Ghost Towns Still Haunt Spain in Property Rebound a Decade After

25 November 2018 – Bloomberg

Juan Velayos’s biggest headache these days is getting licenses fast enough to hand over new homes such as the upscale condos his company is building in the northern suburbs of Madrid.

Less than 60 miles away, Ricardo Alba’s neighborhood tells a different story about Spain’s property market. The fencing instructor is one of only two occupants at a block of apartments whose development was frozen in its tracks when banks pulled the plug on credit.

“The real estate sector’s recovery in Spain is developing at two clearly different speeds,” said Fernando Rodriguez de Acuna, director of Madrid-based real-estate consultancy R.R. de Acuna & Asociados. “While one part of the country is consolidating the recovery of the sector and even expanding, another part of the country is stagnating and is showing few signs of returning to pre-crisis levels in the medium- and long-term.”

A decade after the financial crisis hit, Spain’s real estate recovery is a tale of two markets. Key cities and tourism hot spots are enjoying a fresh boom, fueled by interest rates that are still near historic lows, an economic recovery and a banking system that’s finally cleaning up its act. Private equity firms such as Blackstone Group LP are picking up once-toxic assets worth tens of billions of dollars and parsing out what’s still of value, often using their playbook from the U.S. real estate recovery to convert properties into rentals.

But travel a little beyond the bustling centers, to the outskirts of smaller villages, and ghost towns still litter the landscape — once ambitious developments, often started on agricultural land that was converted into building lots just before the crisis hit. They still stand half-finished, unable to find a buyer.

The “Bioclimatic City La Encina” where Alba began renting an apartment two months ago is one such development. Situated on the edge of the village of Bernuy de Porreros, about 10 kilometers (6 miles) from Segovia, it promised to be Spain’s first environmentally-friendly town, providing solar energy and recycled water for 267 homes, comprised of two-, three-, and four-bedroom chalets and apartments. A faded billboard speaks of the dreams that were sold, including communal swimming pools and gardens for residents who would “live… naturally.”

Today, only about a dozen of the homes are occupied. One street has finished homes but half have their windows bricked up to discourage break-ins, locals said. Alba does have solar panels heating his water, but his electricity comes from the local network. On the far side of the development, trees sprout out of the middle of a street that was never paved. Brightly-colored pipes and cables protrude from the ground. Bags of plaster on a pallet have long hardened.

Spain’s housing crash was fueled by a speculative frenzy combined with loose restrictions and corruption that allowed plots of farmland in rural villages to be converted to feed a demand for homes that never truly existed, said Velayos, who is chief executive officer of Neinor Homes. At the height of the boom in 2006, authorities approved 865,561 new home licenses when even in an economic boom demand is no greater than 250,000 homes, he says.

Banks were handing out loans to developers who had little to lose if a project didn’t find a buyer because the money wasn’t theirs. The result was an almost total collapse of the market and close to $200 billion of soured assets.

About half of them were bought in 2012 by Sareb, a bad bank set up by the government to help lenders. Sareb spent about 50 billion euros to acquire assets that were once valued at twice that amount, mostly loans to developers and real estate. Among the latter are also 97 of the 267 properties at La Encina. None of them are currently for sale as Sareb works through legal issues and construction of many isn’t finished.

Other assets were picked up by deep-pocketed investors such as Blackstone, which has 25 billion euros invested in Spain, according to Claudio Boada, a senior adviser at the firm. The New York-based company — the world’s largest private markets investor — is doing what it did at home after the financial crisis: renting out homes instead of selling them in a bid that fewer people can afford to own. Spain had a relatively high home ownership rate before the crisis but it has since come down.

Blackstone’s Bet

“We’re holding most of what we own and looking to rent it out for the foreseeable future,” said James Seppala, head of real estate for Europe at Blackstone. “There’s a meaningful increase in demand for rental residential around the world, including in Spain, driven by home ownership rates coming down.”

Private equity investors also backed a new breed of real estate developers that are bringing a different rigor to the industry. Companies such as Neinor and Aedas Homes S.A.U. are more tech-savvy when assessing markets, and emphasize industrial production techniques to improve efficiency. They’re behind a surge in licenses for new homes to 12,172 new homes in July, the highest monthly total in a decade.

