Archive for July, 2009

 

July 30th, 2009

Marbella’s town council yesterday approved the final draft of a new town-plan that will put an end to more than a decade of town planning chaos that has weighed heavily on the local property market. The plan now goes to the regional government in Seville for final approval.

The new town-plan will replace the existing plan, approved in 1986, that was systematically abused over 15 years by a succession of corrupt mayors, resulting in 18,000 illegal properties in Marbella.

The new plan legalises 16,500 properties in return for compensating the town hall with land and payments to restore public spaces that were lost to private developments. Under the latest draft developers are the only ones on the hook, after Ángeles Muñoz, Marbella’s Mayor, fought to ensure that innocent third party buyers will not be liable for any compensation payments.

Despite macho talk and brinkmanship from the Mayor last week, the new plan will not save the most contentious illegal properties from demolition. Last week Ángeles Muñoz said she would extend the planning amnesty to 500 illegal but occupied properties, against the wishes of the government in Seville. But in the end the new plan she sent to the town council for approval did not offer a way out for the unfortunate owners of properties in the Banana Beach and Rio Real developments. In theory these properties will have to be demolished, along with 1,000 other properties that were built but never sold, as the new plan does not provide for any other solution.

The regional government in Seville is expected to nod through the new plan, which will them come into force. Marbella’s first town plan since 1986 can only be good news for the local property market.

Story by Mark Stucklin

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July 21st, 2009

Spain’s central bank has bowed to pressure and relaxed provisioning rules for lenders in a move that could help some banks avoid losses next year and allow others to strengthen their capital ratios.

The Bank of Spain yesterday confirmed that it had advised all banks that they would no longer have to set aside the full value of high-risk mortgage loans – those for more than 80 per cent of a property’s value – after two years of arrears.

Instead, they would only have to provision for the difference between the value of the loan and that of 70 per cent of the mortgaged property. In the case of a mortgage for the total cost of a new home, for example, banks would provision for 30 per cent of the property’s value. But the central bank also warned banks to ‘update’ their Spanish property valuations.

Although the regulator has long recognised the ‘residual value’ of mortgaged properties at 70 per cent, its schedule of provisioning for riskier loans in effect forced lenders to assume that a 100 per cent mortgage was irrecoverable after two years of nonpayment, against six years for most other credits.

The assumption was typical of a regulator whose tough stance on off-balance sheet investment vehicles saved Spanish lenders from the worst effects of the US subprime crisis. Its insistence on precautionary bad loan provisions has also allowed them to withstand the collapse of the domestic housing market about two years ago.

But the non-performing loan rate for the financial system has almost quadrupled in the past year, to 4.27 per cent of total assets, and is much higher at some of the caja, or weaker savings and loans banks.

Recent estimates put the value of property repossessed or swapped for debt by Spanish banks at about €16bn ($22bn, £14bn).

In April, the Bank of Spain took over a caja based in the Castilla La Mancha region. Another two recently announced they were in merger talks. The government, meanwhile, is setting up a bank restructuring fund which it says will provide up to €90bn for rescue operations. Lenders have welcomed the new provisioning criteria.

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July 16th, 2009

Spain’s economy is likely to have shrunk ‘substantially’ less in the second quarter than in the first, though growth will remain negative to the end of the year, the economy secretary was quoted on Monday as saying.

‘We don’t have a precise estimate, but we believe that the fall (in gross domestic product) will be substantially less than in the first quarter,’ Jose Manuel Campa said in an interview with the financial daily Cinco Dias.

‘Until the end of the year we will continue to have negative growth rates, but increasingly smaller ones.’

Spain’s economy shrank 1.9 percent in the first quarter from a quarter earlier, its sharpest contraction in half a century – most acutely felt in the Spanish property market. Savings bank foundation FUNCAS said on Monday the worst may be over.

‘Available data point to a less abrupt contraction in the second quarter than the previous two quarters,’ Funcas said. Talk of economic recovery may be premature, the foundation said.

‘The worst may be over, but that doesn’t mean the economy will recover soon, just that the recession will be less intense,’ Funcas said.

The Spanish economy would shrink by 3.6 percent in 2009 and 0.6 percent in 2010, according to consensus figures published by the foundation on Monday.

The Spanish government has launched one of the world’s largest economic stimulus packages in relative terms which has inflated a ballooning public deficit likely to rise above 10 percent of GDP this year from 3.8 percent in 2008.

Campa reiterated the government’s target to cut the deficit to below 3 percent in 2012 in line with European Union recommendations.

‘It is our commitment to the European Union and we meet our commitments,’ he said. ‘Obviously, it is not easy, but it is feasible.’

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July 16th, 2009

The Spanish house price index figures for June 2009 have just been released. See the graph and the table below for an up to date overview of the real estate market trend in Spain.

Spanish House Price Index June 2009 (C) Montes de Malaga Real Estate

Spain Coastal Inland
06-2008

07-2008

08-2008

09-2008

10-2008

11-2008

12-2008

01-2009

02-2009

03-2009

04-2009

05-2009

06-2009

-2.5

-3.9

-4.6

-4.9

-6.5

-7.8

-8.8

-10.1

-9.0

-9.7

-10.1

-9.8

-10.1

-3.0

-6.2

-8.3

-5.3

-8.9

-8.5

-14.3

-12.6

-10.7

-11.5

-13.5

-12.8

-12.3

-0.5

-3.1

-1.0

-1.7

-5.3

-6.3

-6.6

-10.0

-7.9

-8.9

-8.9

-8.7

-9.8

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July 16th, 2009

Results for the 2009 International Survey conducted by primelocation.com show that 70% of visitors to primelocation.com/international are actively looking to buy an overseas property, despite the current economic uncertainty.

