The Latest Spanish Property News from Kyero.com

It's no secret that times are tough for property markets worldwide. The credit crunch, or "la crisis" as it is known in Spain, has had a major impact on the Spanish property market and it doesn't look like it's going to improve any time soon.

I'm not going to go into a full doom-and-gloom article here as everyone more or less knows what the situation is when it comes to the Spanish real estate market. What I want to do is actually focus on some of the initiatives that the Spanish government should be taking in order to help kick-start the property market once again.

I don't believe we're ever going to see a return to the frantic "everyone is an estate agent" days, that's just not going to happen, well not for the next 20 years at least. But, this is Spain and there will always be a demand for property here, both from the Spanish themselves and from expats searching for a new life.

So let's take a look at lessons learned over the past few years and what measures should be introduced to stimulate this flagging market. Mr Zapatero please take notes!

1. Regulate Estate Agents

I'm sure most people will agree with me that over the past few years things got rather out of hand with every man and his dog, and cat too, selling property here. Expats were flocking to the coasts to sell properties to other expats. As one estate agent (who made a considerable amount of money doing this) told me "it was just so easy, we would fly them over, put them in a bus, show them some properties, take them for a meal and at the end of the day they would all hand over a deposit".

Those days may be over and many of the "fly-by-night" agents are no longer around either but the damage has been done. The remaining estate agents are probably the better ones and I'm sure they would gladly take the necessary qualifications to become recognised and regulated professionals. The government needs to step in now to ensure that this profession becomes regulated to increase consumer confidence and put a stop to the bad practices that have affected the this industry.

2. Make it easer to report a lawyer

For many years it was common practice for developers and agents to recommend their own lawyers to their clients. This brought about the obvious problems in terms of conflict of interests. Many lawyers were really acting in favour of the agent or the developer and not so much for the buyer. I think this happens less these days as people are more aware of this issue, but nevertheless the process of filing a complaint against a lawyer should be simplified and easily available in other languages apart from Spanish. So many lawyers have had a very slap dash attitude and not carried out basic checks for their clients, such as bank guarantees, licences, etc.

Consumers need a simple and effective system to report their lawyers if they believe that they are not acting in their best interests or have not carried out their job effectively. Jumping from one lawyer to another is not the solution but is what most buyers are left resorting to at the end of the day when things go wrong.

3. Tighter control on mayors and town halls

I've lost count of the number of mayors that have gone to prison over the past few years on real estate corruption charges. Why was it ever allowed to get to that stage? Everyone knew this was going on, the locals, the local police, everyone, yet no action was taken for years in most municipalities. It really is time to control the authority of the town halls, they are literally a law unto themselves and it's still going on. Step in now and prevent this greed from affecting so many people's lives.

The Junta de Andalucia thought they were making a point knocking down Len and Helen Prior's house in Almeria in January 2008. It just made the Junta look like fools and scared more people off from buying in Spain. Len and Helen had all the paperwork and planning permission from the local town hall. They did everything according to the law. It was the local mayor who was to blame but was any action taken against him? Don't let these greedy people continue in power, step in and take control Mr Zapatero.

4. Regulate developers and honour bank guarantees

To say that the Spanish coasts have been over developed is an understatement. With hundreds of thousands of properties lying empty and many still to be completed, the extraordinary pace of development and the ensuing fall in quality and lack of infrastructure has really been the kiss of death for off plan property in Spain.

Couple that to the countless tales of the struggle people face when trying to execute their bank guarantees, it's a wonder anything gets sold at all these days.

Dubai has suffered a serious decline in their property market too and they have implemented new regulations for property development to ensure levels of quality, the safety of buyers' money and the reduction of unfinished developments. The Spanish government should seriously take note and start implementing similar solutions.....like now!

5. Reduce purchase taxes

You've spent weeks looking at properties, you've finally decided on the one you want, you've put an offer in and it's been accepted. You think everything's going well until you realise that you are going to have to find an extra 10 - 13% above the price you just negotiated to cover all the purchase and mortgage costs. That's a lot of money! On a resale property you pay 7% transfer tax and 1% stamp duty. Seems a bit greedy to me. On a new property you pay 7% IVA (VAT) instead which also seems a bit greedy really. On top of that there are the notary fees and the mortgage fees which all together turn out to be quite a lot of money. Maybe Mr Zapatero needs to take an urgent look at this and make it easier and cheaper for people to buy in Spain.

Well, those are my ideas, do you have any?

There are of course factors which are really out of the control of the Spanish government, such as currency rates, but there are still a great deal of initiatives that can be implemented to at least start building up some consumer confidence in the Spanish property market. I wonder how I can get Mr Zapatero to read this?

Story from Eye on Spain

Higher borrowing and higher taxes weigh on sterling. Investors nervous about Britain's AAA credit rating. Euro keeps a low profile.

Sterling gave back the previous week's gains, falling from €1.13 to €1.1050. A brief spike to €1.1350 on Tuesday was easily reversed. On Friday the pound had a serious look at €1.10 before getting its act back together.

There were two or three non-stories for sterling. Although the retail price index went negative, as expected, the consumer price index - the one the Bank of England follows, showed inflation still close to the top of its band at 2.9%.

Unemployment continued its depressing upward trek with another 74,000 jobs lost in March that took the unemployment rate to 6.7%. Retail sales for that month were higher than in February, making for a 1.5% improvement over the 12 month period. None of these developments had much impact on the pound because there were bigger fish to fry.

The biggest of the lot was Wednesday's budget speech. Investors - especially those based in London, and there are lots of them - focused on two aspects of the chancellor's speech: the massive levels of government borrowing that they will be expected to fund and the 61% total tax that the more successful among them will have to pay on the top slice of their earnings. Investors found neither aspect particularly appealing and they reacted in time-honoured fashion by selling sterling.

