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Spain Property: A Buying Window?

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Spain: A Buying Window? Maybe Not Yet

- "May not Yet", we said in April 2013

Barcelona looks cheap to some
Barcelona-008.jpg

Here in HK there's a magazine called Square Foot, and the latest edition (April 15-30th) includes a cover story:

BARCELONA : Europe's Hidden Real Estate Gem

The argument in favor of buying property sounds compelling, at least in comparison with buying in overheated London, or in expensive Hong Kong:

Prices are well off the top:
"Average prices in Barcelona have fallen 30% since the Global Financial Crisis and now sit at roughly where they were in 2004."

Other bulletpoints in favor :

+ Barcelona is a cosmopolitan centre of commerce and culture (2mn people, 4th highest city for GDP in Europe)
+ Foreign buyers are coming in: French spooked by tax rises. Foreigners may get residency permits
+ Cheap by comparison:

 

EUR / the EUR in USD ... update : $1.113 at Mar. 4th, 2015

EUR_zpstr5s6nef.gif

 

Cyclical downturn since about 2008

PropertyCycles_zpsxerohade.png

AVERAGE PRICES :
Central London - Eur. 1,255K = GBP 1,065K (?? )
Central Barcelona - Eur 457K

+ Interest rates can be as low as 1.25% (really?), with much higher yields

Travel Times from Barcelona:
+ Madrid ----- : 1 hr., 15 mins
+ Paris ------- : 1 hr., 35 mins.
+ Rome ------ : 1 hr., 40 mins
+ London ---- : 2 hours
+ Hong Kong : 15 hrs, 45 mins

These points make it sound attractive, but I have a raft of questions.

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Daily telegraph: S&P sees deepening house slump in Spain, France and Holland

 

Article describing how Spainish prices are likely to fall by 13 percent this year as the banks dump property on the market and what's also happening in Holland,France and ireland. How long is it going to be before UK and especially London prices are going to look stupidly out of sink with Europe? Also if any of these countries break free from the Euro and go back to their old currency property in Europe could look comparably very cheap for international investors

 

(Excerpt - Comments on Spain):

 

S&P said Italy, Portugal and Ireland will all see further falls this year but the chief worry is :

Spain, where a vast glut of unsold property has yet to hit the market.

Spanish prices have already dropped by 28pc from their peak in March 2008 - or more some estimates - and face a fall of 8pc this year and 5pc next year as the Spanish "bad bank" Sareb gradually sells its stock of 91,000 foreclosed homes.

Experts say the key reason why Spanish prices held up well in the early years of the crisis is that banks held onto foreclosed properties from bankrupt developers rather than take losses immediately and “clear” the market.

 

This began to change in 2012 as Santander, BBVA and other banks rushed to liquidate their portfolios before the onslaught from the nationalized banks folded into Sareb. The Spanish authorities have ordered Madrid to accelerate the pace of Sareb sales as a condition of the EU bail-out in July 2012.

Madrid consultants RR de Acuna said last December that there are almost 2m properties waiting to be sold, including 800,000 used homes on the market, and 700,000 units on the books of developers, 450,000 seized or in foreclosure and 250,000 still being built.

 

The group said prices are likely to fall a further 30pc in Madrid, Barcelona and other big cities before touching the bottom in 2018, with even steeper drops lasting a decade in some of the coastal areas that ran wild during the bubble. It said acres of concrete would have to be torn down and returned to pasture.

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Interesting contrast - in the charts for French and German properties

 

angelyt.jpg

 

Germany is marching to an entirely different tune from the rest of the eurozone. S&P said prices rose 3.5pc last year, and will rise 3pc this year and again in 2014. The German economy is at the other end of the property cycle with price-to-income ratios still just 80pc of historic levels.

 

Germany - A New Tune ??

 

(

)

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So you say NO, to the Costa del Crime ?

Yes.

 

So you say NO, to the Costa del Crime ?

Agreed.

But is is hard to get much info on the German market.

 

(More downwards pressure? Austerity may not go away):

 

EU Sees Spain Deficit Rising in 2014 Without Further Budget Cuts

Businessweek - ‎2 hours ago‎

The European Commission said Spain's budget deficit, the widest in the European Union, will increase next year unless the government implements more austerity measures.

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Hallelujah, Spain is recovering

ambrose-new.jpg

 

Ambrose Evans-Pritchard / July 19th, 2013

 

spaininjection_1909313b-460x288.jpg

 

Spanish Finance Minister Luis de Guindos assures us that his country has beaten the crisis and will soon be recovering nicely. "The recession is already behind us," he said.

