DEC 2012/JAN 2013 |
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This is hardly surprising. You would have to question the sanity of anyone expecting (or even wanting) things to return to 2006 levels any time soon!
6. Most expect prices to fall further, certainly at the bottom end of the market.
The expectation is that the position will vary greatly from place to place. With the Spanish banks and the
‘Bad Bank’ forced to offl oad thousands of properties and scant demand, it would be surprising if prices did not fall – certainly at the bottom end of the market. Expectations seem to hover around 10-15% in further price falls. On the other hand, luxury properties in places such as Marbella seem likely to emerge largely unscathed as there is still strong demand at the current
“Most seemed to fear sharing information ... more than the crisis itself.”
prices – already, of course, signifi cantly reduced compared to prices a few years’ ago.
The Proposals: So what has everybody been doing and what are they planning to do? Almost all of the people we spoke to have spent the last few years slashing the costs associated with the operation of their businesses: staff, marketing, the type of hotels they stay in – even, in one case, saving €10,000 per year by changing the quality of paper they use. They have all been fi ne tuning their
organisations to achieve more with less: maintaining moral and team spirit being a key part of this process. In the meantime, at a higher level, there have been a number of initiatives.
1. The Bad Bank – SAREB Bad debts, mostly loans to home buyers and property developers, reached 182 billion Euros ($233bn; £146bn) or 10.7% of bank assets, according to central bank data. On any sensible assessment of the
current value of the banks’ security they are going to take such a hit on these loans that it would place their very future in jeopardy. Add to this the looming deadlines
for all banks to comply with the new Basel III rules and pressure from the EU and it is clear to see why Spain felt it necessary to take action to ring fence this damage and put some capital back into the banks. The process has now started –
though it doesn’t bode well that neither BBVA (Spain’s second largest bank) nor foreign investors took up the offer to become investors in the bank. The basic idea is simple. SAREB
FEATURE
buys the bad loans and properties from the ‘ordinary’ banks – at heavily discounted prices – and then sells them for a profi t.
The price is paid in cash from
investor’s funds, so helping to refi nance the other banks. However, given the continuing falls
in the property market, it is hard to see how SAREB can live up to the promises that it will make a profi t. The creation of SAREB has already
had some effect and put downward pressure on prices as other banks tried to offl oad some of their problem properties before the deadline at a better price than they could get from SAREB.
It is diffi cult to see what will happen
next. In some areas SAREB will have a
great deal of property to sell. In others there will be very little. (Fig. 1) How much of it will be fi nished and ready for sale? Will they be able to offer fi nance to assist with the sale process? Who will buy?
2. Initiatives to give buyers confi dence in the market It was not just the fi nancial crisis that damaged the Spanish market. Successive scandals – the ‘Valencian
Land Grab’, illegally constructed properties, forged building licences, some poorly built property etc – and a general feeling that prices had passed what was reasonable all contributed to the ‘Spanish’ buyers buying elsewhere. Almost everyone at government level understands the need to repair this damage if buyers are to be persuaded to come back to the market.
They have proposed a number of
measures. The ‘legalisation’ of large numbers of illegally built properties, reform to the planning laws and beefi ng up the property transfer process are all on the table.
Particularly interesting is a proposal
that certain new properties should be supplied with a ‘buyers’ pack’ providing confi rmation that all is in order with the legal and planning status of the property. This idea, promoted by MAPC, is in
its infancy and needs a lot more work but could help restore some faith in the market - or, at least, in this particular segment of the market. In truth, it does little that should not
already have been done by a competent lawyer acting for the buyer but, sadly, buyers did not always receive that protection and the ability to market these properties with these ‘guarantees’ could well be helpful. Whether it will increase overall sales or just capture a bigger percentage for these developers is more debateable. A related idea, from the same source, to create a new portal for new Spanish property on sale by developers seems less well conceived, especially if it does not involve and enjoy the support
of the local estate agents.
3. New Markets Although the British are still the largest group of buyers in Spain (Fig. 8), other markets are opening up. The Russians are buying in large numbers (now the fourth largest group) and the Chinese, in search of bargains and trophy properties, have come from nowhere to be number 9 in the league table. Yet there are misgivings in Spain
about these developments. They do not wish to import social problems and hidden costs and they do not want to end up with too many eggs in one basket. As a result, a lot of effort is being put into revitalising the ‘classic’ markets.
4. Immigration
In many parts of the world – including China, India, Russia and parts of the Middle East – a property purchase becomes much more attractive if it is linked to the right to live in the country. Spain’s entry into the group of nations
CRISIS IN SPAIN | 37
that grant residence visas based on investment refl ects this new reality. What is interesting is that they are
proposing an entry cost that is very low – certainly the lowest in Europe. €160,000 is a real bargain – though the sort of people presently buying for this purpose has no diffi culty fi nding a lot more money in order to do so. Does this mean that Spain is targeting a whole new (and lower level) group of foreign residents?
Summary Last summer, large parts of the Costa del Sol were devastated by forest fi res. Hundreds of hectares of burnt out trees; homes reduced to ruins and some deaths. Yet now new life is emerging from
those burnt out stumps. Green shoots give hope for the future and the damage sustained, whilst serious, looks less grave than it did in the summer. Can the same be said about the Spanish property industry? Are the trees a metaphor?
Fig. 9 - Housing Price Index (HPI)
Annual Evolution of General, New Housing and Second-Hand Housing
Period
Q2 2012 Q1 2012 Q4 2011 Q3 2011 Q2 2011 Q1 2011 Q4 2010 Q3 2010 Q2 2010 Q1 2010 Q4 2009 Q3 2009 Q2 2009 Q1 2009 Q4 2008 Q3 2008 Q2 2008 Q1 2008 Q4 2007 Q3 2007 Q2 2007 Q1 2007
Annual rate of the general index
-14.4 -12.6 -11.2 -7.4 -6.8 -4.1 -1.9 -2.2 -0.9 -2.9 -4.3 -7.0 -7.7 -7.6 -5.4 -3.0 -0.3 2.8 5.7 9.2
11.6 13.1
Annual rate of new housing
-12.8 -11.8 -8.5 -5.0 -5.2 -1.9 -2.1 -2.6 -1.7 -4.2 -5.1 -5.6 -3.9 -2.0 0.8 3.7 5.3 7.2 9.8
11.4 13.3 13.3
Annual rate of second-hand housing
-15.7 -13.3 -13.7 -9.6 -8.3 -6.3 -1.6 -1.8 0.0
-1.4 -3.5 -8.3
-11.2 -12.5 -10.7 -8.6 -4.9 -0.7 2.4 7.5
10.3 13.0
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