Could UK equity fuel the next overseas property boom?
Retired British homeowners are releasing equity from their homes at levels not seen since before the 2008 financial crash, signalling confidence in the UK property market and bringing potential knock-on benefits for overseas property markets.
Based on figures from the Equity Release Council, the over-55s in the UK borrowed more than £1billion against their homes in 2013, accounting for 19,000 borrowers. This compares to 30,000 borrowers in 2007 – when equity release peaked – and 16,000 in 2011, when the UK was suffering economic hardship. Figures show that the upper amounts of cash being borrowed against homes has reached one of the highest averages ever, namely £60,000
Today there are more opportunities to use UK equity to fund an overseas property purchase compared to the past five years.
Buyer confidence in Spanish property is returning, as the fall in prices begins to slow down and investors sense a potential turnaround in the market, reports a leading luxury Spanish estate agency, Lucas Fox.
According to recent data released by the company, some of Spain's most desirable areas have fallen up to 50 per cent since the property crash of 2006/7; sales transactions are on the up; the Brits and Scandinavians are returning to the market and there is growing interest from Far Eastern and Russian investors.
In summary, in Barcelona, the Costa Brava and Marbella, prices have fallen between 20 and 50 per cent. Property sales in Barcelona are up 13.5 per cent from January to May 2013 compared to the same period last year
Lucas Fox has seen the strongest two quarters of trading since the start of the property crash of 2006/7.
The luxury property market is doing particularly well, primarily in Barcelona, the Costa Brava, Ibiza and Mallorca where the average sales price of properties sold by Lucas Fox in the first six months was over a €1million. In these key areas the property markets are still being driven by international clients.
* Mallorca was the most popular tourist destination in Spain in the first half of 2013, with many British and Scandinavians returning to the market.
* On Ibiza, prices remain buoyant and the demographics of buyers is changing with more young European buyers in the 30 to 40 year age group. Read our article on what to buy in Ibiza here.
ResidencyinSpain.com, Lucas Fox's Joint Venture with leading law firm ECIJA - has been registering up to 20 enquiries a day following the approval by the Spanish parliament of a new law, which will grant non–EU nationals residency when spending €500k or more on Spanish property.
There has been particular interest from Russian, Indian, Chinese and American investors.
Lucas Fox co-founder Alexander Vaughan comments: “The first six months of 2013 saw further encouraging developments in the property market in prime areas of Spain. In all regions we cover, the numbers of offers and sales completed were significantly up on the same period in 2012.
“It remains a buyer’s market with even the best properties transacting at 20 to 30 per cent below their peak prices and sellers increasingly open to negotiation on asking prices. Our advice to potential buyers is to focus on location and quality.
“There are some great deals to be had and we think that in most areas, particularly Barcelona, the Costa Brava and Marbella, prices are at, or very close to, the bottom. We expect the trend of sellers lowering asking prices in line with buyer expectations to continue for at least the rest of 2013.
The Spanish Government is considering granting residency to foreigners who buy homes in the country worth €160,000 or more, in an effort to jump-start its ailing residential property market.
The economy minister for Spain, Luis de Guindos, hopes foreign investors and real-estate funds will help offload property assets from the banks’ balance sheets.
Less than 3 months after tightening rules to force lenders to accept larger property losses, Spain is seeking new ways to convince the bond market that bank losses won’t overburden public finances. Luis De Guindos said that any 3rd party investors in the new pooled property entities won’t need the reassurance of public money because the assets they will contain are becoming more realistically priced.
The plan was revealed earlier this week by Spain’s Minister of Trade, Jaime Garcia-Legaz , who said it would target Russian and Chinese property buyers in particular. Russians are already said to be present in growing numbers in the Costa del Sol and Costa Brava.
The scheme, if enacted, is thought likely to appeal to other foreign nationals as well who are keen to obtain a European passport. News of Spain's scheme to attract wealthy foreign homebuyers was viewed with some interest in Cyprus, according to the Cyprus Property News, which reported today that it would put Spain "in competition" with Cyprus.
This is because Cyprus has a similar residency scheme for third country nationals to that proposed for Spain, which also targets wealthy investors from Russia and China, "but the minimum investment in property has been set at €300,000, almost double" the Spanish scheme's amount, the CPN noted.