I wish him the best, but this is what loan growth looks like in Spain (courtesy of Miguel Navascues at Ilusion Monetaria):

spain-loans.png

The IMF has downgraded its economic growth forecast for Spain to minus 1.6pc this year, and zero next year. The depression grinds on, and on, and on.

I nothing further to say other than to note that property prices fell 7.8pc in the second quarter from a year earlier, and are now back to 2004 levels (nominal, minus 30pc real).

 

Bargain hunters are emerging, but bear one thing in mind. Property Consultants RR de Acuna in Madrid say there is now an overhang of 2.2m homes either on the market, or held by banks, or in foreclosure proceedings, or still being built (presumably mostly in the less depressed areas liked the Basque country or Navarre). I can't vouch for these figures, but the firm has been much more accurate about the true disaster in the property market than the cheerleaders in the banks, or the government.

 

2.2m is a lot for a country with annual market of 240,000, and a shrinking population (down 0.7pc last year as the young emigrated). Give it a decade.

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" I am actively looking for a property in Spain now as prices are nearly 50% off the 2008 top - the Euro is weak..."

- Leviathn

 

Sounds like a good move.

We need to revive the old thread on Spanish property. (maybe Portugal too)

 

What can you get for your money?

Are taxes heavy for foreign buyers?

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A few links to articles below including the usual property industry bullishness to give an idea of sentiment.

 

 

http://www.realinstitutoelcano.org/wps/portal/web/rielcano_en/contenido?WCM_GLOBAL_CONTEXT=%2Felcano%2Felcano_in%2Fzonas_in%2Fcommentary-chislett-why-is-spain-recovering-faster-than-expected#.VPRgQkezJsI

 

http://spanish-property.net/say-spanish-property-market-recovering/9385/

 

http://www.bloomberg.com/news/articles/2015-03-03/british-lead-charge-as-cheap-spain-beach-homes-sell-real-estate

 

http://cincodias.com/cincodias/2015/02/25/economia/1424871182_734940.html

 

I split my time between London and the South of Spain and can spent last week travelling to Madrid and Seville. My observations are that in both Madrid and coastal areas there is more evidence of building work than at any time in the last 7 years. In the South properties are selling at 50% of their 2008 values eg 4 bed larger Euro 600,000 villa now selling for Euro 310,000 and 3 bed townhouse sold for Euro 340,00 in 2007 sold at low for Euro 185,000 and now recovering to recent sales above Euro 210,000. Prices have fallen further in predominantly Spanish areas. The sale to expat market seems to have recovered better than the predominantly Spanish apartment market where there is more evidence of distressed sales still occurring. Property is still not cheap by metrics comparing to rent eg gross rental yields are around 4% and transaction costs are also expensive at around 12% of purchase price. Build quality is also highly variable so you need to be careful with what you are buying.

 

I think we are now heading for a slow recovery as the first part of the 18 year property cycle takes place - with a further 2-3 years of stabilising prices through to circa 2017-8 before the market starts to take off again. The main risk now is currency risk with the euro under pressure for the foreseeable future.

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SPANISH PROPERTY STOCKS : Then and Now

 

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Prices and number of houses built.

 

According to the reports of the Bank of Spain, between 1976 and 2003, the price of housing in Spain has doubled in real terms, which means, in nominal terms, a multiplication by 16. In the period of 1997—2006, the price of housing in Spain had risen about 150% in nominal terms, equivalent to 100% growth in real terms. It is stated that from 2000 to 2009, 5 million new housing units had been added to the existing stock of 20 million. In 2008, the real estate market started to drop fast, and house prices decreased dramatically by 8% in that year. In the period of 2007-2013, Spanish house prices had fallen by 37%. Each year almost a million homes were built in Spain, more than in Germany, France, and England altogether.

Real estate debt

 

Spanishdebt_zpsa7idfmol.jpg

The housing bubble was fed by the credit to private sector (individuals and developers), which led to a significant increase in private debt (blue) stopped with the international financial crisis, ending the speculative process.

One of the main effects of this situation is the growth of household debt. Since usually the purchase of housing, whether to live or to invest, is made from mortgage loans, the price increase implies an increase in debt. The indebtedness of the Spanish tripled in less than ten years. In 1986 debt represented a 34% of disposable income, in 1997 it rose to 52%, and in 2005 it came to 105%. In 2006 a quarter of the population was indebted with maturities of more than 15 years. From 1990 to 2004, the average length of mortgages increased from 12 to 25 years. The Bank of Spain reported that household savings in 2006 has been overwhelmed by debt.