But demand is uneven: Madrid is enjoying its most robust year of home construction since 2008 with an average of 2,151 licenses awarded per month in the first seven months of the year. In Segovia, just 27 minutes from Madrid on the state-run bullet train, an average of 25 homes licenses have been approved per month in 2018, compared with an average of 180 homes a decade earlier.

The volume of residential mortgages sold in Spain peaked in late 2005 before hitting a low in 2013. Since then they have gradually picked up, with 28,755 sold in August, a seven percent annual increase.

Velayos, chief executive officer at Neinor, said business is starting to pick up beyond Madrid and Barcelona to smaller cities and the coast. His company plans to hand over 4,000 homes by 2021, more than 12 times as many as in 2017. The biggest challenge has been getting licenses approved on time. Velayos had to cut his delivery target for 2019 by a third as often understaffed local councils cause bottlenecks in the production process.

More significantly, Spain’s real estate is now funded by investor’s equity and not credit, said Velayos. Neinor was bought by private equity firm Lonestar Capital Management LLC from Kutxabank SA in 2014 and went public in March 2017. Aedas is backed by Castlelake, another private equity investor, and was floated the same year. Metrovacesa SA, owned by Spain’s biggest banks, held an initial public offering earlier this year.

Shares of all three developers have declined this year at more than twice the rate of the local stock index, a reminder that the market’s recovery remains fragile, with higher interest rates and an economic slowdown on the horizon.

For the Bioclimatic City La Encina, that means it may take longer still until Alba gets new neighbors. Prices for half-finished chalets were slashed by half, according to residents. Some now sell for as little as 16,700 euros, half the cost of a mid-range car.

Alba doubts such cuts will lure buyers. Then again, that may not be a bad thing, he says in summing up the development’s advantages: “It’s very peaceful.”

Original story: Bloomberg (by Charlie Devereux)

Edited by: Carmel Drake

INE: House Sales Rose By 26.9% In March

22 May 2017 – El Confidencial

House sales rose by 26.9% in March with respect to the same month in 2016, to reach 40,461 operations, the highest figure since February 2011, according to figures compiled by Spain’s National Institute of Statistics (INE).

This increase, which marks 14 consecutive months of YoY increases, is much higher than the rise recorded in February when operations increased by just 1.2% in YoY terms.

Transactions involving second-hand homes rose by 28.3% in March with respect to the same month in 2016, to reach 33,100, a level not seen since September 2007. Meanwhile, sales of new build properties rose by 21.2% in YoY terms, to reach 7,361 transactions, the highest figure since February 2016.

89.8% of the homes sold during the third month of the year were private (unsubsidised) properties and 10.2% were protected (social housing). Sales of private homes rose by 27.6% in March in YoY terms, to reach 36,332 transactions, meanwhile, operations involving social housing properties grew by 21.5%, to 4,129 transactions.

In monthly terms (March compared with February), house sales soared, by 13.6%, their highest increase in the month of March for at least five years.

In March, the greatest number of house sales per 100,000 inhabitants by region was recorded in the Community of Valencia (150), followed by the Balearic Islands (148) and Andalucía (121). The latter was also the autonomous region where the most (absolute) house sales were recorded during the third month of the year, with 7,976 transactions, followed by Cataluña (6,832), the Community of Valencia (5,854) and Madrid (5,684).

Original story: El Confidencial 

Translation: Carmel Drake

Europe’s Finance Ministers Consider Creating An EU Bad Bank

4 April 2017 – Expansión

According to working documents to which Efe has had access, the European Union’s (EU) Economic and Finance Ministers will meet on Friday to discuss the possibility of creating a bad bank in order to offload the non-performing loans accumulated by European banks in the market.

The text, drawn up by Malta in its role as the current Presidency of the EU, will serve as a basis for reflecting on the actions that may be adopted at the EU level, to reduce the burden of non-performing loans on European entities, during an informal meeting of the ministers in Malta.

These non-recoverable loans account for 5.4% of the total loan portfolio and are worth more than €1 billion (equivalent to more than 7% of the EU’s GDP).

In addition to the creation of an asset management company, widely known as a bad bank, consideration will also be given to the option of creating a secondary market in the EU for these types of loans, to improve supervision, strengthen insolvency regimes and tackle the accumulation of pending court cases.

