The Latest Spanish Property News from Kyero.com

Developer San Jose applied for court protection this week against it’s creditors. This means that anyone who put down a deposit on an off plan property through San Jose must join the queue of creditors to try and get their money returned.

This is going to be a long and complicated process with no guarantee of success, but group legal action is now called for to try and recover as much as possible from the developer.

UK law firm, Irwin Mitchell has agreed to hold a meeting next week to explain the situation, what the options are and what action they propose. They have set a provisional date for a meeting in their Brimingham offices on Wednesday 21 May 2008. They need to know how many people are interested and able to attend.

Register your interest by completing this form today. Your details will only be used by Irwin Mitchell lawyers to contact you.

In the meantime you can also see the discussion about this subject on the Eye on Spain forum.

Justin Aldridge, Eye on Spain

The PIMS Index of Property Market Sentiment Falls from 2.2 in March to 1 in May 2008.

In the space of two months the Index of Market Sentiment, published by Property Investment Management Spain, has fallen from 2.2 to 1. This is a drop of over 50% and indicates a significant shift in market sentiment. The most optimistic score is 4 and the most pessimistic score is 0. So the market is considerably more pessimistic now than it was two months ago.

The facts tell us that transactions are down 40% compared with February 2007 and that sales are 60% down compared with September 2007. Prices have come down but they haven’t collapsed. Why not?

One of the reasons is how the government and developers are responding to these conditions. The government has announced tax concessions and other measures to encourage lettings. Developers are taking advantage of these and introducing “rent with an option to buy schemes”. The occupier rents the property with an option to buy at a date in the future at a price which is fixed now. If they take up the option the amount they have paid in rent between now and then is discounted from the purchase price.

This matches the purchaser’s needs with vendor’s needs. The purchaser keeps their options open and feels protected against a total collapse of the market. The developer gets cash now and, very importantly, hasn’t reduced the purchase price. The purchaser keeps the sense that they may not be throwing all their rent money away if they opt into a better market in the future.

There are other techniques which were very apparent at SIMA (the international property fair) which took place in Madrid in April. Headline prices are the same as say summer 2007. But developers have found other ways to reduce the price without it looking like the price is reduced. There are plenty of cars being given away; a proven if unimaginative motivator much favoured by television game shows in Spain. There were other offers too such as getting paid a salary for a year as soon as you sign up.

The most imaginative and cleverest offer is where the developer is offering to discount the property by the amount of down payment: the bigger the down payment, the bigger the discount (with limits). The developer gets what they need which is cash now and the purchaser gets a discount depending on how much they put down. Greed meets fear head on. And most importantly the price stays the same.

The key is in people’s perception. If people think there will be a price collapse this in itself could produce a price collapse. Could it be that the government and developer’s imaginative techniques may stave off the much heralded price collapse in the Spanish property market?

The general impression amongst agents is that there are plenty of buyers out there but they are waiting for prices to come down. We also know that mortgages are available in Spain so long as you are not “sub-prime” i.e. you can genuinely prove an income of 3 or 4 times what you are borrowing and you are able to deposit 10 or 20 percent of the purchase price. Spain remains the favourite location for the British to buy holiday and retirement homes. Perhaps when the market does come back it may come back quite strongly.

The PIMS Index of Property Market Sentiment is published bi-monthly by Property Investment management Spain

Jeff Greensmith of FINCAS direct had some great information about the property market in Catalonia in response to our Spanish Bad Guys, Part 2 article. Here’s his update on the situation in Catalonia:

The lack of coordination between Catastro and Registro de la Propiedad definitely strikes a chord: how many times have Registro staff told me that ‘we don’t have anything to do with the Catastro’, and vice versa. They say it as if they were proud of it!

As a seller of mainly rural properties in Catalonia I regularly get involved in planning questions and still — despite the fact that I speak Catalan and Spanish and have lived here for over 20 years — often find it very hard to get clear, straightforward answers to questions about planning issues. Local councils, central planning authorities, the Catalan environmental department.

To an extent it’s part of Mediterranean culture, the tradition of getting on with your life in spite of local authorities, the nod and a wink to the mayor, the ‘do what you want but we don’t want to know about it’ attitude. Spanish clients instinctively understand it of course, but it’s near impossible to explain to a northern European buyer.

But many Spanish local and government authorities have improved radically over the last 15 years, so let’s hope we’ll begin to see some coordinated improvements in the property sector.

In Catalonia, a new law, the Llei d’Habitatge, came into force on April 9th.

Among other things, it sets out to regulate estate agents:

- Compulsory register (but it hasn’t been set up yet). Agents’ register numbers will have to appear on advertising

- Insurance now required

- Bank guarantee will be required if deposits are retained by the agency and not paid to seller

- Agents must have a signed mandate from the seller for every property they offer, stating price, commission etc along with details of the property.

Apparently the law also aims to set up quotas of lower cost housing for sale, similar to the ‘viviendas protegidas’ but with more control. Hopefully some of the over supply of apartments etc could be converted.

Jeff Greensmith, FINCAS direct

Data recently released by the Spanish Ministry of Housing for 2007 reveals that the market slowed by at least 11% in 2007 compared to the previous year. The total Euro value of property transactions fell from €159 Billion in 2006 to €142 Billion in 2007.

