Sales of second-hand housing in Spain plummet

Sale of ‘used’ housing suffers biggest drop so far this year

According to the Spanish National Institute for Statistics (INE) only 17,747 people managed to sell their used flats or houses in the month of August which is half the number compared to the same month last year.

The sharp fall in the housing market in Spain appears to have affected the used housing market more than new construction. Not only is it more difficult to sell a used house or flat but banks are less willing to concede mortgages for this type of housing.

However, the market for new houses and flats has also been affected and in August the sale of these fell by 37% compared to the same month in 2007 which appears to support the theory that far from being over the slump in the Spanish property market is deepening even further.

The number of mortgages conceded by banks fell by 37% in August and the amount of capital lent also fell by 42%. This is the second time that the average amount lent for mortgages fell – the average mortgage in Spain is now 137,657 euros which is an important indicator that property prices are falling in Spain.

The crash has also affected the number of building permits issued to architects for the commencement of new buildings. These have dropped by 59% (to just over 199,000). This is further negative news for the Spanish housing market because these permits are seen as an indicator for the future evolution of the sector.

It is estimated that there are currently around 650,000 unsold houses or flats on the market. This figure was confirmed by Beatriz Corredor, the Housing Minister, in the Spanish parliament yesterday. She said that it should take around a year and a half for the number of unsold properties to be ‘absorbed’ by the property market. She added that the solution was in the hands of property promoters who needed to adjust their profit margins in accordance with what she called ‘the logic of economics’ .

Spanish government presents new Housing Plan

Today the Beatriz Corredor, the Minister for Housing, will present the new Plan de Vivienda 2009-2012 in the Spanish parliament. The new Plan includes proposals for the construction of more subsidised housing (Vivienda de Proteccion Official – VPO). However, this time the government plans not only to help families with low income but those with average incomes too.

The Consejo de Administración de la Entidad Pública Empresarial de Suelo (Sepes) is expected to approve the government’s offer to buy land from construction companies which aims to spend 300 million euros on acquiring land destined for subsidised housing.

The offer to buy land prioritises urban areas in larger towns and cities where there is more need for subsidised property. It also gives preference to land where construction can take place more quickly.

Although regional authorities decide the size of subsidised houses under the new Plan de Vivienda the government has proposed to rent or sell houses and flats with a minimum size of 30 metres squared (m2) for two people which would go up by 15 metres for each extra member of the family. The draft plan also proposes a maximum limit of 90 m2.

The new plan also proposes stricter controls by Public Administration to avoid fraud when the houses are allocated. It proposes that a public register is created which would guarantee the allocation of housing based on the principles of equality, transparency public control.

Under the new plan separated and divorced couples are included in the list of those with special need of housing. In addition, all housing built under the plan would remain protected housing for at period not less than 30 years.

The draft plan also includes details on incomes considered eligible for special VPO housing. This would be not more than two and a half times the Indicador Público de Renta de Efectos Múltiples (IPREM) - 1,292.25 euros a month per household for special housing.

For housing under the general VPO scheme the maximum income is reduced to four and a half times the IPREM - 2,326.05 euros a month per household while this rises to 6 and a half time the IPREM – 3,359.85 euros for concerted housing.

The new housing plan also included proposals for the rehabilitation and renovation of urban areas.

Mortgage borrowing falls in Spain

Mortgage borrowing falls for the first time in 16 years

According to the Bank of Spain, the amount of money that Spaniards owe financial institutions for their mortgages fell by 0.05% between July and August this year. In August Spaniards owed 1.058.304 million euros for their mortgages - 500 million less than in July.

This percentage fall is not spectacular and points to a stagnation in the housing market and changes in tendencies which contrast to previous years. During 2007 mortgage borrowing grew at a rate of 15.27% and in 2006 it grew by 24.54%. However, the fall is significant due to the fact that since the Bank of Spain has been collating these statistics mortgage borrowing has only fallen on two previous occasions (January 1992 and January 1988).