“Experience suggests that the creation of asset management companies can help to tackle the accumulation of non-performing loans (NPL) regardless of their capital structure (public, private or mixed)”, said the document.

The Maltese Presidency highlighted that the establishment of this company “would very likely” represent a boost to the secondary market for these assets, by creating a transaction history, and at the same time, grouping together these loans would reduce the information gap between buyers and sellers and would facilitate access to the market for smaller banks.

Nevertheless, the Presidency explained that in the past, there have been cases in which these bad banks have served only as a “cushion for removing NPLs from the banks’ balance sheets” and that there have only been “limited sales” in the market.

As a result, it advocates a hypothetical bad bank that fulfils certain “success factors”, such as suitable governance agreements and proactive strategies to maximise the value of its portfolio.

The current EU Presidency considers that this measure should be accompanied by a “substantial boost” in investment in impaired assets in the EU, by private and public investors alike.

In this sense, it underlines that the creation of this company should be executed “in line” with EU rules regarding bank resolution and State aid.

Meanwhile, the Economic and Finance Ministers will analyse the options for boosting a secondary market in which these loans could be offloaded, which is currently being hampered by a lack of reliable information about the quality of the assets and differences in information between sellers and buyers.

In this sense, it opens the door to the creation of “state-sponsored” platforms for transactions involving non-performing loans.

Original story: Expansión

Translation: Carmel Drake Buyers Offer 23% Below The Asking Price

27 January 2016 – Cinco Días

Data is regularly being published about the rise in the number of house sales, how the fall in property prices is being mitigated, the gradual return of credit to the market and the impact of the overall economic recovery as the driver behind the real estate market overcoming the crisis. Nevertheless, the online portal has gone a step further by cross-checking information about the prices that purchasers are willing to pay and the asking prices being set by vendors; and they are checking the differences between them (…).

In its study, which is based on figures from 2015, the real estate portal notes that the differences between asking prices and offer prices have decreased in line with the improvement in the labour market (as soon as job destruction came to a halt, house sales began their timid recovery) and the relaxation of conditions to access finance.

This alignment of positions has been made possible thanks to the fact that house prices now seem to have bottomed out, at least in the majority of regions, “and buyers’ budgets have increased, thanked to increased savings and the return of credit to the market”, explain sources at

In this way, during 2015, the average house price in Spain amounted to €138,150, whilst the most sought-after home (by buyers) cost €112,500 on average and had a surface area of 90 m2. The portal understands that the difference between these amounts, i.e. €25,650, represents the difference that currently separates demand and supply, which is equivalent to 23% of the most sought-after price. has been performing this cross-check of supply and demand since 2009 and in its study, it shows how the relationship has evolved during the crisis and the start of the recovery. In 2009, the difference amounted to 55%, which is explained to a large extent by the sharp decline in the number of house sales; the transactions that did materialise were accounted for with a sizeable discrepancy.

Since then, the positions have moved towards each other to narrow at 20% in 2013. Nevertheless, in 2014, they increased again, to 25% and then last year, that gap moderated slightly to the aforementioned 23%. The evolution varies by region, which is to be expected in the housing market. (…).

Starting prices

Prices in six autonomous regions increased, namely: Andalucía, Aragón, the Balearic Islands, Galicia, Navarra and País Vasco. The highest average asking price is still found in País Vasco, at €232,500. At the other end of the spectrum, citizens in Murcia, Valencia, Castilla-La Mancha and the Canary Islands searched for homes with a average price of €67,500. Navarra is the only autonomous region where the price that buyers are willing to pay exceeded the asking price. The autonomous regions in which asking and offer prices were the closest were: Cantabria (9%), País Vasco (9%) and Cataluña (12%). By contrast, the largest differences were found in Murcia (where the difference still amounts to 39%), Asturias (37%) and La Rioja (36%).

In terms of other variables in the market, such as the number of transactions and the evolution of prices, the General Council of Notaries published its study yesterday, which showed that (house) sales grew by 14.7% YoY in Q3 2015, following their significant growth in the previous quarter (16.8% YoY). Moreover, the notaries highlighted that all of the autonomous regions, with the exception of Navarra, contributed to this result. (…). Meanwhile, prices grew by 2.7% YoY during the same period, just below the rate of growth seen in the previous quarter (3.6%). (…).