The year-on-year slowdown is actually likely to be closer to 15% as the government figures do not account for cash changing hands as part of a property transaction. Due to a government crackdown, more property deals are now more completely notarised than previously. This has the effect of making current prices appear to have grown - when in fact the growth is due to a greater proportion of the transaction being notarised.

The Government trends are further compromised because they combine sales of newly built properties with those of resales. This means that market trends are obscured because sales of newly built properties today were essentially transacted several years ago - but completed today.

Today's sales of new build properties are a reflection of market activity several years in the past, not an indication of the current health of the market. Finally, a further muddying of the official figures occurs because sales of subsidised housing are often included.

Analysing the volume of non-subsidised resale property transactions is the best indication of longer term property market trends in Spain.

The number of resale transactions fell from 532,838 in 2006 to 403,642 in 2007 - a 24% decrease year-on-year. What escapes many analysts is that this isn't a new trend. The number of transactions have been declining steadily since Q2 2006, with Q4 2007 showing a hefty 41% decrease in just 12 months.

If we compare the sales volume of new build properties, we see a very different picture because it lags the resales trend by at least 18 months.

The 2007 new build figures below show a similar trend to the 2006 resales figures - and are clearly on the decline.

Compare these two sets of numbers to the official market index from the Spanish government. Below, they add in subsidised housing and present their index of the market trend.

The Government line until quite recently has been that price growth was slowing down but that prices increased in 2007. In reality the volume of resales has fallen by 24%, the volume of new builds by 5% - and house prices have definitely not increased to compensate for this overall decrease in volume. Overall the number of property transactions is down from 909,994 in 2006 to 763,991 in 2007 - a decrease of 16%.

With such a marked slowdown in the Spanish property market, the question everyone asks is "Why aren't we seeing house prices falling by 20-30%?" The broad answer is that only 'distressed sellers' are willing to negotiate aggressively on price at the moment.

In the category of 'distressed' we find individuals who must sell for whatever reason and developers who need to service their bank debt. These two categories do not constitute the entire market by any means - and it is for that reason that asking prices have not fallen across the board.

The property market in Spain is a buyers market currently IF the seller needs to sell. Many sellers are maintaining their asking prices and are happy to wait until the market bounces back.

Download the updated and translated data from the Spanish Ministry of Housing

• Average house prices
• Number of sales
• Value of sales

Martin Dell, Kyero.com

Last week I asked Who are the bad guys in Spain? This week, two news articles provide the answer.

The tedious account of a meeting in Planning Abuse in Almeria reveals a partial list of things wrong with the property market in Spain:

• No regulated steps for conveyancing
• No registration, supervision or compulsory insurance for estate agents
• No obligatory public information regarding planning approval
• No record of planning applications at the Land Registry Office
• No coordination between the Catastro and Land Registry Office
• No independent environmental protection

Hmm, that's quite a list of fundamental problems isn't it? They're not limited to Almeria either - this is how the property market operates throughout Spain.

Neither is the list complete - the councillor of Mojacar who made these points conveniently omitted the fact that town councils routinely ignore regional building regulations in order to profit from the taxes they charge on new construction.

Think of Valencia land grabs, Marbella demolitions and, the new-kid on the block, coastal demolitions.

When you combine a 20-year building boom with a broken system for building and registering property - guess what happens?

If you ran your bank account, home or business with such abandon, would you be surprised to find yourself in a mess?

Bad guy No.1: The Spanish government for allowing this to get so bad and looking the other way while they profited from the building boom.

Speaking of the government, in Real Estate Market Must Correct Itself we read the Minister for Tax and Economy, Pedro Solbes saying that he is against doing anything to halt the adjustment of 'the excesses' of the construction industry.

Responding for the construction industry, the President of the Promoters' and Constructors in Spain, APCE, Guillermo Chicote, said that the government is 'fighting pneumonia with cough drops' and that the problem was so acute, it cannot be solved by a little speech.

Bad guy No.2: The constructors for plunging Spain into the current situation of oversupply - and now taking no responsibility for the situation at all.

Solbes thinks that 'normality' will return to the market by 2010 - which sounds about right to me. I just hope that, during the intervening period, they get their act together and fix the broken system of buying a home in Spain.

It's not all doom and gloom though. Back in October last year, I wondered whether there wasn't a socially responsible solution to the problem of new-build oversupply. In particular, I wondered if it made sense to absorb some of these properties into the stock of subsidised housing.

Last week, the Spanish newspaper Expansion, as reported by Idealista ran this article:

"The government is studying whether freehold dwellings in stock can be sold under the state-subsidised scheme. The government could help developers by transforming part of the stock of half a million unsold freehold homes into state-subsidised housing. The reconversion plan could be decisive for absorbing the glut in supply."

Yep, I think that would work to the benefit of all.

I think Solbes is starting off in the right direction by refusing to pour money into subsidising a fundamentally broken system but the next step needs to be to fix the system itself.

If you had a leaky bucket, it would make sense to first stop pouring water into it, and second, to fix the holes or replace it with a new one. I hope that Mr Solbes agrees.