Of all respondents, 28% said that they are unaffected by the current economic situation, 22% who had delayed their plans because of the economic climate are now back in the market and hope to find a bargain, while 10% said that they are checking out the market but will not proceed just yet.

Ann Wright, International Business Development Manager for primelocation.com, says ‘This is very clear indication that people have not let go of their dreams of owning a property abroad. Indeed, it is encouraging that people are coming back to the market, possibly because of recent press reports of falling property prices across Europe.’

The primelocation.com 2009 International Survey also monitored the countries the portal’s visitors are most interested in buying in. France took top spot with 25%, Spain came second (16%) and was followed by Italy and Portugal which tied in fourth place with 11% each. The United States, Cyprus, Greece, Switzerland, Turkey, Canada and the UAE took the rest of the top 10 spots.

‘It is interesting to note that over a quarter of all respondents currently own/rent a property in France and interest in the country, which has always been the first choice amongst Brits, has remained fairly stable at 25% since 2008. Spanish property and Portuguese properties have increased in popularity since 2008 as people respond to the reports of falling property prices.’

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July 7th, 2009

The European Central Bank will keep interest rates at a record low for more than a year and may yet need to expand its use of unconventional tools as it battles the worst recession since World War II, economists said.

ECB officials meeting in Luxembourg will leave the benchmark rate at a record low of 1 percent, according to all but two of 60 economists in a Bloomberg News survey. The central bank, led by President Jean-Claude Trichet, may keep the rate there until the fourth quarter of 2010, a separate survey shows.

The ECB last week lent banks a record 442 billion euros ($621 billion) for 12 months at its key rate in the hope they will pass on cheaper credit to companies and households. It will also start buying 60 billion euros of covered bonds this month to encourage lending. Trichet may today unveil further details of the plan, which was a compromise after policy makers failed to agree on a package twice that size.

“The ECB is pretty much done with cutting rates,” said Guillaume Menuet, an economist at Bank of America-Merrill Lynch in London. “However, they are very concerned about credit developments. If there is no improvement by October, the debate about expanding the asset purchases will resurface.”

The ECB, which holds Governing Council meetings twice a year away from its Frankfurt headquarters, announces its rate decision at 1:45 p.m. and Trichet holds a press conference 45 minutes later.

The central bank for the 16-member euro region has been reticent to follow the examples of the U.S. Federal Reserve, Bank of England and Bank of Japan, which have lowered their main rates to close to zero and are buying government and corporate bonds to reflate their economies.

The ECB, whose key rate is still the highest among the Group of Seven nations, has focused instead on getting credit flowing through the banking system again, arguing that two thirds of its economy is financed by banks.

Even so, loans to households and companies in the euro area grew at the slowest pace on record in May as the recession crimped demand for debt and prompted banks to tighten credit standards.

While the ECB’s measures have stabilized the banking sector, “they have not, at this stage, succeeded in pushing credit into the real economy,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. That could be achieved by buying corporate bonds, he said.

The ECB initially considered a package of asset purchases worth 125 billion euros that included corporate bonds and commercial paper, according to people briefed on the talks. Germany’s Axel Weber opposed buying assets of any sort. Other ECB officials, such as Athanasios Orphanides from Cyprus, have said more may need to be done to temper the risk of deflation.

Consumer prices fell 0.1 percent in June from a year earlier. That’s the lowest inflation rate Europe has seen since 1953, according to Royal Bank of Scotland. The ECB predicts the euro-region economy will contract about 4.6 percent this year.

“The primary goal should be to restore economic growth as fast as possible,” ECB council member Ewald Nowotny said at a conference on June 16. “It is necessary to use all possible means to secure a recovery,” he said in a June 19 interview, adding he expects interest rates to stay on hold into 2010.

Some policy makers are more worried that the stimulus being provided by central banks and governments will sow the seeds of future inflation. Deflation risks “are extremely limited,” ECB Executive Board member Juergen Stark said June 25. The bank will “swiftly” withdraw additional liquidity when the economy improves, he said.

There are signs that the worst of the recession may be over. The contraction in Europe’s services and manufacturing industries is slowing and confidence in the economic outlook rose to a seven-month high in June.

“The economy certainly won’t prompt any more ECB action for now,” said Aurelio Maccario, chief euro-area economist at Unicredit Group in Milan, who expects the ECB to keep rates on hold until the end of 2010. “However, if credit flows don’t start improving, Trichet will have to put his thinking cap on again in a few months.”

Story from Bloomberg

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July 6th, 2009

Euribor (12 months), the interest rate normally used to calculate mortgage payments in Spain, fell to an all time record low of 1.61% in June, down from the previous record low of 1.644% in May. This will bring relief to borrowers on annually resetting mortgages.

On a daily basis Euribor finished the month at 1.504%, another all time low, suggesting that Euribor’s downward trend has not yet run out of steam.

After the latest fall, Euribor is now 70% below where it was in June 2008. That means savings of around 3,400 euros per year for the average borrower with a mortgage resetting now.

A year ago the average mortgage value was 141,939 euros, according to the National Institute of Statistics (INE). With Euribor then at 5.361%, 3.75 points higher than today, monthly repayments on the average 25-year mortgage were around 860 euros. Today the repayments should have fallen to around 575 euros, a saving of 284 euros a month, or 3,400 euros a year.

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