Spain Real Estate News

Spain’s property prices fall is set to continue in 2011.

Millions of Spaniards are trapped in debt, stuck with overpriced homes that are keeping household spending low, unemployment high and international investors nervous.

The bursting of Spain’s property bubble has left few winners bar those who have scooped up a bargain at forced auctions of luxury flats in deserted housing estates on the popular coasts.

“There is an entire generation of young Spaniards with a millstone round their necks that will have to work their whole life to pay for houses now worth half what they bought them for,” said Enrique Quemada, head of One to One Capital Partners.

Financial markets have kept Spain under intense scrutiny since the much smaller Irish economy — likewise crippled by a burst housing bubble — was forced to take an international bailout last year.

The premium that Spain has to pay to borrow on the bond markets has since eased to around 2 per centage points more than the euro zone benchmark, from just over 3 per centage points at the height of market doubts in November.

Spain’s efforts to contain its banking sector’s problems have helped.

Even so, Spain’s economy could be held back for years by the mortgage debt burden. House prices have fallen 17 per cent since late 2007, according to the Bank of Spain, which says they may have some way further to fall.

And many analysts doubt that tells the full story given that figures are based on housing valuations rather than actual sale prices. They say prices may have really fallen by 20-30 per cent so far.

“Looking at previous cycles, the experience of other countries, and indicators of affordability, the adjustment in housing prices could continue,” the central bank said in its monthly report in December.

Others are less cautious in their forecast. Broker Bernstein Research says house prices will fall by 8 per cent this year, while rating agency Fitch sees a 15 per cent divergence between offer and demand.

According to Bernstein, in 2006 Spain built 860,000 houses, more than in France, Germany and the UK combined.

The fall in house prices represents a “very significant” drag on growth in Spain, according to the central bank. The country managed to escape an 18-month long recession at the start of 2010, but the economy has since failed to pick up any significant momentum.

Today there are over a million unsold properties in Spain, and that oversupply will take years to absorb given the highest unemployment rate in the European Union at 20 per cent and much tougher mortgage lending conditions.

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Seven years ago, Marian Henderson moved to the south of Spain with £1m in her pocket.

But when — or perhaps that should be if — she finally makes it back to Britain, she will be lucky to do so with one quarter of that sum.

She's no spendthrift — the money she has lost has been on bricks and mortar.

Her home, a beautiful four-bedroom country house surrounded by orange groves, a swimming pool and stables, was once valued at £725,000. Today, it is on the market for just under £270,000.

'I have cut the price as much as I can,' says Marian, 62, who put the property up for sale shortly before her husband John died in 2007.

'But it doesn't seem to have made any difference. I am desperate to leave Spain, to get out of here. But the market has totally collapsed, and until I can sell my house, I cannot afford to leave.

'It is terrible because while I am here, I can hardly afford to live. I am surviving on the basic state pension and barely have enough to eat, let alone go out — I can go three or four days without speaking to another person.

'I am on anti-depressants and I tell my daughters that if I don't sell, they won't only be taking their dad's urn home but mine as well.'

Marian's is a desperately sad tale, but, unfortunately, it is not an unusual one. Across Spain, the British expat dream is fast turning into a nightmare.

Having left these shores in the hope of finding a better life abroad, a legion of Brits have instead found themselves caught in the midst of an economic storm.

The properties in which they invested have fallen in value by as much as 50% in the past four years. This is down to massive oversupply.

The Spanish government estimates there are 700,000 unsold new-build houses across the country. Of these, 400,000 are on the coast, the vast majority in the south of Spain where many British people have bought properties.

Take into account the fact that there are the same number of older homes being advertised for sale, and it is little wonder that experts are predicting prices will fall by another 20% on average over the next five years.

As the property bubble has burst, so the rest of the Spanish economy has suffered. The banks are sitting on vast amounts of bad debt, while the construction industry has collapsed.

Reports recently showed that of 60,000 property sector companies, 23,600 have gone bust, with debts of more than £100bn.

As a result of this economic turmoil, Spain is now in the midst of its worst recession for 50 years. A record 4.6m Spanish workers, or one in five, are now unemployed. This figure is the highest in Europe.

And if that weren't bad enough, many British expats, particularly pensioners, have been hit by the weakness of the pound against the euro. Where a £10,000-a-year pension would have been the equivalent of €16,500 nine years ago, today it is worth nearly €5,000 less.

