There is no universal answer to the question as to whether it’s better to buy now or wait because you’ll just end up joining in with a game with many variables. Disappointed?

What is certain is that the Madrid property market, just like that of Valencia and the Catalan and Basque regions, has its own peculiarities. It is not the same to do a property investment or buying in a town as in the capital, and within the capital, enormous differences exist between the offers that exist in the Salamanca district and that of Villaverde.

The property prices adjustment in course

The fact that the cost of housing continues to adjust month-to-month should not be overlooked, as it is for this very reason that the market is swamped with very attractive housing offers. You should analyse, in detail, the characteristics of the flat and place them in relation to the area in which the flat is located. These clues about the local market should help you in making the best decision.

Which districts or streets in Madrid do I look at if I want to buy a flat as an investment with revaluation expectations?

Madrid can count on certain districts which will always be in demand. It’s all about the more-established residential areas, specifically Salamanca, Chamberí, Charmartín, Retiro and certain parts of the city centre. You just have to look at the high level buildings which will best survive the test of time, just as Manuel Gandarias, director of the Office of Education at pisos.com indicates. “The location and condition of the building and home ownership are the two key factors.”

You may also obtain attractive returns from these districts within a short period of time, from the third of fifth year, whilst “if you propose a long-term investment, between 10 and 15 years, Tetuán and Usera have good prospects”, according to local property finders.

What three streets are at present the most expensive in the capital of Madrid?

Serrano, Velázquez and Castellana could be the trio of luxury property, but we must not lose sight of other streets either, such as Ortega and Gasset or Habana Avenue. The Salamanca district has always produced the most exaggerated prices, especially the quadrant between Alcalá, Príncipe de Vergara, Recoletos and Diego de León, closely followed by Chamberí with the area of Almagro, Alonso Martínez and Eduardo Dato.

What type of property is most in demand by buyers in the Community of Madrid?

Although not all potential buyers have the same needs, it is possible to imagine that standard housing prevails above everything else. For Isabel Gil, agent in Madrid, the most sought after flat measures at 100sqm, has 2/3 bedrooms, 2 bathrooms and, if possible, includes a parking space. We must also highlight the importance of a lift and common areas such as a swimming pool, gardens, gym and security, etc. The website, pisos.com, in its latest report on the most sought after housing in Spain, said that the most desired flat by its users is 90sqm and costs between €120,000 and €135,000.

What are the housing market expectations for 2013 in this region? Is this a good time to buy?

The price trend is still down, but they will become more and more temperate. In fact, in some areas, the discount rates recorded are minimal but they do show a slight upturn. Buy with the view to do up the property with some small modifications which allow you to put the flat up for rent quickly. The profitability may be low at first but if you buy the property at a good price and you expect a long-term return from it, then it’s a good option.

What is the average time required to sell a flat in the Community of Madrid at the moment?

The average for selling is about eight months. Excluding the current severe mortgage situation and job instability, there are two reasons directly related to the seller that do not help in lowering this ratio: the refusal to lower the price and the reluctance to go to a brokerage agency. “It all depends on what the owner puts in the hands of the professional, who values your home properly,” states a Madrid property finder, estimating that a property priced correctly and with professional advice is sold in three to four months, and they even give cases where the transaction is complete within a month.

Another property finder is also of the same opinion, placing the sales price as the main accelerator and assuring that “you can sell in 10 days, especially if the house is in a price band lower than those offered in the same area.” These experts also point to the opposing side: “We have customers who have spent more than three years trying to sell their house, and because they won’t lower the price, they’ll never sell.”

By how much did prices reduce or increase last year in the capital of Madrid?

The last quarterly report on sales prices second-hand from pisos.com recorded a fall of -6.50% in Madrid in March 2013 in comparison to the same month last year. Consulted brokerage agencies raise this percentage to 10%. Do not forget that the prices at which properties are advertised on property websites are not the final prices, since they would be pending subsequent negotiation between the seller and buyer.

Is this region one of the areas most affected by the property crisis? Why?

Madrid has not been one of the most devastated regions by the ‘property boom’ crisis and less still if you focus on just the capital. It is true that there have been many urban developments on the outskirts of the capital and in neighbouring towns, accumulating an important stock, but in other communities, construction fever was higher. The worst affected area has been the coast.

What is the average price of a flat in Madrid? And in the centre of the capital?

According to the website pisos.com, the price of a typical flat consisting of 90sqm in the Community of Madrid would be around €210,000, whilst in the centre, we would be talking €270,000. Bear in mind that it is not the same for a flat in the district of Salamanca, where prices would move into the €400,000, and for Villaverde, where the average is around €143,000.

100sqm, in the centre of the capital Madrid, facing outside, three bedrooms and renovated.
The district centre is in fact wide in price. It is not the same in Lavapiés as Cibeles. Nevertheless, the range in price would be between €300,000 and €400,000.

100sqm, in a district well served by public transport, facing outside, three bedrooms and renovated.

Madrid has an extensive public transport network, which means that all its neighbourhoods rely on excellent access, so other variables need to be considered, since a flat in Villa de Vallecas is not the same as one in Sanchinarro or Las Tablas.

The price range would be between some €250,000 and €350,000, although if we head in to residential areas of a medium-high standard, these prices would reach up to €550,000.
200sqm in the centre of the capital of Madrid with green area(s) and new builds.

New building sites are not abundant in central areas of Madrid. The majority of developments have been built on appropriate plots where buildings have been demolished.

It is limited land and very exclusive, therefore the prices are very high, between €800,000 and €900,000, or even more if the housing development is luxurious.

Apartment of 45sqm inside, in the capital of Madrid, fifteen minutes by bus to the city centre. Depending on the district, it is possible to find attractive offers in price. For neighbourhoods close to the centre, prices are more modest and we would therefore expect prices between €120,000 and €125,000. If you wish to buy in a more typical area, prices would be between €250,000 and €300,000.

Source: www.elconfidencial.com

Daniel Talavera www.thespanishbrick.com

In the third trimester of 2012, the cost of housing in Spain recorded a year-on-year fall of 15.2%, which represents the largest fall amongst all the European Union member countries: these countries also experienced an average decline of 1.9% respectively for the same period in 2011, according to Eurostat data, which has for the first time, published homogenous data regarding the progress of house prices of the EU’s twenty-seven member states. This negative percentage rose to 2.5% among the Eurozone countries.

According to data published by the European Office of Statistics, the year-on-year fall in house prices in Spain accelerated through the course of the year, given that in the second trimester of 2012 the rate was at 14.4% up from 12.5% in the first three months of 2012.

In quarter-on-quarter terms, the reduction in house prices in Spain was 3.7% in the third trimester, more than the average decline of 0.7% in the Eurozone and of 0.4% overall in the EU, only just behind the reductions of 4.2% and 3.7% observed in Romania and in the Netherlands respectively.

In short, amongst the member states whose data was available, the biggest annual increase in house prices were as follows: Estonia (+8.4%), Luxemburg (+7.1%) and Finland (+2.1%), whilst the biggest falls were recorded in Spain (-15.2%), Ireland (-9.6%), the Netherlands (-8.7%) and Portugal (-7.7%).

With regards to the second trimester of 2012, the biggest increases in house prices were recorded in Estonia (+2.6%), Latvia (+2.3%), United Kingdom (+1.7%) and Ireland (+1.6%), whilst the most pronounced declines were observed in Romania (-4.2%), the Netherlands (-3.9%) and Spain (-3.7%).

With the announcement of the data regarding the progress of house prices in the EU in the third trimester of 2012, Eurostat “is responding to the demand for comparable and reliable statistics” concerning the performance of the housing market at national level and within the EU.

“The growth of house prices is important for the purpose of our economy and for monetary policy, particularly for monitoring macroeconomic imbalances and the financial sector’s exposure to risk, as well as its relevance for households to measure price changes of the most important component of expenditure and the wealth of families”, explained the community institute of statistics.

Daniel Talavera www.thespanishbrick.com

The recuperation of the Spanish housing market will be very tied to the progress of the Spanish economy in upcoming years. The most recent facts from UN (United Nations) predict growth of the economy in 2014 but in 2013 it will continue dropping.

The Spanish economy will acquire 1.4% in 2013 and it will grow 0.8% in 2014, according to the report “Situation and Prospects of the World Economic Situation 2013” put out by economic experts from the United Nations.

The report places the shrinking of the Spanish Gross Domestic Product (PIB) on 1.6% in 2012 and it frames Spain’s situation in “a debt crisis that continues depressing the euro zone.”

“The sovereign debt crisis in the euro zone and the fiscal austerity programs in force continue being the dominant forces that depress the growth in the region,” affirm the authors of the report, who project an average growth of the countries that share the single currency of 0.3% in 2013 and of 1.4% in 2014.

These elements, added to the slowing down of outside demand and high oil prices, “predict some discouraging prospects of the future” for the Eurozone, says the UN, which nevertheless confirms the stabilization of economic activity in the first half of 2012 after the intense fall experienced in 2011.

Daniel Talavera www.thespanishbrick.com

Should I pay a Finder's Fee (FF) to source a Spanish property investment? Well, that is a good question now, given that the Spanish property market is supposed to be a buyer's market instead of a seller's market, as it is now in London, for example.

I am going to try to explain in the best way possible why I believe a FF should be utilized as a clever option in the current market situation studying case by case. Not always is going to work better than the classic agents’ commission but in this post you have some thoughts.

First, you might ask yourself: Why pay a FF to source a property in a distressed market with thousands of affordable and even cheap options? Well, the answer is that a proper sourcing option will save you all the time it takes to go through those hundreds (may be thousands) of options and will prevent you from getting a sub-prime option in terms of location, quality and exit strategy.  To pay an FF to a property source who receives dozens and dozens of properties in his inbox every week is a time and money saving option.

Second, an FF will provide a service that works in your own interest rather than in the seller's or agent interest or in a commission-type way.

Third, an FF will save you not just the time but the phone bills from dozens of phone calls trying to get your messages across to a Spaniard in case you want to do it by yourself.

Fourth, when paying an FF to get properties directly from sellers, this option will give you room for price negotiating. It is a proven fact that distressed sellers with a good property that suits clients from the UK and overseas are not always ready to give away a percentage to an agent for commission but are happy to negotiate the price with a motivated buyer. Many times I have found it easier to deal with sellers, who in the end, will sell the property for a lower price to the right buyer rather that selling it more expensively in order to pay a commission to the agent. This is why, in the current market, an Property Finder Fee agreement becomes a double win for the buyer-investor who will get the property for a lower price.

In other words, a Finder's Fee will narrow the search of a property customized to your needs, will save you time and money, and will potentially give you a better buying price.

In any case, the buyer always pay either the agent’s commission or the FF,  the most important is to find case by case what will work better for you.

Daniel Talavera www.thespanishbrick.com

The average price for new housing in the capitals of each province has gone down to 6.9% in 2012, situating itself at 2,212 Euros per square metre, so an average flat of 90 square metres would have a price of 199.100 euros at the present moment, according to a report by the Property Valuation Society.

Since the value of new housing reached its highest point, in 2007, their price accumulates an adjustment of 33.5%. This percentage equals, according to the Property Valuation Society to 50.4% of the assets revaluation, at levels, therefore, dating the beginning of 2003.

During 2012, the price of new housing fell in all the autonomous communities and in all capitals of province. The biggest descents, by communities corresponded to Navarra (-12.6%), La Rioja (-11.6%), and Castilla-La Mancha (-10.2%), the only regions where the price contraction exceeded two digits. The smaller descents, were recorded in País Vasco (-4.1%), Canarias (-5.2%), Galicia (-5,6%) y Asturias (-5.7%).

Regarding capitals of province, the lowest drop in the price of new hosing was observed in Pamplona (-12.6%), Albacete (-12.3%), Logroño (-11.6%) y Soria (-11.2%). According to the Property Valuation Society, the average price of new housing dropped in 2012 more than a 10% in eight capitals of province, while in 9 other capitals of province it dropped less than a 5% and in 33 of them it dropped between a 5% and a 10%.

San Sebastián, Barcelona, Bilbao and Madrid are the provincial capitals with the most expensive square metre price, above the national average of 2,212 euros, far away from Murcia, Cáceres, Badajoz, Pontevedra, Jaén, Cuenca, Lugo and Ciudad Real, capitals where the average value doesn't reach 1,400 euros per square metre.

Property Valuation Society predicts that the housing supply will continue to be important in 2013, despite the reduction in initiated houses, and that the demand will stay weak, save for some punctual exceptions. Likewise, it predicts that the start in functioning of The Society of Real-Estate Assets from the Banking Restructuration sector (Sareb) can have a "considerable impact" in the evolution of prices.

Daniel Talavera www.thespanishbrick.com

The National Institute of Statistics has reported that in Spain, property sales have jumped up for the second straight month. In September, they counted approximately 26,000 sale and purchase agreements. This shows a 1% increase in comparison with September of 2011.

This is good news since sales had been down for the past 17 straight months until August, and since the comparison of the two years is still showing a decline of 14.8%. Agents and owners just hope that 2013 will be a turning point in transactions after a few years of depression.
 
Professionals are not crediting this upswing to a positive change in the market, because they say that the increase is being caused from the tax breaks that are going to vanish in 2013 for buyers and the increase in the VAT on properties from 4% to 10%.
 
When comparing September of 2011 with September of 2012, we see that figures are rather similar. New properties in 2012 totaled 12,747, similar to that of September 2011. There was also only a 1.8% increase in the purchase of previously lived in homes, totaling 13,238 in 2012.
 
La Rioja and the Valencian community were the areas that saw the greatest increases in property sales.

Daniel Talavera www.thespanishbrick.com

The Spanish property market shows its good side to small investors and home buyers

The Spanish property market has two interesting sides to it now that the crisis is deepening and all eyes are watching the Southern European country.

The bad part is a crashed property market with prices going down and down, and an endless stock of properties that will be nearly impossible to even rent for the long term, and owners, developers, and banks regret having touched them during the boom.

Unfortunately, there is not a way to cover this up, and that is why the Government and entities have agreed to create what is called the “bad bank”.

The good thing about the market is the smile it is giving to investors, because it has quite a few interesting particularities, according to our recent research, after receiving dozens of enquiries from investors in the last weeks after the summer break.

1) Properties can be found below €120K and even €80K, with prices already hitting rock-bottom, plateauing with stable prices, in some locations of the main cities. This part of the market is the one that already delivers permanent demand in the rental market. These properties can be rented from the first month and the yearly void period hardly reaches 1-2 months. The bad side is that given the economic crisis, the rental income has already a top.