The warning arrived yesterday from the Spanish Mortgage Association (la Asociación Hipotecaria Española - AHE) which has been collating similar statistics since 1992. It registered the first fall in August since January this year. AHE stated that the cause of the fall in mortgage borrowing was down to the fact that the rhythm of paying off mortgages continued at a steady rate while the number of new mortgages conceded has gone down due to the negative effects of the financial crisis.

State expropiation of coastal properties in Spain

London and Berlin put pressure on Spain against ‘Ley de Costas’

The British and German embassies in Madrid have had high level meetings to discuss numerous cases where their citizens have had their properties expropriated by the state under the Spanish ‘Ley de Costas’ passed in 1988.

Recently both embassies have received complaints by their citizens who own houses in costal areas of their properties and land being taken over by the Spanish state. Many of these properties were built in the 1970’s but the ‘Ley de Costas’ states that all the Spanish coastline is ‘public maritime territory’ and that no house or swimming pool can be built on it.

However, during the 1970’s a lot of properties were built on the coast. In this case the law states that after 30 years the land will become the property of the state, a period which can be extended to 60 years. In order for this to be legal the State department ‘Costas’ has to define the areas under question. The ‘Ley de Costas’ gave a 5 year period in which this demarcation should take place. Nevertheless, 20 years later there are still 1,8454 kilometres of coastline (17%) that have not been clearly defined.

Many problems are now coming to light with cases of foreigners who have bought their properties in good faith and who are now being threatened with expropriation by the state. Furthermore, the British and German embassies have received complaints by people who were not warned of this law or its consequences when they signed their property deeds in the presence of a Spanish ‘notary’ whose job it is to check the details of a sale and alert the buyers of any possible problems. The Environment Ministry has recently announced that it is preparing an agreement for property registrars and notaries to make sure that the obligations of the Ley de Costas is reflected clearly in all property deeds.

Although the ‘Ley de Costas’ was passed in 1988 it was not until 2004 when Cristina Narbona became Minister for the Environment that it began to be applied vigorously. In fact under the PP government demarcation of coastal areas came to a standstill between 1996 and 2004. Since then thousands of Spaniards and foreign citizens have seen how their houses on the coast have passed into the hands of the state.

British and German officials who have held high level meetings with Spanish officials in order to try and get a clarification of the law have not received much sympathy. In a interview for El Pais the General Director of ‘Costas’, Alicia Paz, said that in a recent meeting with British officials ‘they wanted more technical information on the law and its application but all added that they shared the spirit of the law’.

People affected by the ‘Ley de Costas’ are getting organized and have created a national platform for those affected. Its president, Carmen del Amo, has calculated that there are around 45,000 properties that could be affected by this law, 15% of which are owned by foreigners. Nevertheless Paz Antolín, the Minister for the Environment, appears unsympathetic saying that the government has won 97% of case that have reached the Spanish High Court.

The controversy over a law which was passed 20 years ago and which was not applied for 8 of those looks set to continue. However, Paz Antolín has confirmed that the government does not have any plans at present to reform the law and said that the Spanish parliament passed the law with the intention that everybody should have the right to enjoy free access to the Spanish coastline.

Second-hand housing market in Spain

The price of second hand housing has gone down by 13.8% since last year
According to a report by Tecnocasa in collaboration with the University of Pompeu Fabra the price of second hand housing went down by 13.8% between June 2007 and June 2008.

Out of all the areas included in the study the four most expensive in terms of price per square metre (m2)in the first quarter of 2008 were: Barcelona (3,769 euros), L'Hospitalet de Llobregat (3,548 euros), Madrid (3,470 euros) and Bilbao (3,190 euros). According to Tecnocasa, the cost of second hand housing is more expensive in smaller flats than in larger ones.

The profile of an average flat in Spain was found to be 65.53 m2 with 2 or three bedrooms on the third floor in a building which was 40 years old.