Ireland and Portugal also offer residency to foreigners who buy properties – in these cases, worth more than €400,000 and €500,000, respectively. All four countries' economies have been hard-hit by the 2008 financial crisis, which caused their inflated property markets to collapse and left their banks holding mortgages and deeds on real estate worth only a fraction of what it had been before the downturn. Spain's stockpile of unwanted property is said to number around 750,000 homes.
Spain will draft rules in the forthcoming months to allow banks to move property holdings into asset-management companies run with 3rd party investors, the minister said. The mechanism, which will be voluntary, affects assets for which provisions have already been made. Spain is in the midst of the third effort to clean up its banking industry since the bubble burst in 2008. De Guindos has stated he believes valuations are bow much closer to the actual valuations of the market place.
A place in the Sun editor Liz Rowlinson has claimed that foreign property investors are returning to traditional markets such as Spain and France. Five years ago the emphasis was on finding 'the next up and coming market', however now investors are looking for lower risk more established markets, with a longer track history.
Bank of Spain : Spain is in its worst housing crisis in democratic history
The graph above shows property price falls in the last three collapses (1979, 1991, and 2007). The current one is on course to be the worst of the three. The report states house prices won’t bottom out until next year. But given the severity of this crash, it wouldn't be a suprise if it takes 6 or 7 years from peak to bottom.
Spanish property prices have fallen for 4 consecutive years, with the biggest drop happening last year. The Bank of Spain’s baseline and worst case forecasts for house prices are : Prices will fall the most this time around even in the basic scenario. In the worst case scenario house prices will fall 40% in real terms to 2012.
Spanish banks face deeper losses on 176 billion euros of soured real-estate assets as Mariano Rajoy, the favorite to win national elections on Nov. 20, pledges to enforce a cleanup.
“You have to remove any kind of shadow of doubt over the valuation that you have of these assets in your balance sheet,” Luis de Guindos, tipped by newspapers as a contender for finance minister in a new People’s Party government formed by Rajoy, said in an interview. De Guindos said he favored stricter rules on how banks account for depreciated land values.
Investors demand 469 basis points of extra yield to own 18- month senior, unsecured notes sold by Banco Bilbao Vizcaya Argentaria SA (BBVA) rather than two-year German government debt, up from 341 basis points when Spain’s second-biggest bank raised 750 million euros from selling the debt on Oct. 28. The yield on 18-month Spanish government paper sold yesterday jumped to 5.159 percent from 3.801 percent last month.
Reluctance of banks to lend threatens to hamper economic growth, undermining trust in government finances and threatening to create a “vicious circle,” said Alberto Recarte, who worked as an economist for the People’s Party from 1992 to 1996. Spain’s 10-year borrowing cost soared to more than 6.3 percent yesterday, up from an average this year of 5.4 percent.
Spanish banks have set aside 105 billion euros since 2008 to absorb a property crash that has left them holding unsold land, apartments and warehouses. The “cleanup and restructuring” of Spain’s banking system is the top pledge Rajoy has made in his electoral program to fund the country’s recovery by boosting the supply of credit.
Subsidized low-cost housing - hit by crisis
One of the victims of the collapse of the property boom has been plans to build low-cost housing, a sector that has long been overlooked by central and regional governments. Direct funding for the purchase of Spanish housing by low income families has been stopped for this year and the next.
The government's direct support to homeownership was normally 8,000 euros to buyers with annual incomes of less than 15,975 euros, rising to 12,000 euros depending on the number of children of the applicant. In 2009, 310 million euros was granted in this scheme.
To counter the loss of direct aid for families on lower incomes, the government will be bringing in more flexible conditions for mortgages when purchasing subsidized housing. From 2011, buyers of these properties will be able to finance up to 90 percent of the value of the property, instead of the maximum 80 percent today.
The remaining housing budget cuts are related to property developers and support to individual regions, including the elimination of the so-called "performance reserve," whereby regions could be up to 20 percent above the targets agreed with central government in relation to property funding. In addition, the ministry will not renew the grants available that supported the rehabilitation of historic urban centers, degraded neighborhoods or remote rural communities.