2) Improvement in yield because of the lower prices, which jumped from hardly 2% for those lucky investors in 2011 to the currently achievable 4.5% with a reasonable lower risk... not  bad for being Spain.

3) The current market allows property investors to enjoy a mortgage up to 65% LTV and to pay out of pocket up to GBP €25k.

4) The current property market allows investors, for the first time in nearly 20 years, to invest in Spain because the property prices are lower than ever.

5) The smiling face of the Spanish property market is the one that not only allows investors to buy-to-let straight away in an attractive location, but also, in the mid-to-long term, to be able to move to Spain with a profit of more than 40,000 pounds.

For these five reasons the Spanish property market is, more than ever, sweet for investors who understand that with a little investment there are many options and open strategies in the current market.

Gold Members: can view our latest Spanish properties here - alternatively you can register for new upcoming Spanish deals here

Daniel Talavera www.thespanishbrick.com

The current economic situation has not prevented foreign investors from glancing at Spain when they are looking for destinations for their business initiatives. In fact, direct foreign investment shot up by 62% in 2011, which situates us as the fourth European country as far as having the most projects of this type received in the last year, only behind the United Kingdom, Germany, and France. These facts mean a turning point for Spain, which had seen how the foreign investment initiatives were dropping in the last two years.

This is one of the main conclusions for our country from the latest report from the Ernst & Young European Attractiveness Survey 2012. The report combines the analysis of international investments in 43 European countries during the last year, 2011, with a survey given to more than 840 executives from around the world, and their opinions about where and how they will complete worldwide investments in the coming decade.

During 2011, Spain received a total of 273 projects from foreign investments, as opposed to the 169 from 2010, which entailed the generation of a total of 9,205 jobs, 19% more than in 2010. This increase has, for Spain, created an increase in the European ranking of investor attraction, up to fourth place, as a preferred destination. In addition, it has also gained market share, passing from 4% in 2010 to 7% over the whole of foreign investment in Europe in 2011.

In sectoral terms, investment projects in the Services and Software sectors have been those of the greatest attraction generated in our country, followed by Food, Transportation, and Machinery and Equipment. Among the European cities that have attracted the most initiatives, Barcelona and Madrid occupy third and fourth place, respectively, according to the facts from the report. Like in previous years, investors from the United States are our main clients, with 19% of the total projects registered in 2011, followed by the Germans, the French, the British, and the Dutch.

In the words of José Miguel Andrés, President of Ernst & Young in Spain, "due to the economic difficulties that our economy is going through, the facts of the report show that foreign investors see us as an attractive destination where their capital can make a profit, thanks to, for example, the size of our economy, the quality of our communication infrastructures or our highly qualified workforce. For this reason, it is necessary to keep expanding those reforms destined to increase the confidence of the markets and that position us as a highly competitive investment destination."

Daniel Talavera www.thespanishbrick.com

The Paramount theme park will be the only one of its class in Europe and nobody wanted to miss an event in which the first-rate, over ambitious work was revealed and that, according to its developers, is called to relocate to the Murcia region and, more concretely, to Alhama de Murcia, on the map of global tourism.

“We will leave aside the seasonal nature that that sector of the community suffers from. The project will permit us to be a tourist destination all year long,” explained the president of the community, Ramón Luis Valcárcel.

But the adventure of seeing the whole complex built just started. The start signal has already gone off and the meetings with potential investors will be prolonged during the upcoming months. The objective? Gaining more than 500 million euros. “It is expected that the financing of this project, that requires an investment of 1,093 million euros, will be carried out with half of its own resources and half with resources from others,” explained Jesús Samper, president and CEO of Murican Flagship Projects, the company created especially for developing this surprising initiative.

This being so, the viability and market studies could not be better. More than 2.5 million visitors during the first year and around 3 million in the following years makes the project developers think that the investment in the project could be earned back in only 10 years. The predictions anticipate that the whole complex could be ready by 2015. “We know that the economic moment is not the best, but I´m confident that the investors are capable of seeing, like myself, the possibilities that a park like this offers.”

About housing prices

With respect to the housing prices, the price of the home in the Murcia region diminished by 10.8 % in the second trimester, a fall less than that registered for the national average, which fell 11.5% in the face of the 9.2% from the previous trimester, according to the latest report of local housing markets from Tinsa.

The price of the home in the Murcia region has fallen 1.3% in the last year, the second largest fall in Spain by any autonomous community, beaten out only by Cantabria (-1.4%), according to the housing portal Idealista.com.

Therefore, the price of the home used in the Murcia region was situated around 1,238 euros per square metre in July, the least amount of any of the communities.

It is expected that the New Paramount Park will boost the local property market in terms of rental income and prices in the area. We can say that this could be a micro-market since visitors not only will generate a potential rental demand but also will boost the local economy.

Mind the bubble

Everybody is talking now about the Park and how great is going to be for the property market. Maybe the Park has gotten everyone´s hopes up, and all this is generating a “micro-bubble,” but what we can guarantee is that the good properties in the area will perform and generate profit for investors in Murcia. Also, home buyers can enjoy a second residence and rent it out when not staying there.

Daniel Talavera www.thespanishbrick.com

Four good reasons why investors and buyers continue to regard Spain as a safe and attractive choice to invest and enjoy:

• 1) Spain is the main destination for British tourists and overseas property investment. Even in crisis the market is showing potential for overseas buyers, including Brits. Positive changes are taking place. According to the latest housing records (kept by registradores.org), the rate of purchases of homes in Spain by other Europeans has risen about 12.4%. People from France, Germany and Russia are enjoying the lower prices, as well as other European nationals. British people bought 4, 007 properties in Spain in 2011 – more than double the French who, second in the rankings, bought 1, 972 in the same period. The Germans and the Russians followed close behind, buying 1, 702 and 1, 645 respectively.
• 2) Spain is in economic difficulties, but it remains in the EU and is undergoing tightening of its regulations to straighten up its financial situation. It will take a few years, but we are confident that Spain will be a land of opportunities for good investments and a good life. For investors in the know, a crisis is also an opportunity!
• 3) We can see a rapid pace of transaction in Spain; properties change hands in a very few days when bargains and opportunities present themselves. For the property market, the current crisis means better prices for investors and homebuyers, together with the need to operate according to a proper investment model that takes account of location.
• 4) Spain has not lost its warm climate, attractive lifestyle, fascinating cities or areas of natural beauty. It remains a place generate profit in a different environment: 2-3 bedroom properties in areas with strong, long-term rental demand selling for €40k (£31k) to €90k (£71k)? It’s hard to find that kind of opportunity elsewhere. Rental yields of above 5-6% are achievable. All this in a country like Spain, 2-3 hours flight time away by regular, low-cost airlines, with attractive weather, lovely food and a home from home with retirement opportunities… Taking the opportunity to invest in the Spanish market now could start paying off tomorrow, but it can grow into a healthy business generating wealth well into the future.

Daniel Talavera www.thespanishbrick.com

Property investment in Spain is currently a good opportunity to generate cash flow from buy-to-let, but only in an area with a solid rental market.

We believe that in the current property market climate, the only effective strategy for a first-time investor is to buy well below the market value from motivated sellers.  Furthermore, investors must buy in cities where the rental demand is permanent and solid, in order to rent their properties as soon as possible.

Buying below market value will guarantee you low prices in the current market.  However, if the market falls further before beginning to rise, your property investment is protected from negative equity.  To assure this in a falling Market, as Spain is now, seek a margin of 25%-40% below market value.

Drawing a Line in the Sand.

We want to draw a line between a property investment in Spain and a second residence with investment aims.  These are two entirely different investment strategies with differing goals.  A property investment is there to make money; a second residence is there as a holiday home.  While it may be possible to recoup some financial outlay in high season rental income, a holiday home will not turn a profit.

Properties on the coasts and in tourist towns sound very attractive, with their location, weather and proximity to the beach.  Nevertheless there is a major oversupply problem on the Spanish coasts: there is insufficient demand to meet the rental and sale oversupply.  As a result, while coastal holiday homes are an appealing second residence, it will be very difficult to produce a profit from one.  This will become more serious as price and demand continue to fall.

Property Investment is About Generating Wealth: Spot the Cities

If you are planning to invest to generate short term wealth, Spain will not do this for you.  Average prices are falling and will take several months to pick up in certain areas.  A return on your investment will come, but only with time.

What can be achieved now in Spain is to buy at very low prices in locations with secure rental demand, generating a cash flow immediately and offering equity on the property when prices do begin to rise.  Prices will rise in urban locations but this will take some time: until then, buy-to-let is the most reliable option.

Be Careful With the Coasts

On the coast and in tourist towns, it will be possible to rent for a few weeks in high season, but your property is likely to stand empty most of the year.  Buy, by all means, but don’t base your calculations on rental income.  Most of the year there will be none.  If you are very lucky ad your property extremely well-sited, it might be possible to generate 10-15 weeks’ rental income per year, but this is a maximum figure most won’t achieve.

In major cities like Madrid and Valencia rental demand is strong and it will guarantee you a cash flow.  A survey carried out in Valencia and Madrid by thespanishbrick.com indicated that the average time take to secure a long-term tenant in these cities was 2-3 weeks.  In some specific boroughs the process may take longer, but the rental market is performing very well here in terms off demand and rental income.

Daniel Talavera www.thespanishbrick.com

Spanish homes continue getting cheaper at a great pace, statistic after statistic, regardless of the cause. So, according to the last report of the property prices index company Tinsa, the price of the home deepened its drop in the second trimester, going back 11.5% from Q2/2011 to Q2/2012. A percentage higher that registered in the previous trimester of 9.2% from Q1/2011 to Q1/2012.

Property investors can certainly be ready with the right strategy to get the most of this market which has already reached the 2003 prices level.

In regards to the accumulated drops since the heights of 2007, the situation of the northeast peninsular quadrant stands out. It gathers the greatest cuts, led by La Rioja, which has already changed its values by -39.7%, followed very closely by Catalonia (-39.3%), Aragon (-37.8%) and the Valencian Community (-36.2%).

General Property Prices fall in Spain

The majority of the territories and provinces followed this path of descent. The fall of the home in La Rioja was the most notable, with 22%, a reduction that returns the prices in this community to the levels of 2003. Next came Catalonia (-18%), Aragon (-16.3%), the Comunidad Valencia (-14%), Castilla y La Mancha and Madrid (both -13.8%).

In line with the national average are Castilla and Leon (-11.8%), Andalucia (-11.6%), Navarra (-11.5%), Murcia (-10.8%), the Canaries (-10.6%), and the Balearic Islands (-10.5%). Completing the list, we have Extremadura (-10.1%), Galicia (-6.2%), Asturias (-5.2%), Ceuta (-4%), Cantabria (-3.6%) and Melilla (-3.3%).

Tarragona (-19%) and Toledo (-18.7%), the provinces with the lowest values between April and June
 
In talking about provinces, in addition to La Rioja, Tarragona (-19%), Toledo (-18.7%), Saragossa (-18.6%), Almeria (-18.1%), and Segovia (-18%) stand out. At the other extreme we find Cuenca (-0.1%) and Orense (0%). Lugo is the only province that presents a slight increase of 2.1% during the second trimester.

The northeast, the bottommost zone together with Castilla La Mancha

Among this highlighted group, although located in the central zone and influenced in its behaviour by Madrid, we also find Castilla y La Mancha, with a descent among the worst that has already reached -38.9% on average.
 
Toledo (-43.1%) and Guadalajara (41.1%) register the greatest falls since 2007
 
It is in these ranges where we find the provinces with accumulated cuts of more than 40%: Toledo (-43.1%), Guadalajara (-41.1%), Zaragoza (-40.4%), Tarragona (-40.2%), and Barcelona (-40%).
 
To these, we can add others with decreases since the height that are also very relevant, like Almeria (-39.2%), Malaga (-39.1%), Girona (-37.2%), and Valencia (-37.2%).
 
On the contrary, the provinces that showed less negative overall behaviour were those with less population density and with a less active market for second residences, fundamentally in the northeast quadrant. Among them are Soria (-13.8%), Zamora (-10.2%), Orense (-6.5%), and Lugo (-5.7%).

Daniel Talavera www.thespanishbrick.com

Starting on January 1st 2013, the VAT for new Spanish homes will rise to 10% from the current rate of 4%.

This is one of the new measures that the Government has adopted in order to increase revenue. Many basic products will have their VAT raised, as was begun in September 2012, but the Government has decided to keep the 4% VAT for Spanish properties this year, as scheduled.

The VAT is applied to brand new properties coming from the developer. Second hand properties are charged with a different tax called the Impuesto de Transmisiones Inmobiliarias (ITP), which means a tax on properties that are transferred from one owner to another. ITP varies depending on the region but it is always below 7%.

Madrid and the other regions do not consider the purchasing price when rating tax. The regions say that the tax basis is the so called real value. Let us suppose that Madrid says the real values is €120,000 (of course, Madrid could say the value is €160,000 which would increase tax revenues). In order to know the valuation, an expert will check the tables with the exact location of the real estate property. Those tables determine the so-called real value.

Be careful after you find your low cost property and the Impuesto de Transmisiones Patrimoniales (I.T.P) in relation to bargains.

The most expensive tax on property is the I.T.P, or tax for a property transaction (also known as the tax for the transfer of the title deed), which is for second hand assets. Depending on the region, it will be charged at 7-8% of the property cost, however every region has a minimum price table when applying the I.T.P. Therefore, if you buy a property for €100,000 and pay €7,000 to cover the I.T.P in the sale exchange, you may get charged an extra €1,400 if the property has a minimum value of €120,000, according to the Tax Office estimation. How much will the Tax Office estimations be? In most cases, it will depend on the location and specifications. Never forget to ask your lawyer for advice about this point, to avoid the shock when the tax inspector comes knocking at your door, a few months after the transaction is completed.

Daniel Talavera www.thespanishbrick.com

We are currently witnessing the sharpest fall in Spanish house prices on record. According to the property prices index of leading Spanish company TINSA, house prices fell by 11.1% in 2012 May compared with May 2011, one point less than their April fall of 12.5%.

Now that the data for May is in, it’s clear that the fall in house prices since their 2007 high has increased by four tenths, to stand at 30.2%.

About what is going on in the first quarter, according to the National Institute of Statistics, average property prices in the first quarter of 2012 has fallen by 12.6% compared with the same period in 2011.

Large cities and provincial capitals had resisted the house price crash until now. But in May the trend caught up with them and their house prices fell by 13.3%. Worst affected are coastal areas (-14.1%).