The smallest flats in the study were found to be in L'Hospitalet de Llobregat (59.36 m2), while larger flats were found to be in Malaga with over 77 m2.

With regards to the age of buildings the oldest ones were in Barcelona and Bilbao, 48.72 and 46.80 years old respectively – both cities were found to have the oldest houses and flats on the property market which was probably a consequence of the fact that the impact of new construction has been far less in these two cities compared to other places included in the study.

The report also showed that the average time it takes to sell a flat has gone up by 15 days from 120 days in the first quarter of 2007 to 135 for the same period in 2008.

L'Hospitalet de Llobregat was found to be the area where less days were needed to sell a flat (86 days). On the other hand in Málaga and Sevilla the average length of time it took to sell a flat was found to be 160 days. In Madrid and Barcelona it was found to take 149 and 102 days respectively.

The profile of the average buyer is a person between 25 and 35 years old with a permanent job, single with Spanish nationality with a monthly net income of less than 1,500 euros who acquires a property with another person.

The average mortgage conceded was 167.404 euros over a 40 year period which represents 79.99% of the value of a property. This means that the average mortgage has gone down by 9.82% since the same quarter in 2007 when the average mortgage was 185.642 euros. Areas where larger mortgages were conceded were Barcelona (228,241 euros), Madrid (198,117 euros) and L'Hospitalet de Llobregat (195,568 euros). On the other hand the lowest average mortgages were conceded in Huelva (120,256 euros).

The report also found that the number of people with Spanish nationality who applied for a mortgage has gone up by 14.49 points over the last year which means that 87.50% of people who applied for a mortgage for second hand housing are of Spanish nationality. In contrast during the first quarter of 2008 only 12.5% of mortgages were taken out by foreigners compared to 36.63% a year ago.

Spanish property market slide

Value of property in Spain down by 4.9% in September

The Spanish property market continues to be in a state of turmoil. Sales are down, permission for new projects are also down and the value of property keeps on falling. According to statistics by the property valuation company Tinsa the value of property dropped by 4.9% in September alone, a signal that the downward spiral in property prices that started in February this year is continuing.

In fact if the first 9 months of this year are used as a reference the value of property has gone down by 5.9% - this reduction is more pronounced in metropolitan areas where the property boom was most apparent.

In its report Tinsa also highlighted the fact that the stock of unsold properties has risen by 110,000 in the second quarter of this year and now stands at 680,000. According to its calculations the number unsold new housing stock in 2008 is around 930,000 properties.

Furthermore, Tinsa believes that this figure is likely to go up even further until the middle of 2009 and it will take at least two more years for the stock of unsold new flats to be absorbed into the market.

On the other hand, one important factor that affects property sales is the Euribor which has gone down once again. This appears to confirm the downward tendency two days after interest rates were cut to 3.75%. Successive injections of liquidity have also affected this indicator which closed at 5.358% compared to 5.425% yesterday which places it below 5.4% for the first time since the middle of September.

However, the Euribor is still above the levels for this time last year which means that mortgages will go up once again if the reduction in this interest rate index are not consolidated by the end of this month.

Subsidised housing in Spain

The Housing Ministry has confirmed that the construction of up to 225,000 subsidised homes could begin immediately on land owned by town halls and regional governments throughout Spain while another 400,000 could be built between 2009 and 2012. To these figures another 70,000 houses need to be added which would be built on land owned by the state.

These official figures are significant in determining the viability of the government’s proposals for the New Housing Plan for 2009 -2012 which included massive figures for the construction of up to 1,500,000 new subsidised homes (vivienda de protección official – VPO) over a 10 year period announced recently by Beatriz Corredor, the Housing Minister.

Pedro Castro, the president of the Federación Española de Municipios y Provincias (FEMP), has not commented on these figures saying that his organisation is on the point of presenting its own study on land available and only after this can a valuation of what different town halls are capable of can be made. However, Castro supports the idea of the construction of more social housing saying that now is the time for town halls to contribute to economic development and the creation of more housing and employment.