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake

Outlook 2016: The Housing Market

11 January 2016 – El Mundo

(….) Gonzalo Bernardos, Economist and Director of the Real Estate Masters at the University of Barcelona; José García Montalvo, Professor of Economics at the Pompeu Fabra University; Julio Gil, President of the Real Estate Research Foundation (FEI); and José Luis Ruiz Bartolomé, partner at Certus Capital; outline their predictions for the residential market in 2016. In general terms, all of them consider that the improvement that began in 2015 will strengthen in 2016… political uncertainty permitting.

Increasing prices

All of the experts agree that house prices will rise this year. But they differ in terms of their view regarding the size of this increase. Bernardos is the most optimistic and talks about a “splendid year” with an average price rise of 12%. (…).

Ruiz Bartolomé is more conservative. He expects the annual increase to amount to around 3%-5% in 2016 – “the year of consolidation” – and warns that there are “regions that will not begin to recover until 2017”. For García Montalvo, “in Madrid, Barcelona, the coast of Málaga and a few other areas, prices may rise by between 5% and 10%, whilst on aggregate they will continue to be stable with small variations”, he says. “Nevertheless”, he warns, “there are significant political risks that could have a substantial impact in the market”.

More accessible credit

Access to mortgages will continue to relax in 2016, according to most of the analysts, but their view vary regarding the intensity. For Ruiz Bartolomé, demand for credit will be prudent, whilst for Bernardos, it will be more decisive. “Banks are going to pursue clients”, says the latter, who calculates that 30% more mortgages will be signed this year. (…).

Bernardos even says that financial institutions will grant almost 100% of the appraisal value of homes to those individuals who earn more than €4,000/month. In terms of the cost of credit, they praise low interest rates – and expect Euribor to enter negative territory within a year. Gil also expects that credit will continue to flow and hopes that it will be limited to solvent demand. At the same time, he highlights that “we are living in the best financial situation in terms of interest rates to buy a home”. He does not expect these circumstances to extend beyond 2016, once rates in the USA begin to rise in earnest.

More younger buyers?

(…) In terms of the profile of buyers, Bernardos is clear: “Almost everyone who has a job will be able to afford to buy a house, provided they have some savings – around €20,000”. The economist refers to those households with monthly incomes of €1,800 (young couples with salaries of €900 each) and points out that he is talking about homes worth between €100,000 and €150,000 – “the best sellers”. He expects house purchases to increase by 20%, to reach 490,000 operations per year.

Despite the aforementioned “relaxation” in terms of credit, García Montalvo does not expect that young people will be able to return to the market, at least in the short term, due to the high rate of youth unemployment, the predominance of precarious (employment) contracts and low salaries. Gil shares this view. (…).

More powerful sellers

After years at the mercy of demand, sellers are going to gain strength once again. “They will regain their bargaining power, primarily, in the cities. If they set reasonable prices, they will not have to offer discounts”, says Bernardos. “As demand increases, so too does the power of sellers. In 2016, the situation of sellers will improve in general”, agrees Ruiz Bartolomé. (…).

According to Bernardos, property developers will increase their prices. “Property developers (with projects) in good areas will increase prices three times between the project launch and project completion”.

New builds will increase

(…) “Whilst in 2015, permits were processed for 65,000 new homes, in 2016, we expect that figure to increase to 100,000 units. The best sign of the recovery is that in 2015, property developers bought a lot of land in the large cities, as well as in the suburbs”, says Bernardos.

Ruiz Bartolomé thinks that residential developments will grow even further because “dozens of investors and property developers are looking for operations”. He also warns about the shortage of good quality land. (…).

Turning point for the rental market

With the tailwind supporting the market to buy, 2016 will represent a turning point for the rental market, according to the experts. Following its meteoric rise in recent times, the rental system will now stabilise. “The proportion of homes being rented will start to stabilise”, says García Montalvo, who is in no doubt that “the rental market will strengthen as the main way towards emancipation, just like in other countries that are developing in a similar way to Spain”.

“In general, Spaniards still prefer to buy rather than rent if they can afford to”, says Ruiz Bartolomé. Having said that, he clarifies that “there is still rental demand from those who cannot afford to buy and also from young people with a new vision of housing as a necessary cost that must be covered rather than as an investment or status symbol. (…).

Original story: El Mundo (by Jorge Salido Cobo)

Translation: Carmel Drake