Another RE Bubble? S&P Forecast House Price Rises Until 2020

3 August 2017 – Cinco Días

After years of crisis, the Spanish real estate market is now growing again year after year. That is according to analysis prepared by Standard & Poor’s, which estimates that house prices will rise by 4% in 2017 and by 4.5% in 2018, with respect to the previous year.

The report also forecasts a reduction in inflation. Currently, prices are rising at 1.5% p.a. but that figure is expected to decrease to 1.3% in 2018. Moreover, economic growth in Spain is expected to lead to a reduction in unemployment, down to 15.7%. And that percentage is forecast to fall to 13.6% by 2020.

Despite the positive outlook, the risk measurement entity warns of the risk that Brexit, the United Kingdom’s exit from the European Union, could have, given that currently, Brits account for 19% of foreign house buyers in Spain.

House sales are growing to both domestic and international buyers. In 2016, the total volume of transactions rose by 13.7% to reach 404,000 homes sold in Spain. During the 12 months to April 2017, 416,000 homes were sold, up by 11.8%.

Sales to foreigners grew by 13.8% in 2016. In total, 53,500 of the 404,000 homes purchased were transferred into foreign hands. The main buyers were British, who accounted for 19% of purchases by foreigners; followed by the French (8.05%) and Germans (7.69%). Moreover, the report points out that the so-called golden visas, which grant residence permits to those foreigners who invest more than €500,000 in real estate, excluding taxes, have led to an increase in acquisitions by Russian and Asian citizens.

Standard & Poor’s also expects that the European market will continue to grow. The ratings agency forecasts that house prices will rise in many of the neighbouring countries, such as Germany, where they are expected to increase by 6% next year. Nevertheless, in the main countries that the buyers in Spain come from, in other words, the United Kingdom and France, prices are expected to decrease by 1% or remain stable, respectively.

This growth in sales has meant that house prices have not slowed down. According to the real estate appraisal company Tinsa, house prices rose by 3% during the second quarter of 2017 compared to June last year. Currently, according to the same firm, the average price of homes per square metre in June 2017 amounted to €1,245/m2, well below the peaks of 2007 (€2,047.69/m2).

Sources at Standard & Poor’s expect that the Spanish economy will continue to grow in 2017, by 3% for the third consecutive year. The creation of 2 million jobs since 2013 and the increase in exports are the main drivers of confidence that the firm is using to justify the rise in house prices, although it also warns of the need that Spain has to reduce its deficit, which is one of the highest in the Eurozone.

Ultimately, economic growth will be reflected in real estate growth over the next three years. The slow reduction in the stock of housing accumulated during the years of the bubble and the slow, albeit inexorable, rise in interest rates (the first rise is expected to happen in 2019) will limit the rise in house prices. Standard & Poor’s also questions the effect of Brexit on the real estate market.

Original story: Cinco Días (by Fernando Cardona and Eduardo García)

Translation: Carmel Drake

Bank Of Spain: The Housing Market Is Not Overheating

4 April 2017 – El Mundo

The Bank of Spain (BdE) does not perceive “any signs of overheating” in the housing market, nor does it expect the real estate sector to overheat anytime soon, given that the recovery in the market is happening at the same time as the process to deleverage the economy.

During the presentation of the supervisory body’s macroeconomic forecasts for the Spanish economy (2017-2020), the Director General of Economics and Statistics at the Bank of Spain, Pablo Hernández de Cos, denied that the housing market is showing any signs of overheating.

Hernández de Cos highlighted that the housing market has been enjoying a recovery for several quarters, which is being seen in the number of transactions, the number of new builds started and the trend in prices, although the Bank of Spain does not expect “the market to overheat”.

Despite the fact that the growth rates “may be significant”, the Director of the Bank of Spain said that after a “very significant” adjustment process in the sector in terms of transactions and the correction of prices, the recovery in the market is taking place in parallel to the continuation of the process to deleverage the Spanish economy. “We are not seeing any signs of overheating”, he added.