The government has also decided to cancel grants given to developers for the acquisition or development of land for the construction of subsidized public housing. An additional related subsidy, dependent on the percentage of the total property that was intended for rental assistance, will also change from next year. As a rule, 250 euros per square meter of low-cost property was granted if it was intended for rental purposes. However, at the current time, the exact reduction of this subsidy has not yet been determined.
The government says that in the last five years it has assisted in 500,000 subsidized homes, 46 percent more than in the two previous two governments and, in addition, since 2004 more than one million people have accessed some form of state aid to help enter the housing market.
Inverseguros Liquidates 450 Million Euro Property Fund
Following a two year closure of the Segurfondo property fund, Inverseguros has announced it will liquidate the fund. Investors have been unable to withdraw money from their investment for two years, and now face a payout well below their investment amount. The fund's historical performance can be found here
The real estate fund closed for redemptions back in April 2009. The Spanish group had hoped it would be able to reopen the fund by this year’s April deadline. However, it did not manage to raise enough capital to meet the redemption requests and has been forced to liquidate the fund, a process which will involve it selling off its remaining properties. Two other EU property funds have been liquidated in the past few months (Aberdeen Immobilien and the Morgan Stanley P2 Value Fund)The fund comprises of around 60% residential properties and 30% commercial, the majority in the Madrid location.There have been some positive signs for the property sector, as Santander announced at the beginning of March it was reopening its €2.5 billion property fund after it managed to raise enough capital to meet redemption requirements.
Housing sales rise, after three years of decline
The Public Works Ministry in Spain ( Ministerio de Fomento ) said on 7th March, that sales in 2010 were up 5.9% with 491,000 units. In the 4th quarter alone of 2010, purchases were up 14.2% at 150,268. 59.3% of the sales were existing homes, and 40.7% news homes. The main drivers of the increase are thought to be one-off factors, and not necessairly long term motivators of demand.
The Spanish Government raised V.A.T on the sale of new houses from 7% to 8%, which is effective from July. Tax breaks for purchasing a family home were also removed as part of austerity measures (although low income families can still benefit). The housing market is still trying to shake off the unwelcome legacy of a decade- long boom that turned into a bubble and burst, leaving a massive over-supply that is yet to be run down. While house prices have been falling from their peaks at the end of 2007, experts believe they need to drop more to eliminate the stock of unsold homes. Demand has also been impacted by the fact that one-fifth of Spain’s working population is out of a job.
Spanish 'Caja's' have 100 Billion Euros in bad property exposure
Sources in the banking sector calculate the country’s lenders may need around 15 billion between private and public funding to meet the new requirements. Fernández Ordóñez said the decree was “absolutely necessary” to address the problems facing Spanish banks, which were exacerbated by the eurozone sovereign debt crisis. All but five of Spain’s banks passed the stress tests carried out on European lenders in July of last year.
“It is clear that circumstances have changed, above all because of the Irish sovereign debt crisis, and we need to put an end to the lack of confidence that exists about the Spanish financial system,” Fernández Ordóñez said.
The Bank of Spain’s report said the country’s savings banks’ combined exposure to the ailing real estate sector amounted to 217 billion as of the end of last year, of which potentially doubtful loans amounted to some 100 billion. The central bank said that of the total exposure to the real estate sector, loans accounted for 173 billion and foreclosed property or assets received by way of repayment of debt the remaining 44 billion. In the fall of last year, the central bank calculated potential bad loans of the financial systems as a whole at 181 billion.
The report said that recognized losses in the loan portfolios of the savings banks, or cajas, have been fully covered by provisions. On March 10, the Bank of Spain will publish the amount of capital required to meet the new solvency requirements. Banks will have until the end of September to meet the new rules, but in the case of cajas planning to transform themselves into commercial banks as a prior step to listing, the deadline is the end of March of next year.
Banks failing to obtain the financing they need from the private sector can avail themselves of the Orderly Bank Restructuring Fund (FROB). The FROB was set up to aid the process of consolidation of the cajas, with the number of players in the sector reduced from 45 to 17. The FROB has so far provided ¤11.56 billion in funding, a little over 1 percent of Spain’s GDP. The deputy governor of the central bank, Javier Aríztegui, said the FROB currently has 7.5 billion available immediately to lend to banks that request it.