Broken down by area, the cumulative cuts to house prices are most severe on the Mediterranean coast, where 37.9% has been wiped off house prices, and in the capitals and major cities, which have seen a 32.9% drop. The average fall coincides with the fall in metropolitan areas, at 31.2%; what the appraiser referred to as ‘other municipalities,’ saw a 25.9% reduction, and the Balearic and Canary Islands lost a combined 24.1%.

For a link to a map of latest house prices in Spain - click here

Daniel Talavera www.thespanishbrick.com

Article taken from: Spanish Real Estate Property Portal

The Costa del Sol continues being one of the main destinations for the sale of Spanish homes dedicated to tourism. The banks’ stock of homes in the Costa del Sol continues being reduced with the attraction of not only the weather, but of newly built houses and very attractive prices.

On the other hand, in other areas of Spain, it’s already been five years since the housing stock on the beach has not been reduced, but to this phenomenon we have to add another: the banks are now the principal sellers, up to the point that of the 22,127 homes that shape the residential inventory of Malaga, 10,373 are already in the hands of the commercial teams of the financial entities, according to a report from Aguirre Newman consultants.

The stock of new houses has been reduced by 12.35% with respect to the last year, states the report, and new promotions have hardly been commercialized. Only two were started last year, according to the consultant. Properties under development are hardly being sold either, so that “98% of the available stock is found in a turnkey situation,” concludes the report.

The key is in the homes that pass from the promoter to the bank

The key is in the homes that pass from the promoter to the bank. The pouring of homes from the promoters to the banks has also provoked a “descent in the average price of the home of 12.6% during the last 12 months.” See list of New properties in Manilva (Costa del Sol) in Developers and Banks hands

The banks will monopolize most of the market in the next year “in a more prominent way” 30.3% of the supply of homes in buildings (high-rises) on the Costa del Sol is found in stock; while with the single-family type, the figure has descended to 34.4%. In general terms this means that 30.7% of the total homes on special offer on the coast are finding themselves being unsold.

Typologies

According to the consultant, the average size of “the development of high-rises in the area reaches 98 units” and for single-family residence development it is 30 units, similar to last year.

Inside a high-rise, the typical home is a two-bedroom flat with an average area of 131m² and an average final price of 253,061 euros, which represents an average value of 1,937 euros/month. In the case of the single-family home, we are referring to a detached three-bedroom home with an average area of 236m² and with a final price of 383,136 euros, which represents an average value of 1.621 euros/month.

With respect to 2010-2011, the number of commercialized developments by these entities reached 20% of the total, and during 2011-2012, the percentage has increased to 34.4% of the total of the 270 ongoing developments.

Translated to homes, the banks have gone on to manage 10,373 homes, and “one could predict that this will increase in a more prominent way, if that’s possible, in the coming year.”

As a principal sales tool, they make a strenuous attempt to ease the access to financiation, of course, exclusively in the sale of their homes. This last aspect, together with a significant reduction in the price of the home, is what really invigorates sales.

Daniel Talavera www.thespanishbrick.com

The price of homes in Spain has lowered around 30% (average) since the housing bubble burst.  They will continue to lower in 2012 and it would be a good idea to follow certain guidelines to get the best possible price if you are a serious buyer.

These are some pieces of advice that will be useful in buying a “bargain” directly from a particular seller. We recommend an agent but you can certainly find YOUR BARGAIN directly from a seller in this “climate”. In any case, always get legal advice and do not go alone in this venture.

Arm yourself with patience.  Say goodbye to being in a hurry

Buying a home involves the most important expenditure of our lives.  Because of this, asking for all of the possible information, comparing, running numbers, and not being in a hurry to make the final decision are indispensable steps.  It is a must to study up on the prices of similar properties in the zone where your desired home is located, financing, costs associated with the sale, and all of the characteristics that influence your decision.

Paying the property in cash

Having money available in cash doesn’t just contribute to benefits in the moment of negotiating between individuals.  When comparing the price of a flat, counting on savings to tackle the sale or finding yourself needing to finance it (provided that the bank always agrees) will make a huge difference in the final cost.  The differential with the EURIBOR that the banks apply to establish the type of variable interest sets that difference in the form of interests.

The cheap mortgages of the past disappeared with the crisis.  In 2011, the reduction of prices of new properties, that the Society of Valuation cited at 4% annually, was already absorbed by the noted recovery in the costs of financing by almost one percentage point.  Because of this, one should crunch numbers and think about the long term.

Be alert with opportunities to buy a flat

The price of properties suffers important drops under certain conditions.  Locating yourself in a depressed zone or one hit by the economic ups and downs (high unemployment rates, shrinking consumption…) will reduce your price, because the demand for the flat will be less and the difficulties in selling it will increase.

If the property is in need of repairs, the seller will want to look for a quick sale, since the deterioration will increase and its value will diminish progressively, and with these come the possibilities of reducing the initial asking price.  Another option is renting with the option to buy. BE CAREFUL WITH SUB-PRIMES!!!

Revisions to price lowering

If you are pursuing various properties, you can find interesting discounts for yourself in the initial price when the homes stay around for a long time without being sold.  And if the sellers aren’t able to firm up their sale, they will agree to lower their price every once in a while.  Making a reasonable lower offer, but by a specific and firm deadline, will facilitate an interesting discount.

Daniel Talavera www.thespanishbrick.com

Is it the right time to buy?

Nobody can say 100% whether now is the right time to buy, speculating that property prices have reached the lowest possible level. Many experts have failed to predict this accurately since 2009-10. The fact is, prices have been dropping since 2007 and the average drop on the Spanish coasts is about 34% whereas in the cities, it is around 30%. In addition, there is a margin of negotiation for buyers to secure a lower price than the asking price. We would definitely say that this is the right time to search for properties in Spain since there are already excellent bargains to be found there. It is certainly a right time to buy, if you are serious about buying now.

Has the market touched rock-bottom?

Again, that is difficult to be 100% sure about, but we believe that with the general financial pressures of the Spanish economy, and the financial reforms that were adopted in early 2012, it is very likely that during 2012, the housing market will reach its lowest, in price terms. It is also unlikely that the property industry will recover in 2013, because the economy will take considerable time to re-stabilize. In other words, prices shall probably stay low for a protracted period.

What sort of market are buyers facing at the moment, if they want to buy?

For sure, it is a buyer’s market. 10-12 years ago it was very difficult to bargain on price, since the market trend, was ever-increasing price rises – ‘if you do not buy now, in 3-6 months, the price will be 5%-8% higher, or even 10% more expensive…’. That was the belief, and so any asking price was accepted. But currently, the situation is the opposite: now it’s a buyer’s market rather than a seller’s. Presently, the large supply of properties in the market, is causing prices to decrease: large supply + low demand = lower prices. In addition, the financial problems that Banks and Savings Banks are facing, due to their large property stock, is forcing them to release more and more assets into the market at lower prices. This also increases pressure on private sellers who are now competing on price with the discounted Bank stock.

In this scenario of oversupply, do I still need an Estate Agent?

Your Estate Agent is your ally. We encourage you to contact an agent to get advice, provide buying options and arrange viewings, to make your life easier and save you time and money during the buying process. In this distressed market, there are many professional agents, however, it is very important to choose the right one for you.

Should I be sceptical about agents and developers?

Have you watched “Cowboy Developers” on Channel 4, in the UK? If so, you know that everywhere there can be sharks. Bad press in the UK tarnished the Spanish market during the boom of the 2000s. Now, the Spanish market is becoming more transparent. Professionals are driving the market and substandard agents and developers had to close or run away when the bubble burst. Always obtain good references!

The sale of homes in Spain is falling, but donations and inheritances are at their peak.  Opposite the year-to-year fall of 29.1% sales that was registered in the two first months of the year, inheritances and donations of homes have increased by 8.7%.

From January 2012 to February 2012, sales have plummeted to 63,832 units, compared with 89,981 during the same period in 2011.

On the contrary, the 27,362 homes transferred in the form of inheritances and donations in the two first months of 2012 suppose superior growth to the 2,000 units in the last year and they mark a maximum since the start of the series in 2007.

Transfers of Homes represent 21.3%

The total transfers of homes through inheritance and donation has not stopped increasing and they have already entailed 21.3% of the total transfers in the two first months of 2012.

This implies that in relation to 2007, when the series started, inheritances and donations of homes have practically doubled their weight in the whole of home transfers.

The main reasons

It’s difficult to attribute this boom of inheritances and donations of homes to one factor, although one can point out various motives.

• In the first place, it’s worth remembering that in the last various years the “Comunidades Autónomas” (Autonomous Regions) have reduced, or even eliminated, the tax of successions and donations, which involved a reduction of the fiscal charge associated with this type of transfer.
• On the other hand, the strong fall experienced by the price of the home can also be acting as an incentive for this type of operation, by reducing the value of the property transfer and the hereditary gain associated with the operation.  One has to remember that if the donor is less than 65 years of age, the donation generates a hereditary gain as a difference between the value of acquisition and the value of the transfer, which pays taxes for the purposes of the IRPF.

However, without a doubt, the economic crisis is the main drive behind donations and inheritances of homes. When faced with the difficulties of their children in obtaining a home and becoming independent, parents are coming to the rescue, giving them a piece of real estate from their property.  More and more, young people are facing huge difficulties in gaining a home, in a scene of job scarcity and a strong hardening of financial conditions.

Article extracted from Invertia

When we talk about Spanish real estate prices in the most demanded area, we talk about Marbella in the Costa del Sol. We can distinguish 3 main zones in the Costa del Sol: the eastern zone of Marbella, Marbella proper, and the western zone of Marbella.

The most requested type has been the 2 bedroom/2 bathroom unit with garage and storage, of some 80 constructed square metres.

We would be able to say that there is one basic rule referring to the price in this specific location of the Spanish real estate market: “the drop of this is directly proportional to the distance from the coast line and the golf course.”  Based on this, the average price for Bank Repossessions  fluctuates:

• Western zone of Marbella: between € 90,000 and € 130,000
• Eastern zone of Marbella: between € 70,000 and € 170,000
• Marbella proper: between € 180,000 and € 220,000

All of these figures are approximate, since we can find ourselves with particular exceptions or with a change in the politics of commercialization of the banking entities.  Also, the market changes very quickly.

The cash that the buyer should count on depends on who they are buying from.  In the case of the banks, financing fluctuates between 80% up to 100% plus expenses, with which the client doesn’t need the cash.  In the rest of operations, of individuals and property developers, one has to have approximately 40% of the buying price in cash.

Banks have accumulated 140,600 finished Spanish real estate assets that could already be for sale.  The banks’ portfolio of Spanish properties for sale has a rough value of 26,700 million euros, but in little more than a year it will be devalued by 35%, according to the firm CB Richard Ellis.  This is the provision that the executive branch of government demands for finished housing in its restructuring plan.

What originally would be worth more than 26,000 million in mid-2013, when the reform culminates, will have a countable price of 17,300 million, which is 9,400 million less. The Economic Ministry trusts that, with this reduction, these homes will be launched to the market more easily.

“The finished residential product tends to be hard to digest for the Spanish real estate industry, but in the long run it ends up being assimilated.  They are homes for end users, and if the prices are lowered, rentals are offered with the right to buy or the rents are strengthened, and the operation ends up being carried out,” explains José Luis Marín, network director of offices and assets of the firm CB Richard Ellis.

The executive branch wants the financial entities to assume part of the loss of value that properties for sale in Spain have suffered since the crash of the property bubble because of the over valuation that they made on the price of the flats. According to the government, houses became appraised at between 13% and 30% over their actual prices.

Overprice between 13% and 30%

The banking sector seems capable of assuming the dation in payment in extreme cases that the executive branch proposes, but to accept the “devaluation” that Spanish real estate has suffered since the explosion of the bubble is a theme that generates more controversy. The government has situated the excess in the appraisals of home prices between 13% and 30%, part of which would have to be compensated by the financial entities, who are the owners of various appraisers.

In order to attain the goal of the government that the banks share this housing depreciation, it would be supposed that after the embargo of a house for non-payment, the bank would have to provide a percentage of the price of the home, which would be subtracted from the outstanding debt of the people with the mortgage, reducing their outstanding bill after losing their house.

The Price of the Used Home in Spain Fell 9.4% in February

The price of the used home in Spain fell 9.4% in inter-annual valuation in February, to 2,023 euros per square metre, according to the latest housing price index on idealista.com, which also reflects a drop in respect to the previous month of 1.1%.

Daniel Talavera www.thespanishbrick.com

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The Spanish economy in 2012 is not likely to improve according to the latest forecast of the Bank of Spain. The official 2012 forecast by Banco de España (Bank of Spain) predicts that the Spanish economy will shrink by 1.5% during the year and the unemployment rate will increase to 23.4%. Furthermore, the International Monetary Fund predicts that Spain will still be in recession for two more years because the negative G.D.P. will be 1.7% in 2012 and 0.3% in 2013.

Tax Pressure

One of the main reasons why the economy will keep on moving towards recession is the tax pressure on public and private expenditure. In other words: people and institutions will consume less because the new Conservative government has increased taxation according to the current deficit climate.

How will the economic situation in 2012 affect the Property Industry?

Well, this is a difficult question with controversial answers. Firstly, we believe it will help to improve the rental market. Secondly, we maintain that any recession has a negative implication for the main economic sectors but, in terms of property prices, the new recession with its higher unemployment, higher tax pressures and less expenditure power, will mean lower property prices. The need for selling property is putting more and more pressure on Banks with a portfolio of repossessions, and individual sellers.

Negative feelings about 2012

The Spanish Brick has conducted an informal survey with Spanish and UK Estate Agents operating in Spain. It has been more of a spontaneous and informal phone-calling session to Agents than an official in-depth survey. Nevertheless, in general, Agents have forecast that 2012 will be a challenging year for keeping the business in the track. In the other hand, it will be a golden opportunity for assisting low-budget buyers responding to property prices trend.

Less mortages

In general, Estate Agents agree that easing fiscal pressure on new buyers will help to improve sales, but it is not a guaranteed phenomenon. The main problem for Agents is the lack of credit available to potential buyers, because Banks are not so able to give credit in this economic climate, even if they want to.

The latest figure in money lending from banks to Spanish homebuyers is from November 2011. In that month, Banks lend a 38.7% less money for property than in November 2011. In numbers, Banks lend from November 2011 to November 2011 a total of € 3,082.9 million for property transactions. It means one of the lowest of the recent years.

