sold to people who live in the area and want a new home, or who have a home in La Moreleja or Somosaguas and now want to move to the centre”. The construction work will begin at the start of 2016 and will be completed in mid-2018. “Some of the below-ground work has already been completed, but we will have to improve it because it is somewhat dilapidated”.

In addition to fifty homes, the property will also have a shop space measuring around 1,000 square metres, which will be rented out.

Original story: Expansión (by Rocío Ruiz)

Translation: Carmel Drake

Second-hand Housing Is More Appealing To Buyers

23 February 2015 – El País

62% of the homes purchased in Spain last year were second-hand.

The second-hand segment is winning by a landslide in the race to sell more homes in the Spanish real estate sector. Overall, sales increased in 2014 for the first time in four years – breaking the trend observed since 2010 – and they did so thanks to the used home segment.

62.7% (200,065) of the 318,928 homes sold in 2014 were second-hand and just 37.2% (118,863) were new builds, according to the statistics of the Association of Registrars. According to INE, sales of second-hand homes increased by 18.4%. By contrast, sales of new builds plummeted, falling by 16.9%.

All indicators suggest that second-hand homes will continue to dominate transactions throughout 2015. Thus, the gap between new and used housing will become increasingly larger. Why? The main factor tipping the balance is price; second-home homes are more affordable for the long-suffering buyer. Used homes are between 5% and 15% cheaper, according to Manueal Gandarias, Director of the Research Unit at pisos.com. In euros, “the difference between an average used home and an average new build in Spain amounts to approximately €400 per square metre”, according to calculations by the appraisal firm Tinsa.

Second-hand properties ended the year with an average price of €1,347 per square metre, whereas new builds stood at €1,624/m2, according to data published by the General Council of Notaries. Moreover, second hand properties are available for as little as “just over €1,021. This undoubtedly encourages future buyers”, says Chus de Miguel, Commercial Director at Casaktua.com.

Furthermore, the prices of used homes offer more room for negotiation when they are in private hands, especially for overvalued homes acquired during the bonanza years.

Another point in favour of second-hand properties is that they are taxed at a lower rate. Brand new properties are subject to a 10% VAT charge, whereas Property Transfer Tax (Impuesto de Transmisiones Patrimoniales or ITP) is levied on those that are already inhabited and it varies from 6% to 10%. Moreover, aside from a few exceptions, used homes are located in better areas, since new homes are often scarce in city centres, unless they are refurbished homes. “A high percentage of used homes are located in more established, central areas that have more services”, says Chus de Miguel.

Although new builds have a very important advantage: “the greater ease of financing offered by the developers and banks that own these homes”, says Jesús Duque, Vice President of Alfa Inmobiliaria. Loans are normally granted to the developer in the case of new builds, which may be subrogated to the potential buyer. And financial institutions offer more credit facilities to place their own products, be they new or used. The individual vendor is disadvantaged in this sense.

In terms of the state of the property, new homes are ready to move into and live in, whereas used homes may require the buyer to invest in a face-lift or comprehensive renovation. “Our clients prefer to buy a house in a good building, update it or renovate it to their taste and pay 20% less than they would pay for a new build”, says Fernando Sánchez, agent at Re/Max Urbe. And he continues “problems should not arise if the property has a favourable Technical Building Inspection (report), is energy efficient and has good insulation”.

Regardless of tastes, is it worth paying more for a brand new home? “If we are talking about the same area and similar characteristics in terms of a property, I do not think it is worth paying 10% or 20% more for a new home”, says Duque.

Before signing any agreements, experts advise that (potential buyers) perform a simulation of the annual costs that will result from the purchase. As well as of the monthly costs. One should appreciate that “new builds typically charge higher community fees (to cover the cost of swimming pools, gardens, sports facilities…) and that it is possible to find second-hand homes where the central heating and water costs are included”, say sources at Fotocasa.es.

The fact that the second-hand segment is driving the reactivation of the real estate market is also explained by the fact that there is more supply. And “because the new builds sold by banks are also classified as second-hand”, say experts at Idealista.com. Much of the stock held by banks is classified as ‘used’ even though it is actually brand new, because they are homes that they have absorbed from developers in exchange for the payment of debt.

And whilst the second-hand market is growing, the new build segment is contracting; it is plummeting because hardly any new homes have been constructed in Spain in recent years. It is true that the construction of new homes is now increasing, albeit at a very slow rate. By 2016, the panorama will have changed. Bankinter estimates that, after years of significant decreases, driven by low demand and developer paralysis, sales of new builds will return to a level close to 100,000 units by 2016 (with total sales amounting to 450,000).

Original story: El País (by Sandra López Letón)

Translation: Carmel Drake

Castlelake Buys More Land From Sareb

23 February 2015 – Expansión

Transaction / The North American firm acquires several plots of land in Madrid for €13 million and strengthens its commitment to this type of product.

Sareb has generated more cash from its portfolio of real estate assets. The Asset Management Company for Bank Restructurings (la sociedad de activos procedentes de la reestructuración bancaria) has sold a batch of four residential plots, located in the town of Boadilla del Monte, Madrid.