Hardly surprising, then, that so many Britons are desperate to bail out and return home. Companies that specialise in exchanging large sums of money — such as the proceeds from a house sale — have seen a 50% increase in transactions linked to repatriations.

More would doubtless follow — if only they could sell their homes.

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The Olive Press can reveal that one of the beleaguered mogul’s company’s, MRI Property International, based in Florida, has closed down.

And at least one property scheme linked to MRI is being probed by the Florida State Attorney.

The development in question, Los Jardines Del Sol, was offered to British buyers as an off-plan investment despite apparently not having planning permission.

Prosecutor Stephen Menge told the Olive Press: “We have had a lot of complaints about Los Jardines Del Sol and our investigation is continuing.”

One buyer Denise Cutler revealed how she had lost her life savings in the development promoted by MRI.

She was taken on a buyers trip to Florida by the company in 2005 and persuaded to invest 70,000 euros in a luxury home which never materialised.

“We were told that there were only two houses left and if we did not sign there and then we would miss out and the prices would going to go up,” she said.

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In recent weeks, two Murcia-based property developers have announced grand plans for new build residential projects in 2011. One, Lake Argos, promises 500 ultra-modern detached homes in a nature reserve setting whilst Polaris World is adding 400 new units to its vast golf-led Murcia property portfolio.

Local real estate company, Mercers, wonders if this could be premature. After 14 years on the ground in the established resort of Camposol Golf in Mazarron, Director Chris Mercer has plenty of experience to draw on.

“The positive news is that these brave developers are showing confidence in the Murcia property market and the return of the holiday home buyer. I imagine that both entities feel that the market has bottomed, prices are indeed 50 to 60% off bringing them down to levels of a decade ago, and from here the only way is up.

"However, as an agent, we genuinely have little demand for off-plan property and in fact haven’t sold one in around two years. My concern is that the Paramount Theme Park has, in part, prompted the decision to launch these new builds and we may be just a little premature.”

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MADRID — They are officially banks but they have become Spain's main real estate agents, according to data from the country's banking sector which reveals the extent of their risky property assets.

The Bank of Spain had asked all 17 of the country's fragile regional savings banks, which account for about half of all lenders, to supply it with details of their exposure to the collapsed real estate market.

Unsurprisingly, the savings banks held far more risky assets than the main banks, based on a calculation of the figures last week by AFP.

The nation's seven main banks held 45 billion euros ($61 billion) in risky assets and the 15 of the savings banks that have so far published their figures had around double that, or 90 billion euros.

The difference is due to the huge amount of mortgage loans -- some 164.9 billion euros worth -- that the savings banks handed out during the property bubble, whereas the main banks only issued some 77.5 billion euros.

The savings banks are at the heart of market fears that Spain could need a bailout like the ones granted Ireland and Greece last year.

If the savings banks are unable to cope with losses from their exposure to the collapsed property sector, investors fear they will need massive government help.

But analysts noted that the total declared amount of risky assets, 135 billion euros, is much less than the Bank of Spain's estimate at the end of June, which put figure at at 180.6 billion euros.

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Beatriz Corredor, the Spanish housing secretary, promised new planning laws to end the confusion which has led to some British home owners being ordered to knock down their properties deemed to have been illegally built.
“Come here calmly, and trust in the system that we have and the transparency we provide,” she said.
“There is a very attractive offer on the table here, with prices significantly lower than two years ago, and you will certainly find what you are looking for.”

Her plea reflects growing alarm in Spain at the huge stock of newly built homes waiting to be sold - of which 400,000 are near the coast - since the country’s economic crisis began. Prices have tumbled by up to 40 per cent and banks and construction firms are desperate to recoup some of their investment.

In recent years, Britons have bought one third of all Spanish properties sold to foreigners. But many have recently been put off by horror stories of planning permission being retrospectively revoked and other complications, and the number of British buyers has slumped.

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MADRID, Feb 1 (Reuters) - A long-awaited clearer view of the enormous potential losses facing Spain's savings banks and signs efforts are being stepped up to return the sector to financial health got the thumbs-up from markets on Tuesday.

The Spanish 10-year bond yield ES10YT=TWEB spread over German benchmarks DE10YT=TWEB fell to its lowest level since November and Madrid share prices rose as bond investors digested hard data on the banks' exposure to the country's ailing property sector.

That helped maintain positive sentiment after the two largest of the privately held savings banks said in recent days they would seek to offload part of the financing burden onto stock markets via equity listings.

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