A good year for property buyers

Property sales still going down in the current crisis since 2011 is the year of the most dramatic figures in terms of prices drop and property transactions. Hopefully 2012 will be a breaking point and the trend will be an increase of transactions thanks to the lower prices. That is the editorial voice of The Spanish Brick: “We think that 2012 is going to be a good year for property buyers. Bargains in terms of low prices, location and specifications will come out to the market for once. Banks have the pressure and the sub-prime is very difficult to sell to individual buyers. We will see good opportunities in 2012”

Daniel Talavera www.thespanishbrick.com

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The Spanish real estate market might face an imminent change in the price of its real estate holdings, due to the reform of the financial system being prepared by the Government. Luis de Guindos, the Economy Minister, had a clear message early this week: “Banks have one year to stop speculating and set their real estate stock to a realistic market price”.

Spanish property prices should decrease

This means that prices “should” decrease, and Banks “should” assume losses in their balances as a result of real estate stock. Some experts’ point of view highlight that the Minister hidden message is to try to persuade home buyers and investors to buy a property in 2012.

Spanish financial reform

“The primary objective of the financial reform is to put the highest number of houses on the market and at the best prices.” The Economy Minister believes that the difficult protection requirements imposed on the banks will make access to the real estate market easier for citizens, prices will go down, and banks will grant mortgages more easily.

Banks have four months to set their property assets at market prices and cover their backs against “toxic assets” to 65% in the case of current projects (previously 27%) and to 35% in completed buildings and housing (previously 25%). What does this mean? This means that the more housing stock banks sell, the fewer capital resources they will need to reserve in order to cover or justify their property portfolios. Thus, banks will be keener to sell apartments at lower prices than expected.

“the reform will not help the Spanish property market”

Other experts also underline that in the current economic crisis the mentioned reform is not the dramatic change that the market needs in order to force Banks to drop prices of “no sub-prime” assets, on one hand, and to encourage the demand, on the other hand.

The Government’s reasoning is that the 50 billion euros in provisions that Banks must accumulate will lead them to improve their access to the wholesale market, which mean that they will obtain more liquidity at a better price, and this will revitalize their business, granting loans. Thus, “Banks will stop being real estate agencies and they’ll concentrate on their traditional business.”

This way, the Government assumes, Banks will allow more credit for more properties at better prices, given that “in the current situation,” De Guindos says, “Banks only offered credit for their own properties”.

According to the Government, this reform will entail 50 billion euros to cover a total of 323 billion euros in loans tied to the construction sector as of June 2011, of which 175 billion represents problematic assets. To understand this effort, between 2008 and 2011, it took approximately 66 billion euros to rectify the problem.

Aside from improving the protection against risky loans, Banks also need to assure themselves of a generic 7% cushion to cover the rest of the existing real estate risk. This must be measured against current results, which will mean 10 billion less in their accounts.

The government will also augment the Ordered Banking Restructuring Fund (Fondo de Reestructuración Ordenada Bancaria – FROB), from today’s 9 billion to 15 billion. This will require taxpayers to outlay four billion more out of pocket to bailout out the banking sector.

Daniel Talavera www.thespanishbrick.com

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The Spanish property market has closed its poorest year since the 1960s in terms of new houses being built: less than 60,000 in 2011 according to official figures.

In terms of prices,the market is still going down. According to the Minister of Public Works, property prices has dropped by 5.2% in 2011.

The link of this article takes you to a very useful map of home prices with average figures per square metre in each region and each postcode (properties built before 2010).The data corresponds to December 2011.

If you click on a region of the map a window will be open with residential prices per city and postcodes. The source of the data are the Ministry of Housing and Tasamadrid. The figures are updated (August 2011). The link takes you to the daily newspaper El Mundo.

This is the link: Spanish property prices (El Mundo).

It is very simple to use and you do not need to know much Spanish language.. Just move the pointer around the map. Nueva means “new built” whereas Usada means “Second hand” property -and that is it!!!

Daniel Talavera www.thespanishbrick.com

The New Year brings a good panorama for property buyers and investors. 2011 has been the year in which property investors and home-buyers have kept a closer eye on property prices in Spain. Better prices; better quality of the new property stock; encouraging rental market; more security to investors; are, in short, some of the key points for investors and home buyers in Spain in 2012.

1. Better prices for buyers in 2012. Property prices have dropped in 2011, an average of 6,85% according to the Ministry of Public Work. Prices level has reached 2005’s figures and the economic climate suggests that further fall will come.
2. The market is touching rock bottom. 2011 has probably been the worst year in terms of property prices and sales drop. If the price fall in 2010 was by 3% compared to 2009, the mentioned fall of 6.85% in 2011 compared to 2010 confirms that the market is reaching its lowest at the right speed.
3. Cash is king not only for Particular vendors but also for Banks and Savings Banks. Get your cash ready for upfront payments to guarantee juicy discounts from owners direct and financial institutions.
4. Buy-To-Let still being the only short-term strategy for property investors. Unless you are a high-end investor with your clients’ portfolio, the economic situation in Spain still does not give hope for reselling in the short- and mid-terms.
5. Once again and probably forever: location, location, location …. + property specifications. Avoid subprime properties. Subprime tends to be easy to identify. Subprime properties in Spain are in poor locations and are bad-quality properties: poor building specifications, no lifts and frequently they need expensive refurbishment.
6. The best opportunities will come from those in need to sell. If a bank’s portfolio is the largest in the country, it should be because its stock is difficult to sell. Indeed, generally banks have the worst properties in Spain because the owners could not sell or rent in order to repay the mortgage. Spanish local estate agents are giving you the opportunity to find private sellers who need cash and want to sell a good flat or house. If you have the time and ability to work locally, you have a higher possibility of succeeding in the Spanish market.
7. Timing. At this moment (the beginning of 2012), Spanish property bargains are most likely to be in the hands of private owners rather than in Banks’ repossessed property portfolios.
8. Banks will still be driving the market in 2012. Banks are not only holding the largest property portfolios but also they are also using their financial strength to tip the balance towards their own business. Banks are the easiest option but potentially not the best right now. It may chance shortly if the economic climate still hitting private owners.
9. Banks’ mortgage restrictions are still tough and mortgage conditions are not improving despite the fact that Banks tend to mask bad mortgages with residual discounts: free arrangement fees, very low notary fees (the bank pays the notary bill), etc. You must shop around and find the best mortgage. A key question that any buyer must consider: will it be worthwhile asking for a fixed rate rather than a variable if the Euribor starts rising again?
10. THE TIP OF THE YEAR: As a starting point when dealing with a seller directly, reduce your offer by 30% of the asking price. That is the way to guarantee a bargain in the negotiation process.

Daniel Talavera www.thespanishbrick.com

By Andres Diez Bronzini (Abogado & Rechtsanwal)

The Spanish law maker has changed the court proceedings with regards to non paying tenants. Does this new law mean that the landlord can get his non paying tenant out in just 10 days?

Suppose your tenant is defaulting. It will take approximately 2 weeks from the day your lawyer files the claim for the overburdened court to take any decision.

If the court admits the eviction and payment claim, it will set a deadline of 10 days to the non paying tenant and force him to (1) pay the outstanding rent, (2) return the property to the landlord or (3) object the claim.

The tenant might choose a fourth option: simply do nothing and wait for the E-day (eviction day).

My pessimistic guess is as follows: based on the tenant´s decision, the proceedings may last, in the best case scenario, approximately one month; in the majority of cases it will take between 4 and 12 months. In the worst case scenarios it may take even more time to get the non paying tenants out.  However, future cases will teach us the truth.

SUPPOSE YOUR DEFAULTING TENANT IS A NICE GUY

The defaulting tenant might decide to pay the rent within the 10 day deadline: if so, the landlord is extraordinary lucky and he will recover his money in an estimated record time of approximately 1 month from the day your lawyer files the claim.

The defaulting tenant might decide to hand over your property within the 10 day deadline: hopefully, the tenant leaves the property in good conditions and the landlord needs to make only a minimum investment for small repairs and cleaning to re-rent the property to another tenant. My guess is that in this scenario the landlord would recover his property in a record time of approximately 1 month from the day the lawyer files the claim.

Of course, the landlord can continue proceedings to recover the outstanding rent. However, based on my experience, most (but not all!) of the defaulting tenants don´t have any worthy assets to seize.

SUPPOSE YOUR DEFAULTING TENANT IS NOT A “NICE” GUY

The defaulting tenant might decide to object the eviction and payment claim. My guess is that in this case everything remains as before: a court hearing must take place and if the land lord is successful, the non paying tenant must be eventually forced out of the property.

The legal time periods for the court trial and the eviction are short, but the day to day court reality is that the courts are overburdened: in my opinion, it is simply impossible to shorten the eviction proceedings significantly with the current personnel and material resources. My prediction is that in the majority of cases it will take the landlord between 5 to 12 months to recover his property.

Proceedings can last even longer if, for example, the nonpaying tenant alleges he is poor and asks for a lawyer provided under the legal aid scheme. It will take several weeks until it is decided if the tenant is entitled to such a lawyer or not.

Most probably, the majority of the tenants will do nothing and just continue to live for free in the property for some time and quietly abandon it shortly before the eviction day.

First the good news: no time consuming court hearing is necessary.

Now the bad news: yes, it´s true, the court will rule that the landlord is entitled to the possession of his property and to the unpaid rent (which he most probably will not recover).

However, the landlord cannot just walk in his real estate property and take over his home. The landlord´s lawyer must apply for execution proceedings in order to obtain the possession of the property by the court. Again, the lack of sufficient court staff most probably means it will take some months until the land lord gets back his property by the court.

MINIMISE THE RISK OF LOSSES DUE TO NON PAYING TENANTS

In my opinion, as long as the Spanish administration does not grant more staff and money to the courts, the landlord will need between an estimated 4 and 12 months to recover his property. In some cases, the landlord will be able to recover his property in more or less 1 month from the day his lawyer files the claim.

So what can the landlord do to minimize the risk of losses due to nonpaying tenants?

INSURE THE TENANT BY AN INSURANCE COMPANY against non payment and damages caused by the tenant to the property. Prices (aprox. 3-5% of the annual rent) and particularly conditions differ substantially from insurance company to company. Nevertheless, in crisis ridden times plagued by high unemployment and uncertainty, it will not be easy to find a company which will insure the tenant.

NEGOTIATE A FIRST DEMAND BANK GUARANTEE if no insurance company wants to insure the tenant. Nevertheless, most (potential) tenants will walk away if you ask for a bank guarantee.

CHECK THE REGISTRY OF THE FICHERO DE INQUILINOS MOROSOS (OF DEFAULTING TENANTS). Maybe the registry has a file on your (potential) tenant confirming he has been defaulting in the past. Be aware, the registry is not exhaustive and, thus, does not include each defaulting tenant.

ARBITRATION PROCEEDINGS now make even less sense than in the past because, among other reasons, the landlord (1) can obtain a solid court ruling against his non paying tenant in an estimated 1 month instead of un uncertain arbitration award, (2) the landlord can obtain that court ruling in an estimated record time of 1 month and (3) in the majority of the cases the landlord will not need to travel to Spain because there will be no court hearing.

Ultimately, landlords just can hope that my predictions are wrong and that the lawmaker will obtain his aim of getting non paying tenants out of the property in record time. Let´s wait and see.

Daniel Talavera www.thespanishbrick.com

Let us now spend a few lines on a property practice that is history for the good of the property business. A widespread practice in Spain during the boom years that has had many implications for the average buyer and investor: ”dar el pase”=”To flip the contract.” Nowadays it is impossible to do this given the prices trend and new regulations.

Buying property off-plan

I remember my friend Anthony asking me in a restaurant in London in 2005 why Spaniards always bought properties in new developments and why those new developments were more expensive than second-hand properties, a phenomenon that puzzled him, as he had recently bought a large, brand new apartment in Mallorca.

I told him that the primary reason was because Spaniards often like to flip the contract: “dar el pase”.

Property practice during the boom

This practice was especially prevalent during the period of credit expansion from 2003 to 2005, and it had a big impact on planned development. Proper developer did not allow this practice, generally. During a bubble period reflecting fast growth of property prices, soft credit and the property business cannot be fully monitored by the national tax office, thus opening the door to contract flipping.

Flipping the contract… a typical case

Here is a typical case to explain this lucrative practice: a developer and a buyer sign a contract on a flat that costs € 130,000. The agreement states that at the signing of the contract the buyer is to pay 10% of the total amount (€ 13,000) and an additional 10% in 15 monthly instalments (€ 2,600), whereupon the development will be finished (15 months).

In the third month after the agreement had been signed, the buyer has spent € 13,000 + €2,600 = € 15,600 , but he finds another buyer-speculator who is interested in the property. Often, the first buyer would transfer his rights and the deed to the second buyer for an amount higher than what s/he spent, generating a profit. For instance, the first buyer could sell his agreement with the developer to the second buyer for € 30 K, earning a profit of € 14.4 K . That gives the second buyer 12 months to find a third buyer and repeat the flip if s/he desires. Because of all of these possible transactions, the final selling price at the completion of the development could easily be increased by 20% from the starting price, as commonly occurred during the property bubble.

Now, this is history

To add to the hidden nature of this practice, payments were usually made in cash, making it impossible to track the changes of possession of the contract.

This practice was able to continue because there was not any regulation that forced developers to register primary contracts (contratos de arras) with their clients and upfront payments until 1st December 2008. The contracts were registered only in the name of the final buyer, who was in some cases paying 20% above the original price of the property. Now that dodgy practice is history.

Daniel Talavera www.thespanishbrick.com 

This is a question that our clients and registered visitors have asked us over the last few months: should I buy or rent a flat in Spain?

Spain is a great place to live and be visited. The alluring country attracts millions of holiday-makers and new residents from overseas, every year. Whoever decides to make the move to Spain, either permanently or for long periods, has to consider whether to buy or rent a property there.

Ideally, you can buy and keep your property for yourself, but for many holiday makers and expats wanting to live permanently in Spain, it can seem difficult to afford.

Spanish bargain hunters

Low prices appear very attractive in Spain, especially on the coast, and sub-prime properties, as investments in the cities. However, it is not all about the buying price, but also depends on whether you can get a mortgage, and what kind, and there are additional costs in the buying process (which usually comes to 10% in Spain).

There are also insurance costs and yearly expenses that include “service charges” and Council Tax (“I.B.I.”). For most of us, to buy in Spain is a question of affordability, and having the right strategy, in order to make it affordable.

Property prices keep dropping

Generally, the prices in both markets (rental and selling) are incompatible: if one of them goes up, the other falls. But at the moment, selling prices are dropping and rental prices also seem to be going down as well. This means, whether you are buying or renting, now is a good time to do move to Spain, if you are serious about Spain.