2010 Property Sales down 0.4% compared with 2009
The latest figures from Spain's statistic institute show a 0.4% drop in property transfers in 20010 compared with 2009. This shows a stagnation in property sales over the two year period, but the 0.4% decline is not siginificant and may indicate a turning point. The full report can be found here
November 2010 sees increase in property transfers, but property market still at lowest level in 4 years
According to a report by the Spanish National Statistics office in January, property sales in November 2010 where up 20.8% compared with the terrible sales figures of October 2010. The full report can be found here.
However compared to November 2009, sales where down 8.6%. A V.A.T increase and bad economic news, stemmed any chance of a property recovery at the end 0f 2010. However, there are signs that the decline in demand maybe bottoming out.
Regions have performaed markedly differently througout Spain. Barcelona (in a similar respect to London, UK), has faired best with home sales up 31% compared with the same month in 2009. The national declined in housing sales has slowed throughout 2010, and there is some home this maybe a sign of a turnaround over the next couple of years.
2011 is expected to to be a tough year on housing prices, as the banks are ordered to unload around 200,000 repossesed properties from their books. This may see an increase in demand, as the banks have more power for large discounts, to creating interest.
Spanish property market sees boost in sales
In August, the number of property transfers increases 13.7% as compared with the same month the previous year.
A report from the National Statistics office on 13 October 2010, reported strong sales figures for the month of August. Excluding social housing, there were 39,250 house sales in August, up 1pc on July and 26.6pc on the same month last year. Resale properties had a good month in August, with sales up 33.9% compared to last year, and new build sales were up by 25%
National Statistics Report shows house prices rise in Q2 of 2010
Spain's National Statistics institue reported in September that quarter two average house prices in Spain where 1.6% higher than in quarter one. This would be the first quarterly rise in three years, and provide some evidence that Spain's housing market is beginning to level out, since it's dramatic falls over recent years.
Skeptics believe, however, than the figures produced may not accurately reflect the true state of the housing market. For example, the housing statistics have shown, in the past, that's Spain's property prices fell on average around 10% since the property boom peak in 2007. Those living in Spain would disagree, with most seeing housing prices fall by around 20% to 30%.
The full INE report can be found here
June property sales decrease, whilst annual price index is down 4.3%
In June, the number of property transfers decreased by 3.9% as compared with the same month in the previous year. However, property sales of Spanish homes has increased in 2010 overall, when compared with the same period in 2009. The full National Statistics Institute report can be foun
Average Spanish property prices fell 4.3% over 12 months to the end of July, this is based on the property appraisal company Tinsa's figures. Based on their statistics the rate of fall in Spanish property prices is declining. However, it is worth noting that these statistics are based on bank valuations, as opposed to sale prices.
Second home owners facing higher taxes on holiday lets 7-Aug-10
Tens of thousands of second home owners could face a tax squeeze in a Treasury crackdown on holiday lets. The tighter rules will end income tax breaks for those who occasionally rent out their second homes. In future, tax help for holiday homes will be slanted to help tourist businesses rather than owners who only let their properties from time to time.
Accountants warned Coalition ministers are determined to ensure the Treasury does not lose out and that tax breaks they regard as costly are in danger. Mike Warburton, of accountants Grant Thornton, said: "Tax breaks will apply to someone running a proper business rather than someone just playing at it. Thousands of second home owners face a tax squeeze in a Treasury crackdown on holiday lets.
Mr Osborne is acting to balance the Treasury's books because of European rules that mean tax breaks must be extended to second home owners across the European Economic Area including Spain. Tax breaks for holiday home owners date from the mid-1980s, when the tourist industry first persuaded the Treasury the leisure industry needed encouragement. They have allowed those who let out furnished holiday homes to offset losses against their own personal taxes.