In fact, the Bank of Spain has warned each year about the high indebtedness of Spanish households, which according to the institution was unsustainable. The private debt stood at 832.289 billion euros at the end of 2006, an increase of 18.53% year-on-year, and reached 1 trillion euros by the end of 2010. The Bank of Spain also warned on the excessive indebtedness of the construction industry

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Based on THIS chart, I am targeting a low in the EUR of around $1.05,

with maybe a "retest" down to big support at $1.00:

 

EUR / the EUR in USD ... update : $1.113 at Mar. 4th, 2015

EUR1_zpsgwtst7qz.gif

 

The currency drop has helped property prices in some European countries:

 

In March, as reported in Reuters, hedge fund managers George Soros and John Paulson both took a €92m stake in a new Spanish property investment vehicle called Hispania. Soros also made headlines at the beginning of the year after buying shares in the Spanish building company FCC, and he has stepped up his investments in the Spanish real estate sector. These are reassuring signals that the crisis is gradually fading and a slow, but steady, recovery is on the horizon.

Manager of the SWMC European fund and founder of SW Mitchell, Stuart Mitchell, made his investments known in the Spanish property market back in 2012. The Fund’s investment objective is to ‘generate absolute returns for investors by investing both long and short in European equities’.

Mitchell sees further growth opportunities for the likes of construction firm Sacyr Vallehermoso, who have seen their shares prices soar amid the general recovery in European markets.
“This company has a development property business, but analysts ignored the quality of its book, tarring it with some of the disastrous developments seen on the Spanish costas,” Mitchell told Dan Jones of Investment Week.

“It was also clear analysts had written off Sacyr’s landbank [...] while we have made 100%-150% since initiating the position, we still see 50-100% of further upside to reflect a return to normality.”

Spain’s banks are bringing to light a different kind of opportunity by finally trying to strip property assets from their balance sheets.

==

> http://gasparlino.com/spanish-property-market-recovery/

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Interesting analysis on the Euro Dollar cross. Tony Caldaro expects the 2001 low to be repeated where 1 Euro buys 0.82 Dollars probably around 2017-2018. I agree there is strong chart and psychological support at 1:1 which will be hard to breach but if we break 1.10 we may well test there sooner rather than later.

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EUR is getting very close to that "possible support" near $1,05

 

EUR Today: $1.0686arrow_dn_sm.gif -0.0014

 

A$ is getting cheap too:

AUD Today: $0.7602arrow_dn_sm.gif -0.0023

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Home Prices Go Nuts in Barcelona

 

Since 2013, rents have surged over 50%!

A few blocks from where I live in the solidly middle class (but gentrifying) Eixample Dreta district of Barcelona, a newly renovated modernist building is about to be inaugurated. Outside the building is a huge billboard displaying some of the lavish charms offered by the refurbished apartments inside, including Jacuzzis, spacious roof terraces, a swimming pool, and an elegantly attired concierge. The images are headed with cheesy aspirational slogans like “Art, Prestige, Life” and “A Dream to Live In.”

 

Not a single word of the ad is in Catalan or Spanish, the two official local languages. Everything is in English.

These properties are not meant for local people — that’s not where the money is. The money is in the international market, whose insatiable demand for real estate in this increasingly popular global city has propelled property prices to bubblicious levels.

In the last 12 months in Barcelona, the median home price (half are higher and half are lower) has soared 21.7%, to €3,094 per square meter (ca. $350 per square foot), with double-digit increases across all of the city’s districts, according to data compiled by the property appraiser Tinsa. The biggest movements were seen in the city’s old town, which is ground zero for the city’s tourist industry. There the median price have skyrocketed 35% in just one year.

In Spain as a whole, the median home price rose just 2.7%. In a few other prime markets such as Madrid, Alicante or Tarragona, prices rose by around 10%, while in eight of Spain’s 17 autonomous communities — the Basque Country, La Rioja, Murcia, Castilla y León, Castilla-La Mancha, Cantabria, Extremadura and the Balearic Islands — median prices actually decreased.

Predictably, soaring prices in Barcelona are having a domino effect across the wider Catalan region as families are forced to seek housing in other nearby municipalities. The median house price in the province of Barcelona increased by 11.9% over the last year; across Catalonia, prices increased 11.3%.

This trend is happening at the same time as the cost of renting in Barcelona has reached historic highs. Since 2013, rents have surged over 50%!

One of the main reasons for this is that real estate owners and developers are refocusing their attention on meeting the much more profitable needs of short-term visitors. And short-term property speculators, domestic and foreign, are piling in, too.

 

==

> http://wolfstreet.com/2017/07/12/barcelona-house-price-bubble-foreign-investors/

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