Whether to buy or to rent in Spain depends on your goals. I am sure that renting a place now will be cheaper, easier and less risky than buying. Also, if you are planning to live abroad and Spain seems to be your favourite place, I would advise, as somebody said recently in an online discussion, to travel around Spain and discover the country in depth. Do not be an impulsive buyer in the first warm place that you arrive.

Buying a property has advantages and it is true that it is becoming cheaper than ever – and it will probably be even cheaper in 2012. Also, currently, some Banks are offering good discounts and paying some expenses (such as legal fees) on behalf of buyers. On top of that, now there is a reduction of V.A.T. reduction to 4%, an offer which will apply until 31st December 2011. Nevertheless, there are other administrative overheads involved in buying in Spain, which are still too expensive.

Do not be an emotional buyer!!!

If you are planning to buy, nothing should stop you finding the place that suits your needs? But do not rush because the HOUSE OF YOUR DREAMS does not exist, or should not exist. There are enough options without becoming besotted with one house. THIS IS THE PROBLEM THAT MANY BRITONS have had in past years. When you become too emotional about a property, there is a high risk in avoiding to look at the details, and then getting stung, especially in Spain during a bubble market where suddenly everybody has become a developer or estate agent. GET A LAWYER – it is a must. If at this stage, a home buyer does not get a reliable lawyer, it means that he has not learnt anything.

So have a look around, make a selection and enjoy the process of choosing your property. Be ready for bargaining and set a very low buying price. I would say 40% below the asking price as a starting point for second residences on the coasts, which also happens to be the profile for retirement homes.

In the cities, the situation is different and the negotiation price is not as great as with coastal properties. I would say that Madrid, Barcelona, Santander and probably Valencia, are the cities where I would expect to see prices stabilization within a couple of years.

IF YOU WANT TO RENT: I must say that it might probably be a clever option.

IF YOU WANT TO BUY: get ready to sharpen your negotiation skills in order to win your bargain. Be ready to pay an average of 10% of the property price on buying costs, which is a lot, but taking into account the current decline in prices in the market and how “desperate” sellers could be, don’t worry too much about the buying costs!

Good luck and enjoy Spain!

Daniel Talavera www.thespanishbrick.com

The Spanish property market prices may have dropped low enough in order to encourage investors and home buyers to keep an eye on the Spanish market. However, what is certain is that the price fall is not good enough for several institutions, including the European Commission. A striking statement from the European Commission last  week stated that property prices in Spain rose by 155% during the property boom, whereas its fall hardly reached 22% during the property crash.

Compared to similar cases in the Eurozone, Ireland grew by 172% and then fell at a rate of 38%. In the case of Malta, prices rose by 157% and have fallen by 11% in the current crisis.

Property is getting cheaper and cheaper

Prices keep falling and falling. According to TINSA, the Spanish property market value has dropped by 7.4% from January to September 2011, compared with the same period in 2010.

Surprisingly, in 2011, property prices in main cities experienced a major fall in Spain (8.9%), which  was even higher than on the Mediterranean coast (8.2%).

Summarising, according to TINSA, property prices have fallen an average of 24.1% since its peak in December 2007. Here are other examples: Mediterranean coast (31.9%), main cities (26%), cities with suburbs (25.4%), Canary Islands and Balearic Islands (20.7%) and the rest of the small cities and towns (19.8%).

CONCLUSION

During the property boom, prices climbed to very high records in the mood of optimism and credit expansion. During the first four months of 2011, property crisis prices dropped steadily to reach an average fall of 24%.

The Spanish Brick explained in a recent article why prices will keep falling up until September 2011. Unfortunately, it seems that prices will drop furthermore for several months (probably years), in order to reactivate the market. Obviously, we do not expect prices to drop by 155%.

Daniel Talavera www.thespanishbrick.com

"We purchased a property in Spain three years ago using a mortgage from a Spanish bank. Our circumstances have now changed and we are unable to continue the repayments. If we stop paying, we assume the bank will re-possess the property. We would like to know the legal ramifications."

Question: I cannot afford to pay my mortgage with my Spanish bank. Can I just stop paying?

Answer: If you stop paying, the bank will initiate proceedings for repossession.

Question: Does this mean that I just lose my Spanish property and forget about it?

Answer: The Spanish law maker is just passing through a law which forces the bank to repossess the property at 60% of the value if the bank itself acquires the property.  If your loan is bigger than the 60%, the bank will claim the rest and seize your wage, your bank accounts, car and all other assets you have.

E.g.: if your mortgage loan amounts to 150,000 euros and the bank repossesses your property for 90,000 euros, you still owe the bank 60,000 euros. The bank will claim those 60,000 euros from you.

Question: Even if I live in the UK?

Answer: Wherever you live, the bank will at least try to enforce its rights. Within the EU, that should not be a major problem. However, in some cases, depending on the country and depending on whether or not the bank knows your whereabouts, this might be complicated.

But be prudent. The bad thing about the repossession is, that you have to add a 30% for the costs plus interests for late payment. Costs soar, soar and soar.

Question: I´ve heard of a Spanish court decision which said that turning over your keys to the bank is sufficient to cancel the whole loan.

Answer: Those are absolutely isolated court rulings. Furthermore, the Spanish lawmaker has made it clear recently that no such solution is allowed by the law. The only good news lately is that the lawmaker is currently passing through this law which I mentioned above and which forces the banks to repossess at 60% of the value. Prior to this law, banks repossessed at 50% of the value.

Question: Nevertheless, this means, I will be ruined.

Answer: Firstly, you should negotiate with the bank and explain your situation. Maybe the bank will listen and defer partially the payment.

Question: But still I have to pay it later. That doesn´t help very much.

Answer: You should try to sell your property in the free market with 0 benefit: you lose your property, but you will not owe the mortgage loan. Another solution is trying to cede your property together with the mortgage loan to a new buyer. However, the bank must give its OK.

Question: That sounds slightly better.

Answer: Selling these days and under your circumstances is very complicated. There are many vultures in the market.

Question: Can I apply for insolvency?

Answer: That is an expensive procedure. And in the worst case once that procedure finishes, you must pay back the whole amount of the mortgage loan, unless there is no other negotiation result.

Daniel Talavera www.thespanishbrick.com

The Spanish property consultancy Foro Consultores, has recently released its report about the Madrid housing market in new developments (2007-2011). The main conclusion of their analysis is that new-built property stock in Madrid was reduced by up to 50% between 2007 and 2010. The new-built property stock decreased from 10,000 units to just slightly more than 5,000 units in 2010.

Such an ease of property stock in Madrid is in conjunction with an average of 19% price reductions in the capital.

Average prices in 2010 were €3,952/sqm, according to Foro Consultores

Unlike other Spanish cities, 9 out of the 21^st districts of Madrid city have experienced a drop in the number of houses on the market. This may be attributable to the lack of urban land in the Spanish capital and the high demand for housing.

According to the report, property demand in the 2000′s was motivated by different factors:

The critical figures in the analysis are:

3 Bedroom Flats Are Back On The Market

82% of the new developments build in 2007 were 1 and 2 bedroom flats built outside the city centre, in contrast with 3 bedroom flats which have been traditionally concentrated in the heart of the city – the oldest part of the capital, where, once upon a time, large families used to live in bigger homes. During the property boom period of 2004-2007, the market was replete with new 1 and 2 bedroom flats.

But the trend has changed in 2001 because the buyer has become ‘king’. During the boom, the developers were driving the market. Smaller units (studio flats and 1 or 2 bedroom flats, for example) meant more sales and so more profit-margin for developers. Now the situation is different. According to the Consultores report, flats with 3, 4 and even 5 bedrooms are becoming more affordable.

According to the graph, in 2010 and 2011 3 bedroom, 4 bedroom and even 5 bedroom flats have increased in percentage

Average Prices

Prices in 2011 range between €77,900 and €3,381,000 for Madrid. The average price is €332,446. Regarding the price in €/sqm, the average is 3,952 €/sqm.

The report highlights that prices have been reduced to their lowest so far because financial institutions have played a key role in the market and they have reduced the prices in order to sell more properties. Financial institutions are playing a major role in joint-ventures with developers, pushing up sales by offering up to 84% Loan To Value (LTV) in 2011.

Chamartin and Salamanca districts are the urban areas in Madrid that have experienced the largest price drops since 2007, despite the fact that these are still the most expensive districts in Madrid. On the other hand, the smallest price drop since 2007, has been in the Arganzuela district, at 6%.

The Stock

New development stock has decreased since 2007 by 30%: 9,874 units (2007), 8,959 (2008) and 5,146 (2011). The largest unsold stock by district is in Latina (44%) and Puente de Vallecas (43%). Districts with the smallest unsold stock are Fuencarral-El Pardo (17%) and Usera (19%).

In conclusion, Foro Consultores estimates that with the current stock quantity and slowness of sales, supply will come to an end in 16 months, assuming no new developments hit the market.

As a website which identifies strong property market opportunities, The Spanish Brick’s position is that even in a tough economic climate like in Spain currently, everything relates to market prices and consumer demand. Madrid is a unique case with different micro-markets and a constantly growing demand. See this article about demographic trends in order to understand how strong Madrid is as a market for property investors.

Daniel Talavera www.thespanishbrick.com

We are back in London from the SIMA property show in Madrid, which is the biggest property event in Spain. Putting things together from the show (interviews, meetings, contacts) and having recovered from the excellent time and laughter that we had with real people in Madrid, the reality slaps us in the face.

Nobody can say that The Spanish Brick looks at the market with pessimism after our last article about Spanish property, but the reality is that the crisis still remains.

Pressure to sell during the show

The pressure to sell brought to the show discounts in the form of money off VAT (the developer pays the VAT) and free notary fees, for instance.

These tricks to sell are because the market is not really doing well according to the last official figure from the Ministry of Public Work: in Q1/2011 a total of 74,540 properties were sold. This means 50% less properties than during the previous quarter (Q4/2010) and 30.4% less than Q1/2010.

According to property experts in Spain, it means that the market adjustment will take longer than expected and prices will continue to fall. In fact, the latest report from the Bank of Spain is that property prices will be still falling for two more years.

Sima show: Banks repossessed on the spot

So, professionals are going to work very hard to make their sales. We give credit to the professionals in Spain and to the professional trend of the market. This year we have seen a more professional SIMA show with less marketing expenditure and more focused on offers and sales which means that the market is coming back to its reality.

The Banks coped with the attention of the public, offering finance to their assets. But their prices are still expensive, which is balanced with mortgage lending to home buyers.

Unfortunately, we did not see many rental opportunities in Spain at the show… despite the fact that the market trend is to rent. Therefore, we must conclude that the Sima show is a home-buyers show for first and second residence opportunities and a huge offer in the great Madrid.

Daniel Talavera www.thespanishbrick.com

The challenge for property investors in Spain is to find a property investment that could produce the highest rental yield in locations where price drop is close to reaching rock bottom. A rental yield above 4.7% is achievable. By picking the right investment it could be secured a cash flow from the very beginning and a capital growth in the mid to long term despite the market crash.

Main cities are the target for the search for an investment if you want to guarantee a local demand and an exit strategy. Please be aware that it will take a few years until prices start picking up. Therefore, any investment strategy should be on the bases of mid to long term.

Specific locations in cities such as Madrid, Barcelona, Bilbao or Valencia could generate gross rental yields above 4.7%.

We have stated a 4.7% rental yield borderline following the latest report on rental yield published by idealista.com. In the mentioned report, the city where gross rental yield is higher is Lleida (4.7%). Average gross rental yield in Madrid is 4% and in Barcelona is 3.6%, according to the report (view graph at the bottom).

If purchasing price, local demand and yield are optimum, property investors could easily rent the property and wait for a few years until property prices pick up to a discreet level in order to sell and gain a profit. How much could the prices rise within ten years in those  ‘prime locations’? We understand that it is still too early to estimate a mid-term growth, but what we can say is that it will not be a large growth as during the property bubble. What we can also say is that the estimation will depend on the ‘micro-location’ in which the investment is placed.

Selling prices still falling

Regarding property prices, they are still falling at a lower rate. According to idealista.com, in the 1Q/2011 they fell by 2.2% on average. This average is on the basis of a sample of 170,202 properties.

Rental prices

The property portal idealista.com has recently released the Q1/2011 rental report. The conclusion is that Madrid is the city with the most expensive rental market (€12/sqm), followed by Barcelona (€11.7/sqm) and Bilbao (€11.6/sqm). The rest of the cities are below €10/sqm.

The most remarkable point is that Barcelona is still very close to being the most expensive rental market despite the fact that during Q1/2011 the average price of the rental market dropped by 2.1%. Bilbao has experienced an increase of 3%.

On the whole, the good news is that the rental prices have increased in more than 50% of the main cities. The analysis has been elaborated according to the asking price of 25,446 properties in the mentioned period.

CONCLUSIONS

The Spanish property market still is an interesting one for property investors. Prices in main cities have dropped during Q1/2011, probably due to the urgency to sell in the onset of dramatic increases of mortgage payments. We have the feeling that prices will reach rock bottom in key locations that we expect to spot in the coming months.

Key: alquiler anual: Annual Rent, precio compra: Purchase Price, rentabilidad bruta: Gross Profit, anos de alquiler en pagar el inmueble: Years of paying Property Rent.

Daniel Talavera www.thespanishbrick.com

In the course of the last two weeks, the national and international economic climate has put additional pressure on the reliability of the Spanish economy and on the need to drop property prices at a faster pace. These are the main points that we want to highlight:

• The European Central Bank increased the interest rate to 1.25%. The Euribor index is already above the 2% barrier and some experts predict that by the end of the year it will be at 3%. With the official unemployment rate climbing and an official figure of 4.3 million jobless people, the rise of interest rates makes it much more difficult to handle mortgage repayments month after month. It is said in the property business that the Spanish property market is on the verge of a second wave of repossessions.
• The Spanish Banking system shows signs of being unreliable once again. Recently, the saving bank CAM has asked for a Government bailout of 2.8 billion Euros after the merge of three saving banks in  ‘Banco Base’ broke down. The odd thing is that the Bank of Spain (authority that guided the reform of the Banking system and banking rules) did not notice or make clear the serious state of CAM to the other joint partners. Probably the deputy governor of the Bank of Spain thought that with the merge things would get better, but he did not consider that the other partners in the joint venture (Cajastur, Caja Cantabria y Extremadura) would refuse to join CAM once they find out the real figures.
• At the end, taxpayers will pay the bill (€2.8b) of this bailout plus the €5b that the Government will spend in the Portugal rescue.
• By the way, CAM commercialises its properties in the UK through the estate agent Connell. It might be a good opportunity to ask for lower prices since CAM needs urgent liquidity.
• It is said that the Portugal bailout will be followed by Spain. The Spanish government will start a new stress test on 24 banks and savings banks in order to calm the markets.
• Prices still falling in Spain and the average in Q1/2011 is -2.2% according to idealista index. The most notorious figure according to the idealista index is that in the main capitals, Madrid and Barcelona, the prices have dropped to levels of 2004. In the case of Madrid, the average is 3,629 €/sqm whereas in Barcelona it is 3,907€/sqm. Repossessions have risen and prices are still dropping.