For the sale, the company chaired by Jaime Echegoyen organised an exclusive sales process and invited five international funds to participate, in partnership with Spanish construction and real estate groups. Then, a sealed bid auction was held and the assets were awarded to the North American fund Castlelake (formerly known as TPG Credit Management).

According to sources close to the transaction, Castlelake paid €13 million for the plots (the minimum price was €11 million). The North American fund, which is operating with a Spanish partner, plans to construct uni-familiar homes worth €44 million on this land, which has a total surface area of 76,000 square metres.

Following its successful bid, Castlelake shall bear not only the costs of construction, but also the cost of the investment required to develop the area, explain real estate sources.

Other transactions

This is not the first time that Castlelake has purchased assets from Sareb. Last year, the North American fund acquired another batch of 17 plots included in the Crossover portfolio, worth €80 million. In the end, the transaction was closed for €55 million. These plots have been placed in a Banking Activity Fund (Fondo de Actividad Bancario or FAB), a vehicle that has significant tax advantages, in which Castlelake holds a 95% stake, whilst Sareb retains a 5% stake.

Castlelake’s new transaction exemplifies the interest that has been awakened once more in the residential market. “Just as 2014 was an extraordinary year for investment in tertiary real estate, 2015 will be a key year for the recovery of the residential market”, says Patricio Paloma, Director of Alternative Investment at CBRE España.

In recent months, several residential plots have been sold. For example, Sareb sold a plot measuring 3,328 square metres close to Plaza de Castilla, in the north of the capital, to Mario Losantos, through his investment vehicle Allegra Hólding. Through this transaction, the former owner of Riofisa returned to the Spanish real estate sector to construct a development for 120 homes, together with ACR.

Months later, the cooperative manager Domo paid €136 million to acquire a plot next to the Paseo de la Castellana in Madrid to construct 355 homes.

“Land is now starting to generate a lot of interest and, in addition to the transactions that Sareb will close, we expect that some of the banks will begin to put some of the land on their balance sheets up for sale, whereby generating liquidity for them that they will use to finance new projects”, says Palomar.

More sales of large plots in Madrid are expected to take place over the next few months. For example, the Ministry of Foreign Affairs is preparing the sale of land it owns on Calle Padre Damián, measuring 15,092 square metres and with capacity for up to 250 homes.

Original story: Expansión (by Rocío Ruiz)

Translation: Carmel Drake

Tecnocasa: Second-Hand House Prices Increase By 1.12%

19 February 2015 – El Mundo

Second-hand house prices have increased in value (y.o.y) for the first time since 2010.

The average price is now €1,458 per m2 after a cumulative decrease of 58% since 2007.

“The decrease (in house prices) has come to an end and we expect the market to remain stable for a while”.

House prices are also recovering in the second-hand home segment. Without a doubt, the hardest hit by the crisis. According to Tecnocasa’s 20th Report about the housing market (el XX Informe sobre el mercado de la vivienda), used homes increased in value by 1.12% during the second half of 2014, which represented the first increase since 2010. From the peaks recorded during the first half of 2007, this real estate segment has experienced a cumulative price decrease of 58.21%. During the first half of 2014, the fall was minimal, a token 0.04%.

The company reports that the average cost of second-hand homes is now €1,458 per square metre and that, therefore, the slump in prices has come to an end. “The decreases have come to an end and we are beginning a phase of stability”, says the firm, which prepared the study together with the University of Pompeu Fabra (UPF) of Barcelona. “In any case”, it adds, “we expect prices to remain stable for some time”.

By city, Sevilla recorded the largest decrease in the cost of used housing (-4.5%), whilst Barcelona experienced the greatest increase (+5.84%). “The decline in Sevilla reflects the fact that prices began to fall a little later in Andalucía”, said Tecnocasa in a statement. In terms of average values, the lowest continue to be in Valencia (€775 per square metre) and the highest in Barcelona (€2,011/m2).

José García-Montalvo, Professor in Economics at UPF and the coordinator of the report, wanted to stress that whilst the sector “continues to be significantly effected by an improvement in the short term”, he does not expect “a price explosion”, but rather a period “marked by stability”. In this sense, he explained that there has been a “change in terms of expectations” in the Spanish real estate sector, since the market “is no longer ruled by buyers”; sellers are “again able to set prices and conditions”.

The average mortgage decreases to €90,333

Paolo Boarini, CEO of the Tecnocasa Group in Spain, has analysed the financial data and house buyer profile for the second half of 2014. During the period, the average mortgage decreased by 2% (on a year-on-year basis compared with the second half of 2013). This decrease brings the average mortgage down to €90,333.

According to the report, the decrease in the average mortgage is due to the low level of house prices and the decision by banks to reduce loan risk. Moreover, the percentage of mortgages granted to people with temporary employment contracts has deceased from 38% (of the total) in 2005 to 7.6% in the second half of 2014.