“Uneven” reactivation

In its forecasts, the supervisory body notes that high-frequency information relating to both the number of new builds started and the number of transactions involving residential properties, indicates a “continuation of the path of gradual improvement in residential investment, whose prolongation during the forecast horizon will be based on the favourable evolution of employment, the expected continuation of propitious financing conditions and the expectation that assets are going to appreciate in value”.

Nevertheless, it forecasts that the recovery will progress in an “uneven” way by region, with the main cities and autonomous regions most focused on tourism experiencing the most intense growth. In any case, it warns that the latter areas may experience a certain moderation in demand as a result of the process for the United Kingdom’s exit from the European Union (EU).

Original story: El Mundo 

Translation: Carmel Drake

The RE Sector Is Showing Important Signs Of Recovery

9 June 2015 – Cinco Días

The recovery in the mortgage market is just one variable that shows that the Spanish economy is continuing to accelerate on more than one front.

The data showing an increase in the number of new loans taken out, after a long period of credit restrictions, is accompanied by statistics that reveal a decrease in the number of mortgage foreclosures, which have decreased by more than 14% since their peak in 2010. In total, 600,000 mortgage foreclosures have been processed since 2007. If we analyse the evolution of this figure since the beginning of the year, the seizure of homes has decreased by almost 7% during Q1 2015, with respect to the same period in 2014.

At the same time, an in-depth analysis of the mortgage sector reveals that the volume of real estate asset foreclosure is continuing to increase for banks, just like is happening with “daciones en pago” (assignment of deeds in lieu of payment). The explanation is that the banks are not managing – or are delaying, due to the disadvantageous market conditions in terms of price – the sale of the high volume of assets that they still hold on their balance sheets. This delay may, amongst other consequences, increase the exposure of Spanish securitisation funds to higher losses, just at a time when the first residential mortgage-backed securitisation in Spain has been subscribed after an eight-year drought. For the experts, the return of these transactions is a clear sign of the recovery in the credit market. Moreover, the fact that financing is beginning to flow again at a time when interest rates are low indicates that there will be faster growth in the housing market.

The signs of revival in terms of real estate transactions are good news, not only for the sector itself and its suppliers, but also for banks, consumers and the economy as a whole. In the case of the financial sector, the return of the flow of credit is opening the door to new financing proposals for the acquisition of real estate assets. This applies to the possibility of creating a specific mortgage loan for investors who want to purchase a home and rent it out, a typical financial product in the UK (buy-to-let). Nevertheless, it seems unlikely that a proposal that combines high risk – particularly in an immature market, such as the rental market in Spain – and limited growth prospects, will be of interest to banks, which today, more than ever, must not only channel their resources in accordance with (strict) solvency and efficiency criteria, but which must also orientate themselves towards higher-yielding, longer term investments.

The challenge for the house market is to start to learn to walk again, and to do so in an orderly and rational way, without repeating the mistakes that Spain has paid for so dearly in recent years.

Original story: Cinco Días (Editorial)

Translation: Carmel Drake

Recovery Has Investors Stocking Up On Spanish Malls

11 February 2015 – WSJ

The Spanish shopping experience is getting a multibillion-dollar makeover as the nation’s economy improves and foreign investment flows in.

After a year of tepid recovery from recession, consumer spending is picking up. Retail sales rose 1.9% in November from the same month in 2013, the fourth consecutive monthly increase, after six years of decline. Although nearly a quarter of the workforce remains unemployed, the economy is expected to expand by 1.7% this year, compared with 1.1% in the euro area as a whole, according to the Organization for Economic Cooperation and Development.

That, in turn, is helping to fuel investment in the retail property sector. In all, investment in retail real estate totalled €3.34 billion ($3.78 billion) in 2014, nearly triple the amount of the previous year and topping the record of €3.1 billion in 2006, according to property consultant JLL, formerly known as Jones Lang LaSalle. At least 67% of investments came from outside Spain. There was more investment in retail than in any other class of commercial real estate over the past year, according to JLL.

International investors are expected to pump more money into retail properties this year, including new construction, according to Adolfo Ramirez Escudero, president of property consultant CBRE Group Inc. in Spain.