CONCLUSION: The same as usual. Everything relates to price. If you are willing to buy, we advise to put an offer in at 20% below the asking price (at least). We have read in the national press that a few Spanish state agents are suggesting to set an offer in at 10% below the asking price. I guess this is a partial point of view since they still work on a commission basis. Do not be shy and pull the price down.

Daniel Talavera www.thespanishbrick.com

The Association of Property Developers in Madrid (asociación de promotores inmobiliarios de madrid – Asprima) recently informed us that about one fifth of 500,000 houses that need to be built up into new developments still remain as just plans; in many cases, the building work has not even begun, according to the portal idealista.com. Nearly 234 urban sectors in Madrid are affected by leaving more than 50 councils with  ‘ghost’ boroughs.

Developments in the areas of Valdebebas, Montecarmelo, Arroyo del Fresno and Cañaveral are still not going forward which means that the home buyers are still waiting for the development to be started in some cases.

The worst scenario is for the home buyers in Berrocales or los Ahijones; some of which have waited for 14 years to get the key to their new apartments, according to idealista.com.

CONCLUSIONS

1)      Our perspective is that, to buy off plan not only could become an additional risk for home buyers and investors but will also not help to ease the current oversupply in Spain.

2)      The current post highlights the problem of buying off plan in Madrid, the main city, which has the highest concentration of population and property demand. In secondary cities and also on the coast, the risk should be higher.

3)     There is enough stock in the market in order to buy what you need… do your research and go for it.

Daniel Talavera www.thespanishbrick.com

The president of the Spanish consultancy RR de Acuña, Fernando Rodríguez Acuña, has been interviewed in cotizalia.com about the Spanish property market. It is a good interview with frank and honest answers to understand in brief what has happened and when the property crash will end.

There are surprising revelations and controversial points.

His point of view about the present market situation is clear: 2011/Q1 has been a disaster in terms of property transaction.

The end of the tax exemption for property buyers in 2011 meant that November and December 2010 had larger numbers of transactions. Also, according to Fernando Acuña, the lack of credit, the rise of the euribor (interest rate) and the increase of second-hand houses in the market and the large stock (1,5m according to Acuña – who seems to The Spanish Brick to be very conservative at this point) are points to be bear in mind in 2011.

The main problem is credit to acquire land

According to Fernando Acuña, the main problem of the banks with regard the property market is not the large credit conceded to buy properties but the credit granted to developers in order to acquire land. “We are talking about 130,000 million Euros invested in land that was overvalued. According to our calculations, urban land is devalued now by 65% whereas outside urban areas, land price depreciation is above 90%”.

The problem is that, during the property boom, speculation on land value became an easy way to generate money by developers. So, credit was given to developers in order to speculate with land rather than to develop, said Fernando Acuña during the interview.

“If the demand of properties in this decade is going to be one million and we have land to build up three million units, what is the value of land?” comments Fernando Acuña. “it is worth nothing… in many cases the land price is just symbolic”.

subprime property portfolio

Apart from land, the president of RR Acuña states that the biggest problem of Banks is the subprime property portfolio: “50% of the second-hand property portfolio of Banks is subprime… but there are prime properties in badly located areas”. It is taking too long to sell this sort of product even with 50% discounts.

During the interview, Acuña mentioned that the second-hand offer increased by 20% in the second half of 2010. In other words: “the stock is not being reduced”. Also, the pace of transactions is too slow; especially because of the credit shortage.

When will the activity improve?: “We will see an improvement in the property market and sales during the 2012 second half but it will be from 2015 when the market will become healthy as long as Banks’ stock is reduced. To reduce Banks’ stock involves lower prices”.

The logic process of recovery

During the interview, Fernando Acuña explains the logic process of recovery should be as follow:

• 1) Reduce the stock
• 2) Less stock will enlarge credit because the banks have eased their stock
• 3) More credit will allow new developments to be undertaken
• 4) The GDP will improve
• 5) The national demand will be normalised

Acuña added an extra factor that will help the market: “to bring back Tax exemption for property buyers”. The Spanish Brick strongly disagrees at this point with Acuña because to bring back tax exemption means to bring the property market to the front line of the economy when Spain needs alternative markets to rely on. Also, it will go against the natural growth of the rental market, which works very well in other countries and Spain needs to back.

What went wrong during the property boom?

Acuña says that the problem was, unlike the 80s and 90s crisis, the credit expansion and property over-evaluation during the boom. Property evaluation agencies were valuing properties at an average of €230k whilst the real value was €180k on average. What is the reason for that margin of €50k? According to Acuña: Black money, VAT tax evasion and asset transmission tax evasion. “Nobody wanted to see it and nothing has been done”.

Acuña consultancy is one of the leading and more relevant property consultants in Spain, having published for 25 years now an annual review of the property market which has always been a reference in the market.

Daniel Talavera www.thespanishbrick.com

Well, 2011 starts at least with an exercise of honesty and transparency in the Spanish market – we hope so. After January with banks and saving banks (Cajas de Ahorros) having disclosed their property balance and exposure to risks, the final figure of distressed property assets and exposure to risk in financial entities stock is €217,000 million, updated to January 2011.

It means €36,000 m more than expected in June 2010 when the estimation was €181,000m.

According to the Bank of Spain (Banco de España), risky loans to subprime borrowers are around €28,000 million and banks’ repossessions are €44,000 million. The total risky property exposure is €99,820 million (46% of the total €210,000 million).

The Governor of the Bank of Spain, Mr Fernández Ordóñez, has also confirmed what everybody knows: better to keep an eye on the property business to hold the situation and try to straighten it up. Mr Fernández said that the banks have carried out a 100% practice of transparency and the figures are reliable in order to work on them to improve the situation.

The final figures, one by one

Banco Financiero y de Ahorros is the financial entity with a higher volume of property repossessions (€ 11,048), followed by Banco de Santander (€ 7,509 mill), Catalunya Caixa (€5,435 mill), BBVA (€ 4,793 m ) , La Caixa ( € 4,651 m), Banco base (€ 4,208 m), Banco Popular( €3,689 m), Novacaixagalicia (€ 3,525 m), Mare Nostrum (€ 2,949 m), Banco Sabadell (€ 2,880m ) Unnim (€1,985 m), Caja España Duero (€1,083m ), Unicaja (€ 985m) as the most relevant.

As said, the largest stock belongs to Banco Financiero y de Ahorros, which is a new entity as the result of a merge of Caja Madrid, Caja Segovia, Caja de Avila, Bancaja, Caja Insular de Ahorros de Canarias, Caixa Laietana and Caja Rioja.

Bancaja was the most important entity in Comunidad Valenciana in number of branches, where property prices have suffered the most dramatic drop since the crisis broke out.

Banking system reform in progress

Spain is going through a banking-system restructure that should end up with all the savings banks becoming listed banks.

These are the current savings banks: Banco financiero y de ahorro, Caja Tres, Ibercaja, Unicaja, La Caixa (future Caixabank), CatalunyaCaixa, Banco base, Banca Cívica, Novacaixa Galicia, Mare Nostrum,  Caja Espanya Duero, Unnim, BBK/Cajasur, and Kutxa.

Three savings banks have announced to become banks by summer: La Caixa, Banco Financiero y de Ahorros and Banco Base (formed by the former CAM, Caja de Extremadura and Caja Cantabria).

The reform needs to clear the balance of the savings banks. According to analysts at Evolution Securities (20th Jan report), savings banks need €50bill to back their assets and operations. It is time to raise money and to negotiate with foreign investors. We heard that Barclays is interested in the Spanish savings banks stake: Welcome!

A foreign bank may come with a large property investment group.

Less mortgage lending in 2010…. and it does not look good in 2011

For first time in more than 10 years, mortgage lending in Spain dropped by -2.06 % in 2010, according to the Spanish Mortgage Assotiation (AHE). Lenders are very cautious and will remain with the alert light on in the next months until the “dirty laundry is washed”.

CONCLUSIONS

• Week after week the property business becomes a bigger burden for a banking system that needs to move on. The figure is always bigger and the economic climate seems worse: unemployment, rising interest rates, less lending …
• 46% of the property business in which Banks are involved is high risk according to the Bank of Spain. From our modest understanding (I mean TheSpanishBrick.com), high risk only will be eased by releasing burden: selling assets even if losses are higher than expected.
• But the selling pace does not seem to be the right one because in 2010 the banks sold nearly 25,000 properties in Spain, according to an article released by expansion.com in February. Twenty-five thousand Euros is not enough. In 2010, more than 118,000 properties were repossessed… and certainly there will be more repossessions in 2011 with the interest rate rising. The mortgage-debt risk expected by banks and savings banks is somewhere between 16% and 19% according to our understanding of the banks’ risk exposure disclosed in January.
• Lower credit and a higher interest rate do not seem to encourage both lenders and borrowers. The market can only be reactivated by pricing: lower selling prices. Sellers, including banks, are open to offers – that is La Caixa policy and that is the reason why it has been the biggest seller in 2010.

IT IS CLEAR TO US THAT SELLING PRICES SHOULD DROP A BIT FURTHER at least until September. But final selling prices drive the market … not the asking prices.

We believe that in cities the drop will be much lower than on the coast, but buyers have a say in the selling price.

Daniel Talavera www.thespanishbrick.com

The last week delivered a few interesting figures and indicators regarding property transactions and property prices in Spain that are certainly helpful if you put them all together. Prices may fall a bit further in 2011, which could reactivate the market.

1. REGARDING PROPERTY TRANSACTIONS IN 2010. The INE (National Institute of Statistics) said that, in 2010, property transactions were made up of 441,368 units. This is an increase of 6.8% compared to 2009. The news seems to be good (and it is indeed) but it is just a tiny improvement of total sales: 27,975 properties more. According to experts, the most likely explanations for this increase are:

1. the end of the tax redemption in 2011, announced by the Government; and
2. the announcement of higher VAT.

Both factors apparently encouraged buyers to purchase in 2010 before the Government’s measures come into force.

2. ABOUT PRICES. The following figures make us think that if you need to sell in Spain now, you will need to reduce your asking price. On the other hand, the buyer will have room to negotiate.

1. According to the Tinsa index, average national prices in January 2011 are down by 19.6% since the peak in January 2008. Also, prices have dropped by 5% in January 2011 compared to January 2010.
2. The larger Spanish online property portal, idealista.com, published last week that, in January 2011, 26,679 advertised properties dropped their asking price. The average drop was €24,679. Madrid, Barcelona and Zaragoza are the cities in which more property prices were down.
3. As an extra example (not relevant but we just want to include it), the current Investment opportunity in Lavapies (Madrid) that we launched last week has a lower asking price than the original asking one. The owner has dropped the price by €16k. The online asking price of the studio flat is €106k but for THE SPANISH BRICK he has agreed to drop the price to €90k.

3. MORE REPOSSESSIONS. Nearly 200,000 properties changed owner in 2010 because of repossessions and other non-commercial circumstances. The rate of repossessions rose by 8% from October 2009 to October 2010 because of the crisis.

4. THE EURIBOR still rising little by little. We are sorry to say that many Spaniards will struggle this year a lot… in order  to pay their mortgages with rising Euribor (now at 1.72%). Sellers are hurrying to reduce their asking prices in order to attract buyers. Potentially, new sellers will be forced to put their properties on the market otherwise they will be repossessed – sadly a vicious circle.

5. LEADING LOCATIONS. The Madrid region is leading the 2010 national deals increase (6.8%) because in 2010 the rate of transaction was 17.5% higher than in 2009. We already talked in other article about the population growth of Madrid and property prices. Also, if we could say that there is a two-speeds market… Madrid capital could be at the head.

CONCLUSION

• Potentially, buyers and investors will be the beneficiaries of this mess.
• In 2011, we will probably see a more dynamic market with more transactions, which will confirm a slow recovery of sales.
• The point about Madrid is important because a fast recovery of the main capital means that demographic trends will naturally tip the balance towards residential markets in cities, where the economic relations tend to be concentrated. At least some logic is working in the Spanish market.

Daniel Talavera www.thespanishbrick.com

“When the perception of reality seems to be worse than reality itself, the best possible reaction is to explain it in the greatest detail”, Bank of Spain Governor, Miguel Angel Fernandez, 13th December 2010.

The Spanish market is going through a situation in which we presume that bigger price drops will be experienced in the next nine months. Prices will fall furthermore but with moderation.

According to the Observatorio de Coyuntura Económica (OCE), property prices should fall by 24% in order to appeal to the market, whereas the agency Fitch Rating predicts in its latest analysis that prices will fall by 15%. Therefore… there is still room for price improvements for buyers and investors.

The reason we make that assumption is because the current pressure is on the main property holders, the banks and Saving Banks (Cajas), to raise money in order to meet the Government’s and also the Bank of Spain’s requirements: to increase liquidity and provisions against property risk exposure.

We do not know how much the prices will drop and also at what speed – nobody knows) – but we know that banks and Saving Banks are under pressure and also they have an increasing property stock that must be sold out as quickly as possible.

Why price drops will speed up from now. Raising cash against the clock!

The Spanish Government has set a deadline (September 2011) to the 17 Saving Banks (Cajas de Ahorro) to reach a minimum of 8% non-risk liquidity against property risk-exposure, which means to start raising funds from private sources; otherwise, the Government will become a shareholder by pumping money to reach the aforementioned 8% in order to calm the international markets. Additionally, the Bank of Spain advises to increase the banks’ provisions as much as possible beyond 15%.

It still remains unclear if the law needs to be change in order to allow Cajas to raise private funds specially from abroad, but the Government has decided to go ahead with this measure as a previous step to force Cajas to become Banks (this is the “new financial reform” in Spain).

At the same time, banks’ estate agents and the Government itself are launching a crusade to attract foreign home buyers in order to ease the property crisis by reducing the stock. The Secretary of National Development, José Blanco, announced a road show to appeal foreign investors.

So, we are facing a reality in which cash from investment funds and homebuyers becomes crucial. Every little helps and any single unsold apartment already means an increasing cost for the bank in management and taxation.