In terms of the loan to value ratio, it remains low (72% in the second half of 2014), although, that did represent an increase from 67% in the first half of 2014. The reductions in interest rates and in the size of mortgages has contributed to a decrease in monthly mortgage payments. Such payments averaged €976 in 2007, but now amount to €382. This means that the ratio between the monthly mortgage payment and the monthly salary of the borrower now sits below 30%; a figure that reflects the conservative behaviour of credit institutions.

Boarini highlights that the market is undergoing a period of “stabilisation”, after the speed of decline “decreased in recent years”. In addition, he assures that we are currently seeing “a situation that would not have occurred in previous years, with low prices and good financing conditions”.

Methodology

The Tecnocasa Group’s report has been prepared using data from transactions brokered by its associates. Specifically, based on sales managed by Tecnocasa and loans granted by Kiron, the entity’s financial services company.

Original story: El Mundo

Translation: Carmel Drake

Investment In Housing Returns To Barcelona After 7 Years

18 February 2015 – El País

The housing market is the last sector to emerge from the crisis. Nevertheless, investment returned to the residential segment last year, after seven years of sluggishness towards undertaking significant projects in the Catalan capital. In addition to the purchase of portfolios by vulture funds, nine major acquisitions were also recorded in Barcelona, corresponding to 55,095 square metres, according to the real estate consultant CB Richard Ellis. These developments, most of which are aimed at high-end clients, showed a move away from the traditional prime (residential) area – Sarria-Sant Gervasi – towards the neighbourhoods of Eixample, Ciutat Vella and Diagonal Mar.

The Vice President of CB Richard Ellis, Enrique Martínez-Laguna, described 2014 as a “historical” year because the volumes of investment amounted to €10,463 million across the whole of Spain, even higher than the levels recorded in 2007, the year in which most capital was invested. The Director of the consultancy firm in Barcelona, Anna Esteban, highlighted that property prices have fallen since then, and so more transactions were recorded in 2014 than in 2007. The consultancy firm expects investors’ appetite to continue this year, to the extent that “we will begin to see cranes (appearing on the horizon)”, says Martínez-Laguna.

The Catalan capital destroyed 90,000 square metres of office space in 2014

But the map of the city has not only changed in terms of the construction of housing. In total, 90,000 square metres of office space were destroyed in the city centre in 2014 alone. Buildings were converted or will shortly be converted into hotels and homes.

Changing landscape

For example, the Paseo de Gracia, has now become a residential and retail area. And something similar may take place on the Diagonal following its renovation. “There are also two buildings, at number 10 Francesc Macia and number 111 Paseo de Gracia, whose premises could be converted into the entrance of what may become a new open-air shopping centre” says Martínez-Laguna. At the same time, some of the buildings in the 22@ district are generating very similar rents to those being paid for other properties in the traditional business district.

The current rental price in the best areas of Barcelona amounts to c.€17.75 per square metre, down from the peak of €28/m2 recorded in 2007. Moreover, the consultancy firm considers that these rents have now bottomed out and will grow by 30% over the next two to three years.

Original story: El País (by Lluís Pellicer)

Translation: Carmel Drake

Acciona Expects To Record A Profit In 2014 And Seeks Real Estate Opportunities

14 January 2015 – Expansión

Acciona expects to return to profitability in 2014 having recorded losses of €1,972 million in 2013, when it was hit by the Government’s electricity reform, which led to the impairment of its renewable assets.

The announcement was made today at Spain Investor Day by Acciona’s Director General of Corporate Development and Investor Relations, Juan Muro-Lara, who stressed that the company is also focusing on the new opportunities that it expects to arise in the real estate sector, paying particular attention to the residential market, which represents the backbone of its new strategy.

In fact, as part of the transformation plan launched in 2014, the company has already strengthened its real estate business, by hiring Walter de Luna as the Managing Director of its real estate arm following his departure from Sareb, where he served as number two.

This new strategy has also included the hire of Luis Moreno by Acciona Real Estate, a close associate of Walter de Luna, who also joins from Sareb.

Looking to the year ahead, the company expects growth opportunities in the energy sector to be reactivated; to consolidate the integration of its infrastructure businesses and acheive improvements in its results; to search for opportunities to collaborate and grow in the real estate sector; the stabilisation of Bestinver; and the sale of Trasmediterránea.

With the results for 2014 pending publication, including the real impact of the energy reform, the company forecasts an estimated impact of €365 million or 25% of gross operating profit (EBITDA).

The company’s new roadmap also seeks to reduce the ratio of net debt/EBITDA from 5.7x to 5x by December 2014. In this context, the company is analysing the sale of its shipping arm, Trasmediterránea, as it adopts measures aimed at improving the operations of the division.

Efforts in 2014, when Acciona took the decision to cancel its dividend distribution, focused on reducing costs, undertaking the divestments needed to focus on the ‘core’ business and reorganising its corporate division, as well as on its management company, Bestinver, following the departure of Francisco García Paramés after 25 years with the company.

Despite the losses recorded in 2013, the company recorded profits of €149 million during the first nine months of 2014, up by 98.5% on the same period in 2013, driven by an extension of the loan repayment period for its wind energy assets and certain divestments made during the period.

Original article: Expansión

Translation: Carmel Drake