Licences requested to build new homes fell more than 40% in 2012

Licences requested to build new homes totaled 41,606 units in the first eleven months of 2012, representing a decrease of 42.9% over the same period of 2011, according to the Ministry of Development. The year of 2012 will have closed with a record low in new builds with only 45,400 units taking into account the month of December will have had a similar result in applications.

This annual volume shows a decrease of 42% compared to the existing low of 78,286 building licences at the end of 2011. Representing only a nineteenth of the all-time high 865,561 building licences registered in 2006 when the sector was in full boom, thus stringing together six consecutive years of declines in the building of new homes.

Regarding requested licences up to November of 2012, 67% were for apartments built in blocks (27,939 units) and the rest (13,557 units) were for single family homes. Development statistics also reveal that during the first eleven months of 2012, 21,687 were licences to reform housing, down 26% compared to a year earlier, while the 2,341 were for extending structures, showing a decline of 14.6%.

Prices correct the overvaluation of the past decade

The evolution of housing prices in the last ten years has been very similar to the cost of living, around 30%. Thus, between 2002 and 2007 the average house price recorded a rise of 74% while the Consumer Price Index (CPI) stood at just over 17%. However, between 2008 and 2012 the behavior of these variables has been the opposite. While the (CPI) continued to rebound at about 11%, while the average price of apartments fell by 25%.

During the first five years the value of property rose nearly 4.5 times that of the cost of living. While during the next five years there was a correction in house prices which has resulted in values being much more correlated with the cost of living. According to data from the Ministry of Development, Unions and the National Statistics Institute (INE), housing prices clearly rose approximately 27% above inflation and wages since 1997.

Tourism helps boost property sales in coastal areas

The Spanish property market has not yet recovered from the bursting of the housing bubble and prices have continued to fall across the country. Most of the interest generated in the property market is targeted at properties that have problems or buyers who bring cash. In an economy that seeks to overcome the economic crisis and where the price drop of real estate has never been more significant ‘cash definitely seems to be the king’. Tourism is helping to attract foreign investment more than ever and in 2012 the number of tourists visiting Spain was up a million on the previous year.

Although property prices have been falling, the demand for Spanish properties from abroad remains buoyant. The fact that buyers can now purchase high quality assets at prices considerably cheaper has attracted much interest from those looking to buy a second home in the country. Buyers with money have also shown great interest in finding a way to take advantage of some truly exquisite properties at incredible prices.

Differences & similarities bewteen Nama and Sareb

Ireland may be the mirror which Spain is set to use to evaluate the evolution of its Bad Bank. Ireland set up the National Asset Management Agency (Nama) three years before the Spanish Bad Bank (Sareb) and the two entities have been created under the supervision of the European Union (EU). Some of the major similarities and differences between Nama and Sareb are: The Irish Bad Bank began only with toxic loans, while Sareb started with loans, property, ongoing developments and plots.

In addition, the Irish bank started with a smaller number of mortgages, which implies a lower management difficulty compared to Spanish entity. The Spanish bad bank will be the largest European real estate, by far.

As for the structure of assets there are substantial differences, according to International Financial Analysts (Afi). Nama started with no foreclosed assets, only loans that financed land, property developments in progress, and property.

Specifically, the distribution of the initial portfolio of Nama in November 2009 was: 19% of loans on land, 10% in developing real estate and 71% on finished product, of which 23% was in housing, 22% in offices, 20% in retail, 15% in hotels, and the rest in other real estate assets.

Housing loans accounted for 16.3% of the total, whilst Sareb has begun its journey earlier this year with an approximate burden of 20% in foreclosed properties of which 85% is concentrated in housing. The balance being loans whose net book value exceed 250,000 € calculated at borrower level.

As for the total number of loans, in its infancy Nama had fewer mortgages than that of its Spanish equivalent Sareb. Specifically, the number of loans with Nama is 772 and although no specific data is available, (Afi) estimates that the number with Sareb could reach 150,000.

Another difference between the two banks is that Nama has a greater geographic concentration than Sareb. 54% of the total portfolio is in Ireland, 32% in England, 4%, in Northern Ireland, Scotland 1%, other 1% in Wales and the remaining 8% elsewhere. The greatest concentration of loans to build took place in the cities of Dublin and London. However, the geographic distribution of Sareb’s assets is much more diversified. With 49% of the total concentrated in the province of Madrid, Barcelona and Levante. This implies greater difficulty of managing and finding an exit for the property assets.

Draghi Urges Spain to Persevere With Sacrifices

The European Central Bank President, Mario Draghi, has encouraged Spain and other southern European countries to persevere with their sacrifices. In a press conference when the central bank announced their decision to maintain the official price of money unchanged at 0.75% in the euro-zone  Draghi responded to criticisms that have been cast his way by, among others, the President of the Eurogroup, Jean Claude Juncker, on the harmful effects of an overdose of austerity.

The ECB President explained the reasons why the European Central Bank Council has maintained the interest rates in the euro-zone  saying that on this occasion the decision was taken unanimously, whereas in the previous session, just a month ago, the same agreement was made by consensus, because there were voices in favour of lowering the official price of money in order to stimulate growth.

“Conditions in financial markets have improved significantly, Draghi said, and capital inflows into the euro-zone are increasing; economic forecasts have been confirmed, although the pulse of the real economy remains weak.”

When asked in the press conference if he thought the worst was now over, Draghi based his optimism on real experience: “If there was a contagion effect in the debt crisis, he said – referring to the tensions that Italy and Spain suffered when the risk premium in both countries shot up almost simultaneously, and eventually spread to France – then I believe that there will also be a contagion effect in the improvement.”

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House prices in Spain continue to fall

House prices in Spain continue to fallThe credit rating agencies have it clear: the price of properties in Spain will fall further this year. Standard & Poor was the last of these companies to reveal its forecast for this sector in 2013. Standard & Poor are placing a drop of 7.8%, less than 15% predicted last week by Fitch. In addition, the U.S. firm sees no date for the recovery of the real estate sector in Spain.

The housing prices in Europe have a clear downward path. Thus, the agency Standard & Poor considers in its latest report entitled “Europe’s recession continues to drag down home prices in most markets.” It stipulates however, that these decreases vary and depend on the countries.

In the case of Spain, the chief economist at Standard & Poor, Jean-Michel Six estimates that the price of housing will fall another 7.8% this year and 6% in 2014. Six discards that there is possibility of a national recovery in sight. Furthermore, he believes that the high stock of unsold properties (between 700,000 and one million homes) will delay the recovery of this sector in Spain.

The bad bank Sareb grows

NamaThe bad bank, dubbed Sareb, has become a massive real estate. The entity has begun with a volume of 36,700 million euros in real estate assets from the four nationalized entities. It is expected to reach 65,000 million in 2013 when more assets from other troubled banks are transferred. This portfolio is twice that of the Irish bad bank Nama and stands as the largest European real estate, according to figures from International Financial Analysts (AFI)

Euro strengthens

A short time ago everyone was scrambling to dump all euro holdings as the euro crisis showed no signs of abating. Looking at the recent rise in the single currency, you would think that everything had been sorted out in the debt crisis region, with EUR/GBP hitting a nine month high with 0.8325 printed.

Against the dollar there were also more gains for the single unit as $1.34 was briefly hit.  The 17-nation euro rose to the strongest in more than a year versus the franc, again amid easing concerns about the European debt crisis. European Central Bank President Mario Draghi said on January 10th that the euro-zone economy will slowly return to health in 2013 as the region’s bond markets stabilize.