The banks’ road map

Let’s summarise what Saving Banks needs to go through with the financial reform. To keep it simple and following Arturo de Frias, from Evolution Securities, the financial reform’s road map is:

1. January 2011: banks have to show their exposure to property, construction and losses.
2. By September 2011: sort out your situation as much as you can by reshuffling the internal structure and minimise losses. Also, raise private capital to clean the balance sheet and exposure.
3. After September 2011: depending on Saving Banks’ progression, the Spanish Government will pump money to those that have not reached the 8% provision. So far the Government has already lent €11bill to the Cajas through the FROB (Orderly Bank Restructuring Fund/Fondo de Reestructuracion Ordenada Bancaria).
4. Ideally, the reform will be finalised with the 17 Saving Banks becoming banks. La Caixa has already announced it is ready to become a bank, leading the conversion.

How much money do the weakest Cajas have to raise?

According to analysts at Evolution Securities (20th Jan report), Saving Banks needs €50bill to back their assets and operations. The Spanish entity Nomura, which advises the Spanish Treasury, said that Cajas de Ahorro will need between €43bill and €80bill (they cannot be sharper).

We think that, in the next month, prices will drop furthermore. Banks and Cajas have already accepted losses. Since losses are a fact, the priorities are to reduce their property stock, to sum up inputs from property in their balances and to get rid of stock which is expensive to maintain.

Foreign investment funds would go for Spain if the yield was more attractive that the one forecast in any UK investment option.

CONCLUSIONS

1. If you are considering buying in Spain, keep a close eye from now on. The market is getting very interesting. Prices will fall but if you are a buyer you may do not want to wait for 3 more years until they reach their lowest.
2. If you want to speculate, just wait unless you have already spotted your business opportunity.
3. In 2011, the property stock will certainly increase. It means more repossessions and larger stock to be maintained by Banks…very expensive for the banks. It is a must for them to sell. We presume that a second wave of repossessions in coming in 2011.
4. Saving Banks are the cornerstone of the current property crisis. As far as we know, they are ready to bargain with buyers up to a reasonable price.
5. The Secretary of National Development “road show” (José Blanco) does not make much sense. What Blanco has to do is to implement the legal framework (especially on rentals) to make it safer and predictable for investors and buyers. Also, it gives the message that Spain is just a nest of properties and sounds quite desperate.
6. Remember, we are not giving professional advice for you to invest now or later. It is apt to you. We are just guessing from the facts and what we know

Daniel Talavera www.thespanishbrick.com

By Andrés Díez Bronzini, Lawyer

Many Spanish banks and  particularly Cajas are in a dilemma: a relatively large number of their customers have not been able to pay the mortgage debts.

To limit these losses, the financial institutions are looking for new homebuyers for those bad mortgage loans. But this is a very difficult task, because many people in Spain are offering real estate properties and only few have the financial capacity to buy.

The financial institutions want to get rid off their huge real estate stocks that “produce” nothing and which are no longer worth what they once were.

Hardball negotiating professionals take advantage of this situation and  acquire the Spanish real estate properties in court auctions with a discount of up to almost 50%. In some cases, the discounts are even bigger.

Hardball negotiators use atypical buying strategies, e.g:

• Some of the investors buy the mortgage loan at a reasonable price and later on, eventually, apply themselves for the court auction. If there is no offer in the court auction, the investor can swap his mortgage loan for ownership of the real estate property.
• Often, the auctioned real estate properties are allocated to the financial institution itself. The investor has the opportunity to buy this allocation title at an attractive price.
• Another alternative is to buy the real estate property before the auction is held. The negotiation power of the owner of the real estate property is low. The financial institution will intervene to make an attractive price.

No matter which option the investor chooses, he must ensure in each case that the real estate property he intends to acquire is a prime property. In addition to that, the investor must absolutely check the liability- situation of the real estate property for other debts.

To better understand the Spain court auction system of real estate properties, I will illustrate it with some examples.

The examples are fictitious and are not exhaustive regarding the acquisition options. A court auction depends very much on the concrete situation, intentions of the bank and the owners, on the offers presented by others and so on. A liability for the accuracy of this article is excluded by the author.

CASE 1 (typical allocation of the property in a Court auctions):

A prime Spanish property with a current market value of € 120,000 has several real burdens:

1.A mortgage loan of a financial institution amounting to € 60,000.
2.Second-creditor in the amount of € 25,000 and
3.Third-creditor in the amount of € 15,000.

The prime property is not rented to anybody.

The second creditor claiming the amount of € 25,000 initiates the court auction of the prime property.

At what price does the court offer this primer property in the court auction?

The price is based on the market value minus the real burdens of previous creditors.

In the above example, this means that the real estate property is offered at € 60,000 (=€ 120.000 market value – € 60,000 mortgage because this is the previous real burden).

WHAT PRICE CAN THE INVESTOR OFFER?

The investor can bid 50% or more of the court auction price.

Exceptionally, the investor can offer 50% or less as long as his offer covers the amount of the claim that is being enforced in the court auction plus all enforcement costs plus interests. The Spanish courts are applying a prudent 30% of the claim which is being enforced. This 30% is thought to cover enforcements costs plus interests.

In our example, the claim being enforced amounts to € 25,000. If the court applies 30% for enforcement costs + interests (=€ 7.500), the minimum offer can be € 32.500.

In this case, the investor will choose to offer at barely more than 50% because it will be more convenient for him. In this option he can offer € 30,600.

In such a case, the owner of the property and the executing creditor are allowed to present counter offers within 10 days and 5 respectively. If they cannot produce counteroffers, the real estate property will be allocated to the investor for € 30,600.

Is this a good deal? Let us check it in more detail:

LIABILITIES OF THE AUCTIONED REAL ESTATE PROPERTY FOR OTHER BURDENS.

The auctioned real estate property is liable for all real burdens previous to the one which initiated the auction. The auctioned real estate property is not liable for subsequent burdens.

In addition, the auctioned real estate property is liable for some specially protected claims, eg homeowner debt, IBI tax (taxes for real estate properties) for the current and last year, wage arrears for workers, tax debts, liabilities etc. with social security. Thus, it is of utmost importance to check the liabilities of the real estate property before placing any bid for it in the court auction.
In addition, the investor has to check if the property is rented or not. If so, the investor must check if and, eventually, how long the third person is entitled to live in the rented real estate property.

In our above described example, the investor of the prime property ends up with a mortgage debt of € 60,000 which he must pay. However, his newly acquired property is not liable for the debt of the third-creditor (€ 15,000).

RESULT IN CASE 1: The real purchase price thus amounts to a total of € 90,600 (= € 30,600 auction price + 60,000 € for the mortgage).

WHICH ARE THE ALTERNATIVE STRATEGIES TO ACQUIRE THE PRIME PROPERTY AT MUCH LESS PRICE?

CASE 2 (Typical case of a Court auction: The mortgage bank has applied for the Court auction).

Suppose, not the second creditor, but the financial institution (= mortgage loan creditor) initiated the court auction of the real estate property. This is the typical situation in Spain.

The first noteworthy particularity is that the Escritura de Hipoteca (the deed of the mortgage loan) probably already determines a specific court auction price for property, which can be significantly above the current market value. This price is the starting point in the court auction. In our example, let us suppose that the mortgage deed determines the auction price at 200.000 €.

Normally, the minimum bid must be almost 50% or more. This means that our investor would have to offer more than 100,000 €.
Exceptionally, however, our investor can make a bid of 50% or less than 50% if his bid covers the executing claim + interest + costs. Interests and costs are, generally, estimated at a 30% of the claim that is being enforced. In our case number 2 this means that the 30% amounts to € 18,000.

The minimum bid amounts to € 78,000 = 60,000 € (mortgage claim) + € 18,000 (for costs plus interests):

RESULT IN CASE 2: Since there is no higher bid the investor acquires the property at € 78,000.

CASE 3: The investor buys the allocation title from the morgage bank.

Like Case 2, but nobody in the court auction submits a bid for the property. In this case, the financial institution may request to swap the mortgage loan for the ownership of the property.

The property is not liable for the subsequent real burdens. The subsequent real burdens as well as the mortgage extinguish.

RESULT IN CASE 3: The investor can buy this allocation title from the financial institution. The price depends on his negotiation skills. In our case example, this shall be € 60,000 to cover the mortgage.

CASE 4 (Acquisition of mortgage debt + subsequent sale of property in a Court auction).

Before opening the court auction, the investor can buy the mortgage loan from the mortgage bank. Once the investor has acquired the mortgage he can apply for the court auction if the debtor does not pay his mortgage debt.

Let us suppose that the investor in our example buys the mortgage from the financial institution at € 40,000. In addition to that let us suppose the debtor does not pay. Thus, our investor applies for the court auction.

In the court auction there may be some bidder who offers the minimum, this means: € 60,000 plus 30% for interests and costs.

RESULT IN CASE 4: The gross profit margin for the investor-buyer thus amounts to € 20,000 ( = € 60,000 mortgage debt – € 40,000 purchase price of the mortgage debt).

CASE 5: (Acquisition of mortgage debt + swapping the mortgage for the ownership).

As Case 4, this means: the investor is the creditor of the mortgage loan. The investor initiates the court auction, but nobody bids.

At his request, the real estate property will be allocated to the investor. Mortgage and all other subsequent real burdens extinguish.

RESULT IN CASE 5: The investor acquires the prime property for € 40,000 (= purchase price for the mortgage). The subsequent charges extinguish because they are subordinated.

What taxes and other costs must be considered when you buy a real estate property in Spanish Court auctions?

In general, the investor pays 7% impuestos sobre Transmisiones (tax transfers of assets). This tax may vary regionally.

The 7% will be applied to the allocation price, not the initial auction price. If the property is liable for previous real burdens, then these must be added to the allocation price. Subsequent real burdens are not considered.

• Case 1: 7% of € 90,600 = € 6,342.
• Case 2: 7% of € 78,000 = € 5,460.
• Case 3: 7%  of € 60,000 = € 4,200.
• Case 5: 7% of € 40,000 = € 2,800.

Case 4 is not included here because the investor does not acquire the property. Both, in case number 4 and in case number 5 additional costs must be included: notary fees because the mortgage is being acquired.

Furthermore, the registration and cancellation costs of the Registro de la Propiedad (Official Registry of Real Estate Properties) for the titles and real burdens must be added.

What are the requirements for bidding in the Spanish Court auctions of real estates?

The only requirement is to make a 30% security deposit or offer a 30% bank guarantee on the court auction price. This will be returned once somebody else acquires the property at a higher bid.

If the investor does not want to bid in the court auction, if he only wants to buy the allocation title of one of the bidders, then he does not need to make the previous 30% security deposit.

Click here to read a quick legal guide to buying an apartment in Spain

Daniel Talavera www.thespanishbrick.com

The collapse of the property market in Spain has left the economy in such deadlock that the main actors have this week sat at the same table to agree new solutions to the crisis.

Government, Developers and Banks are drawing a common strategy in an attempt to promote Spanish property market abroad, as crucial point. UK and German home buyers are in the spotlight.

The attitude of the Spanish Government is the usual one: To encourage buyers investing in property, especially now that Banks balance sheets are negatively affected by the property crisis. Government and Bank are still in their particular honeymoon. Hopefully this relationship will not be summited since the Government has said that the private problem will not be transfer to the public treasure as it happened in Ireland.

Developers highlight that Spain is a vacation destiny and for that reason homebuyers will come. But, from our perspective, to be a vacation destination does not guarantee home buyers but holiday makers instead. In that case, rental market will be the first option since to buy a property involves a lot of costs apart from the purchasing price.

Legal framework

The commitment of the Spanish secretary is to implement the current legal framework in order to give more legal security to foreign home buyers. This move must be welcomed by UK buyers who are waiting for their situation to be regulated since they were victims of a property fraud a few years ago. From The Spanish Brick perspective, if the Spanish Government regulate their situation it will very difficult to build trust in future buyers whilst thousands of Britons are still crying out for justice.

CONCLUSIONS

1) The Spanish property crisis is an internal problem that Government and Banks want to relief with foreign buyers and investors. UK buyer, be aware and do not be misled by commercial messages!!!

2) Now, more than ever, buyers needs to have the right picture of what is going on in the Spanish property market in order not to regret in a couple of year time. It is likely that prices will dramatically drop in the next couple of years and the property stock is massive so, your dreamed coastal home is not at stake. If you are ready to buy now, buy now. If you are not sure or you expect cheaper prices, we would advise to wait for better bargains.

3) To sell the property stock is a must and apparently the only solution that Banks and Developers want to accept. Nobody talk yet about demolishing toxic assets.

Daniel Talavera www.thespanishbrick.com

Demography is one of the driving factors of the property market in order to assess the needs of properties…and to be able to predict the market. In this article, we introduce some figures about demography forecast in Madrid and current prices in the Spanish capital that may help property investors.

According to the Regional Statistics Institute in Madrid, the population in residential areas outside the Spanish capital will rise by 78% by the year 2017.  In the surrounding area of Madrid, the population will grow by 46% whereas in the city, the growth will be equivalent to 14.8%.

In real numbers, the estimation is that the population will grow by 709,780 inhabitants to reach a total number of 7,211,497.

Such a growth outside the city centre is related to the property prices’ trend and affordability, according to the mentioned Iinstitute. The city centre becomes too expensive and inhabitants tend to find more affordable housing outside the centre. Also, infrastructure improvements and changes and new trends in the job market are important.

Main locations in cities have always been prime property investments. The centre of Madrid is definitely a prime area. Also, the suburbs could be a good property investment because the demographic growth prospect will ensure the demand. It could be a good idea to search the right investment in the city.

Property prices in Madrid, January 2011

The Spanish property valuation company, Sociedad de Tasación SA, has stated that, in 2010, property prices in Madrid did fall an average of 2.5% compared with 2009 property prices. The average price per square metre currently sits at €3,290 . According to Sociedad de Tasación SA, the 2.5% fall is similar to the national property prices drop in 2010.

This is the breakdown of Madrid prices in Euros per borough according to Sociedad de Tasación SA, published yesterday on idealista.com:

City Centre: 4,247
Arganzuela: 3,720
Retiro: 3,986
Salamanca: 5,615
Chamartin: 4,427
Tetuan: 3,447
Chamberi: 4,888
Fuencarral-Pardo: 3,350
Moncloa-Aravaca: 4,176
Latina: 2,899
Carabanchel: 2,842
Usera: 2,599
Puente Vallecas: 2,723
Ciudad Lineal: 3,714

Daniel Talavera www.thespanishbrick.com

The property market crisis is forcing home owners to bring down the selling prices by 21.6%, according to the chairman of API Valencia (equivalent to Deanery of Real Estates Agents), the newspaper El Mundo published yesterday. Therefore, property prices in Valencia are back to 2004 levels, which could be an excellent opportunity for home buyers who want to take advantage of the current market.