For a higher rate taxpayer, this means that if they can show they have lost £5,000, they can save £2,000 in income tax. However, the need to spread them to owners of homes anywhere in Europe has made the perk expensive and last year Labour responded by threatening to abolish the tax breaks altogether. Mr Osborne reversed that decision however, and in a consultation paper the Treasury has made clear they will be more limited in future. The new rules will also mean a home must be available to let for longer – 210 days as opposed to 140 days now – and it must be actually let to holiday tenants for 105 days in a year rather than 70 as now. However, cheap rates of capital gains tax will remain for those who sell second homes that qualify as furnished holiday lettings – 10 per cent, as opposed to 28 per cent for higher rate taxpayers when ordinary second homes are sold.
Spanish property asking prices down in July 5-Aug-10
Resale asking prices for property in Spain fell 0.4% in July compared to the same month last year, according to the index published by Idealista.com, a leading property portal. Average asking prices in Spain are still a long way from what buyers are prepared to pay. Vendors are now asking an average of 2,365 €/m2, down from 2,374 €/m2 in July last year.
For the first time the number of autonomous regions where prices rose and fell was equal. It was the same story in provincial capitals, where prices rose and fell in 24. Prices fell the most in Murcia region (-1.9%), followed by Navarra and The Valencian Community (-1.8%). By province, prices fell the most in Lleida (Catalonia), down 4.6%. At the other extreme, prices rose the most in The Balearics (+2.5%), Cantabria (+1.5%) and Galicia (+0.9%). By the end of July, asking prices were the highest in The Basque Country (3,525 €/m2), followed by Madrid (3,270 €/m2), and the lowest in Extremadura (1,402 €/m2), Murcia (1,441 €/m2), and The Canaries (1,626 €/m2).
Asking price data in Spain is a poor guide to transaction prices. Take the fact that, according to the idealista data, asking prices rose by 2.1% in Almeria, a region where transaction volume is down 62% year-to-date, according to figures from the National Institute of Statistics – a more reliable guide to market temperature than Idealista’s asking prices.
Planning approvals down 22% over 5 months to end May. 170,000 construction sector companies fold in 2 years 2-Aug-10
Planning approvals over 5 months to the end of May fell 21.8% compared to the same period last year, according to the latest figures from the Government. In total there were 40,000 planning approvals by the end of May this year. Last year there was a fall of 58%, which puts these recent figures into context, and some would see this as a sign of improvement in the housing sector.
According to a recent study by the Fundación Colegio Libre de Eméritos Universitarios around a quarter of Spain’s construction companies have closed shop. A total of 170,000 companies in the construction industry have closed their companies during the years 2008 and 2009. The majority of all closures (63.5 per cent, around 108,000 companies) have closed in the past year. The study also reveals how during the more prosperoud years of 1999-2009, 17 per cent of all 4 million new companies created were in the construction industry.
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La Manga del Mar Menor
Murcia from €105,000
Punta Cormoran is a front line beach complex of apartments surrounded by the Mar Menor on one side and the Mediterranean on the other. Communal swimming pools and garden areas. 1, 2 & 3 bedroom apartments with spacious terraces, fitted kitchen and underground car park space.
Prices from: €105.000 Euros (24% lower than previous price)
La Corona de Alcaidesa
Cadiz from €250,000
La Corona de Alcaidesa is located in the Alcaidesa resort, next to Sotogrande, 1 hour from Malaga airport and 20 minutes from Gibraltar. Spectacular coastal views to the straits and North Africa.
2, 3 & 4 Bedroom semidetached houses with private parking, basement, fitted kitchens and private gardens. The complex also offers communal pool and gardens.
Alcaidesa resort offers an impressive array of amenities, like, tennis club, archery, commercial centre, 18 hole links golf course, equestrian centre and fabulous sandy beaches.
Prices from: € 250.000 (21% discount already applied in the price).
El Vergel de Denia
Alicante from €116,000
El Vergel de Denia is a luxury complex of apartments located 300 metres from the beach of El Vergel with 4 Km of dunes and sandy beaches. 1 Hour from Alicante airport and just under 2 hours ferry to Ibiza island.
The complex comprises 7 blocks of 4 storey high, with outdoor swimming pools for adults and children with wood decking surrounding, security post, indoor heated swimming pool with fitness room, sauna and showers, tennis courts and garden areas. Fitted kitchens with appliances, garage space and storage room included.
Price 1 Bed: € 116.000 (27% lower than previous price)
Price 2 Bed: € 145.000 (27% lower than previous price)