According to Castro promoters, construction companies, unions, businesses and the government should all cooperate in order to meet the figures for the construction of new social housing (VPO). He said that there was a lot of land available and not to act would be ‘incomprehensible’. The announcement comes at a time when many construction and real estate promoters in Spain are experiencing severe economic difficulties in the face of the current crisis.

Despite the abundance of public land there is still an imbalance between the existing demand and the number of VPO houses planned or already under construction.

Specifically, the imbalance in Madrid is around 114,500 people on the waiting list for subsidised housing compared to 34,680 houses which could be built immediately. There is a similar situation in Catalonia with 200,000 people on the waiting list and just 25,730 houses being or about to be built. In the Valencian Region there are 123,000 people on the list and 11,225 houses and in Andalucía there are 116,000 people on the waiting list and 37,122 houses planned.

The debate between the government and major construction companies over their involvement with the ambitious plan to build up to 625,000 new VPO houses over little more than 4 years is on going. Some experts believe it will help the construction industry during difficult times and others believe it could be counterproductive to the interests of private companies in the long term.

There is also debate surrounding the terms of VPO housing. What is clear is that the new Housing Plan 2009 – 2012 which will shortly see the light will need to address these and other complex issues surrounding the question of housing in Spain

Investment of Spanish banks in Real Estate

Spanish banks investing in properties once again

It appears that Spanish banks are turning to investment in property in the middle of the crisis in the property market in Spain. The decision to inject money into properties and estate agents’ is partly a result of an effort to keep the property sector from crashing further and a worsening of the situation. It is also an attempt to prevent large numbers of companies linked to the construction industry and the property sector from falling further into arrears.

Nearly a third of all credit conceded by Spanish banks is used for purchasing properties and companies in the sector owe 313.176 million euros to the banks. Some banks like Banc Sabadell or La Caixa are injecting money into their affiliated estate agents’ and others like Banesto are creating societies linked to property promoters while the majority such as Santander or the Banco Popular are buying up properties.

The biggest injection of capital into the property sector has come from the Banco Santander, which in the first quarter of this year invested 1,200 million euros in the adquisition of property. Sources speaking on behalf of the bank say that it is a strategy aimed at reducing non-payment of loans. It says that before a company has to call in the administrators it prefers to acquire assets and give the company breathing space.

Josep Prats, director of the patrimonios de Ahorro Corporación, has estimated that between 15 and 20% of all credit conceded by banks has gone to estate agents’ or construction companies. He says that there are now around 1.5 to 2 million flats unsold on the property market and half of them are in the hands of investors and the other half in the hands of promoters. He says that when an property investment company goes to the bank for help the bank can refinance the total amount of the debt but often opts for acquiring assets which do not render a profit until they are resold.

For example, the property investment company Fbex, is hoping to refinance 600 million of the 1,500 million euros that it owes and it has been selling off its assets. According to some sources in the sector the Santander bank has recently bought a property belonging to Fbex in the centre of Barcelona for around 30 million euros.

Caixa Catalunya has also admitted to acquiring assets from Fbex. Habitat, another property investment company has also been selling off its assets to banks.
Banco Popular and Banc Sabadell have also acquired assets valued at over 300 million euros. Furthermore, Sabadell is rebuilding part of its former affiliated estate agents’, Landcape, which is sold to Astroc. Sabadell has reinstated the former director of Landscape, Salvador Grané, andi s now looking for a new name for the new company.

Banesto has entered into a joint venture with Reyal Urbis in order to give a helping hand to Promodomus which lost 331.75 million euros in the first quarter. On the other hand, La Caixa, has decided to come to the aid of its affiliate, Servihabitat, by increasing its capital by 500 million euros.

It is becoming more and more common for banks to help out their clients by buying their land or property and forgetting the credit.