Posts Tagged ‘Realistic House Prices’


November 28th, 2009

I recently read an interesting interview with Mikel Echavarren, head of Irea, a Spanish real estate consultancy, talking about the state of the real estate sector in Spain. As an experienced professional in touch with many different companies in the sector it is worth listening to what he has to say. Here is a selection of comments from his Q&A with Idealista News, the news section of the property portal Idealista.

Do you think there are any good investment opportunities in Spanish real estate today?
I think so but they are risky. In three years we’ll probably be kicking ourselves for not advising investors to invest now. There aren’t many opportunities in commercial real estate because there isn’t much product and rents haven’t yet adjusted. In residential, on the other hand, the correction has been very strong and fast. The ideal profile now is an opportunistic investor buying properties off banks by taking on the existing debt, a type of real estate venture capital.

So you think there are opportunities in a residential sector because the adjustment has already taken place?
There are hundreds of thousands of possible transactions, but not many genuine opportunities. What there is not is any financing, so anyone who wants to take advantage of this market has to take the debt with the asset, but there are still very few people prepared to do that today.

Has the price of housing and land touched bottom?
House prices touched bottom some time ago, they have already fallen all they had to fall. And the price of land has fallen faster than house prices although it could even fall a bit more. We have been saying at the top of our lungs that the price statistics published by the government are worthless, and damaging to the sector because they give international analysts the impression we are a country of idiots. In the US and the UK prices have fallen around 20% from the peak whilst here we have only fallen by 8%. We work with close to 28 property companies that have been restructured, and you see that valuations are down 30% in 2 years, and then banks buy those assets with discounts of 10-15% off valuations.

Do you think there is any residential property that will never sell?
What there is is a stock of land that will never be sold, at least not in 10 years. There are areas of Spain where the town plans look like they were designed for an invasion of extraterrestrials, parts of Almeria, Murcia and Alicante. There is an overdose of land that will lie in the warehouses of banks for many years. On the other hand, the stock of finished property will be absorbed sooner.

Is there any real demand for housing at the moment?
Yes, quite a few homes are being sold. We would have to place it at more than 200,000 homes a year. What is not selling is off-plan, as there you take the risk of the developer or builder going bankrupt. It’s a good time to buy newly built homes with Euribor at 1.24%. They won’t be any cheaper next year. And when prices start to rise they will do so at a rate of 10% per year.

How does one get the Spanish property sector to recover?
The residential sector is already recovering, just not the developers, who won’t see the light at the end of the tunnel for three years; it is very bleak for them. Clients of ours tell us they have sold a lot this summer, and some banks tell us that they have had more mortgage requests this summer than in all 2009. Furthermore, we believe that developers have dropped their prices to the minimum. There is mortgage financing available, not much, but there wasn’t any at all in 2008, and now there is. Mortgage costs are low, and it appears that the future is not going to get any worse. The recovery is underway, although this won’t show up in the official statistics until the first half of 2010. As soon as there is a general perception that things are getting better, house prices will stop falling and start rising.

Story from Idealista News

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June 16th, 2009

Last month’s House Price Index report fell a little flat because of the hope it would show that the decrease in house prices had reversed. Actually, both the March and April reports showed that Spanish property prices had remained at a relatively stable 10% down on an annual basis. While this is far from exciting – and a far cry from a complete turnaround – the data does suggest that house prices in Spain have bottomed out.

For the past four months, the House Price Index has been steady, 10% down Y-O-Y. Compared to the dramatic decline measured between the middle of 2006 and the start of 2009 -a 28% decline from peak to trough-, that’s quite a significant change in trend.

Even if the House Price Index for the rest of the year shows the Spanish property market bumping along the bottom at the current levels, many people will be relieved to have actually found the bottom – rather than worrying about how much worse things can get.

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April 21st, 2009

A recent Reuters housing poll of Spanish and foreign-based economists found that on average prices were expected to fall 32 percent from their 2007 peak. While that won’t much of a comfort to people who bought a Spanish property at or near the 2007 peak, most other property owners wishing to sell sooner rather than later know what they need to do. To sell their property, they just need to take 32% off its peak value in 2007.

An example: You pay €210,000 for a Spanish property in 2003 and it increases in nominal value to €395,000 in 2007. Most vendors wanting to sell that property today would be tempted to advertise it at around €320,000 – but that won’t work. Most people won’t bite at that price. Instead, advertise it at €270,000 and you’ll have a queue forming outside your front door. Hopefully, you’ll find more than one who is serious – and you can stick resolutely to your asking price.

Clearly, not every Spanish property owner is able to take this kind of ‘hit’ when selling – but many can. The reality of the situation today is that property prices in Spain won’t recover for a good few years – and it will take even longer for the highs of 2007 to be reached again – if at all. Vendors can either sell now at a realistic price or wait a long, long time for their ‘ideal’ price to be realistic again.

There is no shortage of people ready, willing and able to complete on a Spanish property – they simply need to be convinced it represents good value. Despite the lack of reliable official data about the Spanish property market, despite the gloom and doom of most news stories in circulation, vendors have all the tools they need to be able to price their Spanish property to sell – and sell quickly.

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