The chairman of API Valencia has also highlighted the unfair competitiveness from Banks, which tend to finance just their own deals, leaving aside Estate Agent deals. Such practice has left 81% of the property deals the Estate Agents brought to the table in 2010 without finance, according to API Valencia.

Conclusions

Valencia is a potential property hot spot.  Valencia is the third largest city in Spain, with tourism, trade and excellent communications with Barcelona, Madrid and straight flights to the UK could become a hot spot for the property market in the coming years. Prices in the city centre are much lower than in Madrid or Barcelona, and also Valencia offers excellent tourist opportunities for holiday buyers.

The finance issue regarding bad practice from Banks, which the chairman highlighted, have been at stake in the last few months. Given the price ‘discounts’ that private owners are offering in order to sell their homes, bargains (price related to location) could be remarkable for cash buyers.

Daniel Talavera www.thespanishbrick.com

The New Year brings a good panorama for property buyers and investors who are keeping an eye on the distressed Spanish property market. Better prices; higher stock; promising margins to negotiate; stronger rental market; the will of authorities to deliver security to foreign investors; are, in short, some of the key points for investors and homebuyers in Spain in 2011 – and maybe in 2012 as well.

1. Better prices for buyers in 2011. Property prices and land prices have dropped in 2010, an average of 5% to 10% in cities; whereas the fall was between 30% and 50% in coastal and second residences. Furthermore, the Government, banks and property agents claim there will be a further drop in 2011 in order to reduce the property stock, which should be around 1 million units by now. It is a general desire that the market needs lower prices in the New Year.

2. The market has started touching rock bottom. 2010 started as the year in which the market showed signs of recovery but the year has finally ended up with unexpected negative statistics on sales. In 3Q/2010, property transactions have sunk by 48.3% compared to 2Q/2010, according to the always controversial official statistics. Such a percentage related to 2Q/2009 is 26.3% lower. This means the lowest property transactions since 2004.

3. Banks’ mortgage conditions are susceptible to negotiation… for once! Given the need for banks to reduce their property stock, they have already advertised mortgages (for buyers of bank assets) free arrangement fees and even zero notary fees (the bank pays the notary bill). This gives you an idea of how far you could negotiate with the bank. We recommend getting rid of the classical 0.5% arrangement fee. Also, let us think: will it be worthwhile asking for a fixed rate rather than a variable one if the Euribor keeps rising again?

4. More security guarantees for foreign buyers. The Government is ready to launch, in January 2011, a Cabinet formed by Real Estate and banks to re-strengthen the legal framework for foreign investors, in an attempt to attract buyers by delivering confidence and legal security. Personally, I am not sure how it will work but, just in case, you should still have a reputable lawyer to help you… do not go on your own!

5. Buy-To-Let as the short-term strategy. Unless you are a high-end investor with your clients’ portfolio, the economic situation in Spain does not give hope for reselling in the short- and mid-terms. Not only will it be difficult to find a buyer but also the prices will not pick up enough to grow a profitable yield in just a few years, by the time a buyer appears. Buy-To-Let is the short-term option for investors. Soft legislation may play against landlords but there are proper ways in which to tackle the consequences of having ‘bad tenants’. In 2010, the rental market rose by 23% whereas properties to be rented increased by 41%. Our experience in the rental market is good. We recommend you go for it.

6. As usual: location, location, location …. plus property specifications. Avoid subprime properties. Subprime tends to be easy to identify. Subprime properties in Spain are in poor locations and are bad-quality properties: poor building specifications, no lifts and frequently they need expensive refurbishment.

7. The best opportunities will come from those in need to sell. If a bank’s portfolio is the largest in the country, it should be because its stock is difficult to sell. Indeed, generally banks have the worst properties in Spain because the owners could not sell or rent in order to repay the mortgage. Spanish local estate agents are giving you the opportunity to find private sellers who need cash and want to sell a good flat or house. If you have the time and ability to work locally, you have a higher possibility of succeeding in the Spanish market.

8. It is openly recognised that nobody relied on statistics in 2010. Forget them and think locally in 2011. Being honest, statistics are not reliable and Spanish professionals know it and also made it public in forums and social networks in 2010. Ignore the big figures and stay local in order to have your micro-market analysed. Again, local estate agents will help you to be accurate and inform you of the local average price of the location in which you want to buy.

9. Banks will still be driving the market in 2011. Banks are not only holding the largest property portfolios but also they are also using their financial strength to tip the balance towards their own business. Estate agents have reported that banks only finance their own banks’ investments. Despite the fact that banks’ portfolios do not seem to be good, generally, they are ready to lend money to reduce their stock as long as the buyer has some payment guarantees. Banks are the easiest option.

10. Expect local tenants wanting to pay in cash. To open and run a small professional business in Spain is very expensive. Black economy in Spain is the most popular way to avoid tax and, unfortunately, we could say that it is common; especially in these times of crisis. According to Europa Visa, black economy in Spain represents 20% of the GDP. A declared business is three times more expensive than a non-declared one. Therefore, professionals in recession do not have many more options than to operate business in the black market. It is difficult to trace, but bear in mind that professionals in active are capable of paying the rent in full but in cash.

Daniel Talavera www.thespanishbrick.com

If you would like more information on property in Spain, you can ask Daniel your question's by clicking here

According to the Banks’ Financial Products Agency (Agencia Negociadora de Productos Financieros), during 2010, Spanish banks have already taken over a total of 118,000 properties from debtors. This is a negative historic record, the newspaper El Mundo has published today.

The director of the Agency, Luis Javaloyes, commented that 30% of these repossessions could have been avoided if the banks had refinanced the mortgage. At the time, the problem was that most of the entities, especially the small banks, did not want a negative balance sheet in the short term because of mortgage debts. Therefore, these banks proceed to repossess properties instead of refinancing them.

The problem now is that the banks have quite a large property portfolio and it is becoming a problem to sell them; especially underperforming flats and houses in bad locations and in very poor conditions.

Also, Spanish banks are under pressure since the Banks of Spain (BoS) wants them to increase the provisions up to 30% once they take over properties from debtors. The more provisions they need, the less chance of manoeuvre they have.

Financial companies are standing up

Mr Javaloyes underlines the role that financial brokers have developed in 2010. Thanks to their service, thousands of home owners have been able to keep their properties because of financial services, as an alternative to the direct negotiation with the traditional bank.

Conclusions

1)    It is expected that in 2011 repossessions will increase, according to non-official sources from Spanish banks. Now the institutions have to deal with the reality and, in many cases, to re-negotiate the debt.

2)    Mortgage debt has become such a problem that, in a few cases, the Spanish banks are accepting the property as a way to repay the mortgage, as it happens in the US. But this is not a solution and not an exit strategy for debtors, the Minister of Development pointed out last week.

3)    Mortgage and financial brokers are filling the gap of the market and they will probably develop an important role in 2011.

4)    To rent a property with a purchasing option could become more popular.

Daniel Talavera www.thespanishbrick.com

Tips on key point to decide whether to buy or not to buy in Spain?

The financial crisis has reached a new peak after the bail out of Ireland. The pressure is now on Spain (and Portugal). The Spanish financial problem differs from the Irish one, but it is still bringing a debate as to whether Spain needs a cash injection from the EU as has happened in Ireland. Whether it does or it doesn't, the Spanish financial situation is still complex and has significant implications for the property market in many ways.

It makes sense to ask yourself ″Am I going to slip up?″ when buying in Spain.

To buy or not to buy in Spain? It is a difficult question. Let us be honest. The right answer "depends of your strategy". I would pay attention to the following key points of all the financial mess affecting property market:

1) Unemployment & Purchasing Power Influencing Housing Demand and Affordability. This is probably the most difficult factor when deciding whether to invest. Affordable rent is also a big challenge for the charming Spanish people.

Unemployment is high (20−22%) and certainly it will be higher in 2011 with the new cuts that changes in economic policy are going to bring. Even the Prime Minister has accepted that. It is going to get tough for you to base your investment strategy on the local rental demand unless you work with the right professionals in the market you want to focus on.

We are of the same position with wages: they will drop because of market competitiveness. Civil servants already have a wage cut from the Government, so it is expected that salaries in the private sector will also be slashed. Further cuts in other sectors may happen and we hope that there will not be civil servants jobs cut like as is planned in Ireland. It will affect purchasing power in the rental market dramatically.

2) Buy−To−Let. We strongly believe that Buy−To−Let is the best investment that you could make in Spain in the coming years. The problem is that with official unemployment rising, inflation and higher taxation, the black market will become more prevalent and it will be difficult to acquire track records of potential tenants if you are buying to let. Again, get a good property management company to find reliable tenants and secure payment guarantees. Buy to Let is an excellent option now in Spain (probably the best).

3) Prices. The most attractive part of the current market is the prices. Prices will drop more in 2011 but it should not seriously affect properties in good locations and of good quality. The paradoxical point is that inflation is going up yet property prices are going down.

4) Market Supply. The market supply is Spain will be greater in 2011 in terms of quantity, but not quality. There is a shortage of good quality properties, whose prices will not be dramatically affected. A challenge for property buyers is to find new developments in strategic locations (good off-plan investments).

5) Mortgage. In Spain, the availability of credit is very restricted. If you secure your own finance through a UK bank or broker, it will be better and also you will probably have better interest rate.  Otherwise, go to a Bank featuring a promotion, put down the right deposit and secure the property and mortgage from the Bank.

6) Currency. If you are a UK buyer with pounds, you have an advantage. The exchange rate has slightly improved and may get better. However, it will go in your favor to pay the deposit from the UK.

7) Nevertheless, if you are a high end buyer, you do not care much about what is going on in terms of your investment performance since we presume that you play in the Premiership.

Advice: do not buy yet unless you really need to invest your cash or find a good bargain. Do not rush! Prices will improve in 2011. Keep an eye on our next features and you will be delighted!

Daniel Talavera www.thespanishbrick.com

Spanish Banks have started the race of selling repossessed houses and flats by offering large price discounts and also by decreasing lending to buyers coming from State Agents.

Banesto, La Caixa, CAM and Caja Madrid have launched aggressive marketing campaigns to attract home buyers in order to reduce their stock. Like in a high street after Christmas, buyers have now 50% off marketing campaigns plus added value messages such as “we –the Bank- pay the notary cost”  among others.

But the strategy of the Banks does not seem to be limited to marketing and discounts. The General Council of the Association on Spanish States Agents (Consejo General de los Colegios de Agentes de la Propiedad Inmobiliaria (COAPI)) has recently reported that 70% of the property sales of State Agents are “blocked” by the Banks because the clients do not get finance. In short: the Council point out that the Banks only finance Bank’s property transactions.

The prestigious economist Jesus Gil said to the newspaper El Mundo that in 2011 Banks will need to be more aggressive and not only regarding price: “Banks are putting everything at stake to sell properties, but unfortunately there are too much sub-prime properties in Spain”.

Banks’ portfolio could be mainly classified in three categories:

1) New built house and flats that developers could not sell at the time because of their poor location and expensive price.

2) Poor quality and sub-prime properties that were repossessed from low profile borrowers.

3) Coastal second residences.

Conclusion

Given the circumstances, announced property market value with big discounts, do not correspond with the real market value, since many properties do not worth the supposed original price. The property may match the selling price, but not the market price that Banks pretend with such big discounts. Be careful. You pay what you get: there are not bargains.

Do not rush… prices may drop a bit further in 2011 and probably 2012 and 2013.
We strongly advice buyers to search the local market before taking any firm decision.

Daniel Talavera www.thespanishbrick.com

British communities in Spain that have been a victim of property fraud and planning abuse in the last decade are receiving signs of hope in order to regulate the situation of their house.

According to the local newspaper “La Voz de Almeria”, local authorities in the Almerian Almanzora Valley are seriously reconsidering an “amnesty” for most of the 11,000 houses that are categorized as “illegal”. As a first stage, the authorities are auditing all the illegal houses.

This positive response from the local government is a direct consequence of the pressure that the organization of affected buyers “Abusos Urbanísticos Almanzora No!” (AUAN) has put on the authorities since late 2007 in order to regulate their housing situation: demonstrations, demands and seminars are some of the actions.

BASIC POINTS FROM THE EXPERIENCE OF AUAN

The following are basic points to understand what went wrong in Almeria and some general advice if you want to develop a house on a plot. If you want to develop or buy in Spain, we strongly encourage you to get proper legal advice for your specific case.

1) If you are planning to move to Spain and to develop on land, either rural or urban, it is important to check the local Plan General de Ordenación Urbana (PGOU) in order to know if the land is suitable to build on or not. All further licenses that developers may show you are worthless if the plot is not designated as urbanized in the approved local PGOU. This is what mainly went wrong in the Almanzora Valley affecting more than 5,000 houses – this could only happen in Spain! The Spanish Brick wonders if there were unscrupulous dealings going on within local authorities.

2) The PGOU is in all town halls to advise you. Ask for detailed information from an officer in the Concejalía de Urbanismo. It should be an approved PGOU by the regional government.

3) Rural land in the PGOU is legal and fine. What is not legal is to build a house on rural land.

4) Do not trust developers without clear records and good references. Never rush to buy in Spain: there are no easy bargains and plenty of houses to be sold. Try not to rush.

5) Ask for a building license in order to avoid any further demolition. Keep in mind that in some areas and towns there are a maximum of floors which can be built. So if you can only build up two floors and you build up three floors, you will be forced to pull down the third floor and you may face a penalty.

6) Purchase building insurance to protect against any potential defect in construction. It will be very useful.

7) Do not take decisions without legal advice. Discuss with other home owners or buyers.

THE SPANISH BRICK VIEWPOINT

• We are deeply saddened about what happened and we want to make a special mention to Len and Helen Prior after reading about their case on the AUAN website. All our support goes to the affected (British and Spanish) home buyers.

• Unless “illegal” houses in the Almanzora Valley were placed in dangerous locations such as cliffs, all the properties should now be legalized. It is a matter of justice not to punish innocents that did not have the protection of the authorities in this mismanagement.

• The image of the Spanish property market has been extremely damaged by illegal developments and political corruption related to property and urban plans.

• The Spanish Brick does not understand how 11,000 houses can be ¨illegally¨ built up without any obstacle. Culprits who broke the urban law (including authorities who allowed such a disgraceful event) should be made accountable.

Daniel Talavera www.thespanishbrick.com