Spain Real Estate News

To the rest of the world it became known as the subprime mortgage, but in Spain it is remembered as the "welcome mortgage." It was specially designed for immigrants in 2005, at the height of the property boom, by Spanish mortgage brokers such as CreditServices. With nothing more than a three-month work record in Spain, these companies offered new arrivals to Spain mortgage loans that covered 120 percent of the value of a property. All the costs, fees and commissions would be covered by the loan, and the buyer would become a Spanish homeowner without having put down so much as a cent. The loans were organized through US companies, none of which had any physical presence in Spain, preferring to use fronts such as CreditServices instead.

At one point, the company was signing around a thousand such mortgage deals each month. The US banks behind the scheme were particularly interested in the profile of CreditServices' clients because they were in no position to negotiate and accepted higher interest rates than those offered by Spanish banks, or because they were unable to decipher the complex calculations that would see their repayments rise incrementally over the years.

What's more, the immigrants weren't about to bolt: they had come to Spain for good, says Javier López, the president of CreditServices. He adds that the company offered other financial products to a range of clients, and that at its peak, CreditServices had almost 600 branches throughout Spain. It now has just 80.

There are few better analogies for Spain's boom and bust economy than CreditServices. Its rise and spectacular fall has seen it go from mortgage giant - at its peak it had some 50,000 customers a year - to debt collector. "I'm adapting the business to new realities," says López, adding: "We have come up with some new products, but they aren't as profitable." Five years on from the collapse of the property market, López says that unless Spain's banks offer refinancing terms, some seven million home owners will end up defaulting in 2011. He should know - many of them will be his subprime customers.

In October 2007, at a conference to announce Banco Santander's quarterly results, the bank's number two, Alfredo Sáenz, addressed the issue of subprime mortgages. "Of course there are subprime mortgages in Spain," he said. "It stands to reason." He then went on to add: "The criteria by which mortgages are termed subprime in the English-speaking world can be applied to Spain."

Read more...

It will take until at least 2015 for the Spanish property market to absorb the 1.5 million properties currently on the markets, according to consultants.

There are around 1.5 million homes on the market, comprising of 683,000 new builds of which 473,000 are completed and 210,000 are still under construction, between 620,000 and 720,000 resales, plus another 200,000 that belong to banks, the annual Spanish Property Market Situation report by consultants RR de Acuña & Asociados shows.
 
This is much larger than official government estimates that currently stand at 688,000 homes on the market. But what is perhaps more worrying is the length of time it will take to clear this backlog.
 
According to the report it will take the market until 2015 to absorb the current supply but in some of the worst hit areas it could be 2017. The estimate is based on the premise that current demand takes up between 240,000 and 280,000 properties per year.
 
The report also indicates that real estate prices will fall on average by another 20% over the next five years, taking them back to where they were in 2003/04. Prices will fall by 15% in cities and could decrease by up to 30% in other areas.
 
It also estimates that half of the stock of building land won’t be needed until after 2020 and says that Spanish property companies are saddled with almost €260 billion of debt, around 25% of Spanish GDP. There could also be around a million jobs lost in the industry with 60% of the sector disappearing.

Read more...

The Inevitability of a Spanish Property Crash, article supplied by Fairhomes (Gibraltar) Limited

Despite the best efforts of the European Financial Stability Facility it was evident that even before the ink had dried on the Irish bail-out agreement that the contagion could not be contained.

Immediately nervous investors began looking to other Eurozone countries, such as Belgium, Italy, Portugal and especially Spain fearing the same issues that dragged Ireland down will resurface elsewhere. After all it was not the state’s inability to borrow (Ireland is well funded until well into 2011) but the inability of Irish banks to refinance their borrowing in the wholesale markets that triggered the bail out.

But could Spain’s banks face a similar problem?

At present the response from Spain seems to be bullish with the country’s Economics Minister, Elena Salgado telling CNN that the eurozone’s fourth biggest economy has “absolutely no need” for an Irish style rescue. This was then followed by the extremely brave statement of Snr Zapatero that speculators betting short against Spain would “lose their shirt” and that the government is already doing enough to avert a debt crisis.

Whilst this may seem like an admirable attempt to re-assure and calm the markets it ignores the hard facts that underlie the current situation. Barclays Capital reckons that combined, the Spanish sovereign and Spanish banks need to raise €73bn in the first four months of 2011, some half of it in April 2011 alone.

These figures in isolation don’t seem to point to bail-out territory but when you take into account the fact that Spanish bond yields are at their highest in 8 years it’s clear that more than words are required to attract investors. The speed of the increase in yields from 4% to 5.2% in a month is a dramatic shift for bond markets which usually move in small doses. It means Spain’s bonds are slumping in value and holders are dumping them as they’re worried they won’t get all their money back.

So what is it that is spooking these investors? The country has made big efforts to scale back spending by central government and the national debt this year will be 60% of GDP – not great but not as bad as Ireland’s near 100%. But as Victor Mallet points out in the FT there’s a lack of clarity about the figures as despite the “strict limits” the debts of the country’s 17 autonomous regions (104.8 bn euros) account for over half of the public sector deficit which makes it much more difficult for the central government to impose reforms. “Spanish sovereign risk is increasingly at the sub-national level” says Nicholas Spiro of Spiro Sovereign Strategy and several regions including Catalonia and Madrid have such financial difficulties that a recovery seems unlikely given the economic stagnation and sluggish growth forecast for Spain.

It’s also in the regions where the problems for the banking systems lie. Spain experienced a huge property bubble, accompanied by a huge rise in private sector debt, and fell into recession when that bubble burst. But whilst the larger national banks such as Santander were well capitalised (and even in a position to acquire troubled foreign firms), in the regions the cajas (regional savings banks) have accumulated vast exposure to the construction and development sector. When the big two banks (BBVA and Santander) put the brakes on in 2006-07, the cajas continued lending more keenly, tapping wholesale debt markets to fund themselves. That alone makes them higher risk. But the savings banks also supplied about half of the €318 billion borrowed by Spain’s property developers. These loans now represent about a fifth of the cajas’ assets, according to Santiago López Díaz, an analyst at Credit Suisse. They are deteriorating fast.

So now the cajas are undoubtedly facing the grimmest outlook for sometime in what is already an extremely volatile situation. The results of the stress tests earlier in 2010 were supposed to have calmed fears but investigation revealed that much of the supposed liquidity in the regional banks was due simply to the over-valuation of much of their repossessed housing stock. A recent survey by the Economist estimated that Spanish property is still over-valued by 47.6% which suggests that a painful correction is on the way.

Read more...