Much of the money will go toward large-scale projects that mix shopping and entertainment, known as retail resorts, as well as outdoor outlet malls that resemble small cities where shoppers can find discounted designer brands.

Developers see opportunities for strong returns because prices of land and buildings are still depressed six years after the financial crisis. With the prices of many commodities at relatively lower levels and Spain’s unemployment so high, builders can also construct projects at a reduced cost. Meanwhile, the number of tourists to Spain is at a record, bringing with them money to spend.

The entrance of big global investors is a sign that the Spanish market is stabilizing, said Pedro de Churruca, general director of JLL in Spain.

“People are clearly coming back to shopping centers as a consequence of higher disposable income,” said Ismael Clemente of Merlin Properties Socimi SA, Spain’s largest real-estate investment trust, which in July purchased Marineda City shopping center in La Coruña from a local developer for €260 million. The three-year-old retail complex is the second-largest in the country.

The shopping center opened “in probably the worst possible moment in Spain,” said Mr. Clemente, referring to Spain’s economic doldrums. “We saw that there was a clear upward movement expected in rent, so we thought it was an interesting bet.”

The U.K.’s Intu Properties PLC purchased Spain’s largest shopping center, Puerto Venecia in Zaragoza, for €451 million in December. The British real-estate investment trust also announced a partnership with Spanish developer Eurofund to build four more retail resorts in Spanish cities as part of a plan to invest £1.2 billion ($1.8 billion) over 10 years.

Construction on the first of these projects, Intu Costa del Sol in the Malaga suburb of Torremolinos, —is scheduled to begin in the second half of 2015 and be completed by 2018. The 1.9-million-square-foot development will include amenities Intu is known for: a minitheme park, a surf lake, artificial ski slopes and a gourmet market, as well as shops and restaurants of high-end chains.

Intu owns 18 U.K. shopping centers, but Spain is the company’s first international market, which it entered in 2013 with the purchase of Parque Principado shopping center in Oviedo.

“We’re keen to keep growing, and if we focus on the prime, best shopping centers in the market, there are few opportunities in the U.K.,” said Martin Breeden, regional director of Intu. “Spain is a market that seemed open to international investment and where, frankly, there are not a lot of good shopping resorts in existence.”

Intu has purchase options on land for similar developments in Valencia, Vigo and Palma de Mallorca.

The Intu Costa del Sol site is about 3 miles from Malaga’s most-visited shopping center, Plaza Mayor, which opened in 2002. Sonae Sierra of Portugal, which owns and manages Plaza Mayor, has joined with U.K.-based McArthurGlen Group and U.S.-based Simon Property Group Inc. to expand the 572,400-square-foot shopping area to include a designer outlet mall. The €115 million development will add 324,000 square feet of leasable area and be the first large-scale outlet mall in Andalusia. Construction is scheduled to begin in the second half of this year, and the first phase is set to open in 2017.

Joan Jove, McArthurGlen’s regional development director, said Plaza Mayor is a “very strong, established retail scheme” and the planned adjacent outlet mall will be one-of-a-kind in the region. Mr. Jove said the project is mainly targeted at the 10 million tourists who visit Costa del Sol each year.

Intu’s Mr. Breeden said he wasn’t concerned about competition. “We’re very confident that there will be fantastic demand for our project.”

Sonae Sierra said it also plans to spend €55 million to update four of its other shopping centers around Spain within the next five years.

Elsewhere, TIAA-CREF, a U.S. money manager, has formed a joint venture with Neinver, a Spanish outlet-mall developer, to create TH Real Estate, which will own properties in Spain and other countries. Among their projects is the €80 million Viladecans The Style Outlets in Barcelona, which is scheduled to open in 2016.

“There is still plenty of money chasing product, and plenty of people with big debt who want to sell product,” said CBRE’s Mr. Ramirez. “I expect big volume this year.” He said large transactions could start to level off by next year as prices increase.

Original story: WSJ (by Shaheen Samavati)

Edited by: Carmel Drake