The other big story was a bit of a fake, really, but it still led to the pound taking another hit on Friday. The Daily Telegraph cobbled together a piece about credit ratings agencies' attitude to the UK economy post-budget. Even though the agencies - Moody's and Standard & Poor's - made particularly non-committal comments The Telegraph still managed to open its article with the headline "Borrowing puts UK's AAA rating in danger". The market swallowed the story hook, line and sinker, giving sterling its second kicking of the week.

The euro, like the US dollar, kept a lower profile than usual, assisted by a mid-month shortage of economic data. As far as pan-Euroland statistics were concerned the only numbers to speak of were Purchasing Managers' Indices and industrial new orders. The PMIs, although still well below the boom/bust dividing line, were an improvement on the previous month at 43.1 for the services sector and 36.7 for manufacturers. Industrial new orders, on the other hand, were just as weak in March as in February, down by 34.5% on the year. The best result for the euro was ZEW's survey of German economic sentiment, which went up from -3.5 to +13.0.

A week ago it was clear that sterling faced specific risks, with the budget top of the list. Event risk this week is less evident and there is no obvious reason to look for sterling to escape the last seven days' range. It is probably too much to hope for a recovery but after the stick it has taken recently sterling should at least be able to consolidate at these levels. Buyers of the euro can therefore revert to the tried and tested strategy of hedging half their exposure. Those requiring absolute price certainty should, as usual, cover the whole amount.

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A British couple who were forced to live in their garage when the Spanish government knocked their £600,000 Spanish villa over supposed building irregularities have been told the demolition was illegal.

Len and Helen Prior, who retired to southern Spain from Berkshire six years ago, became the first British expatriates to have their home flattened by bulldozers in a clamp down by regional authorities concerned with widespread flouting of planning laws.

The Priors, both 65, have always insisted they had the correct planning permission as issued by the town hall in Vera, Almeria province, on the southern coast of Andalusia and watched aghast as the bulldozers moved in on Jan 9 last year.

Last week, Spain's Constitutional Court ruled in their favour and said the demolition had been carried out illegally because the Priors were not made aware of a crucial court case in which the building's fate was decided.

The Priors, who for 15 months have been living in a garage on the site of their former home without access to mains electricity or water, will now use the ruling to support their claim for compensation.

Mrs Prior said: "We've been fighting our corner ever since the demolition and this is a major victory for us.

"The Constitutional Court has ruled the authorities acted illegally when they knocked down our home. We still haven't had a penny in compensation but we are now in a stronger position to claim," she said.

The couple, who have already spent more than £25,000 on legal fees, are demanding compensation and plan to sue the Ministry of Justice and the regional Andalusian government which issued the demolition order, claiming the property was built on protected land.

The bulldozing of the Priors' home shocked expatriate communities in Spain, where as many as one million Britons are thought to own property. Hundreds of homes bought in good faith have been declared illegal on 480 miles of Mediterranean coastline and are under threat of demolition.

Story from The Telegraph

I suppose I should have expected a bumper news week following the UK Budget announcements on the 22nd. The only direct change potentially affecting property owners in Spain is that landlords may lose the ability to offset their UK tax bill.

Following the budget, Moneycorp's predictions of Sterling struggling seemed to have been realised. Even so, predicting what will happen to the Euro / Pound exchange rate is a tricky business. One currency trader told me:

"Should the downward revisions to growth fall below market consensus, we could see the Euro strengthen back towards 0.9 GBP. Due to better than expected employment and high public borrowing, it is still difficult to forecast the relative strength of the UK economy. It is not expected at this time that the ECB will announce non-traditional policy tools at its May 9th meeting. Short term expectations are towards a strengthening EUR, however, longer term it appears that Sterling is undervalued and due for a correction - especially if the UK begins to shows signs that their aggressive monetary easing is affecting country's economic recovery."

No, I don't know either - but it looks like we should expect fairly significant movements in the exchange rate in the near future. If you plan to be exchanging currency, it would probably be a good idea to read up about placing a forward currency order and locking in an exchange rate.

Almost in response to the UK's 'austerity budget', other countries turned their attention to their own financial situation - and those of their neighbours.

In Ireland & Spain: Property Boom Cousins, we read that Spain is far less exposed to the vagaries of its property market than was Ireland - something which surprised me given how completely exposed Spain is.

However, this extra financial latitude, apparently enjoyed by Spain, is the cause for some concern. BNP economist Dominic Bryant said: "If they (Spain) don't get the right policies over a number of years, they'll get themselves into quite a mess over public finances".

Of course Spain is not unique in being in that position. In Europe Must Try Harder, the IMF 'encourages' European nations to make more of a coordinated effort at bolstering their own and their collective economies.

In Spain to Curb Spending & Support Banking, the IMF focuses on what Spain needs to do to avoid dragging its European neighbours down - a sentiment echoed by Spain's economic minister: "We shall start a process of restructuring our credit institutions to strengthen the system".

My 'silver-lining' award this week goes to the Reuters article: Spanish Property Still Moving - Slowly. In it, an estate agent in Benalmadena says:

"British sellers are successfully selling homes along the high-rise beachfront because they have been willing to slash prices by up to 30 percent this year, compensated by gains on changing their euros into the weak pound."

Back in January, I suggested that this would be happening and concluded "Spanish property owners looking for a quick sale, and wishing to take the proceeds to the UK, now have an ace up their sleeves. The sliding value of Sterling against the Euro means they can price their properties to sell - and minimise the impact of that price reduction."

Martin Dell, Kyero.com

• IMF urges Spain to curb fiscal spending
• Spain must prepare bank bailout contingency plans
• Spain risks L-shaped adjustment without reforms

Spain should be wary of extra fiscal stimulus measures and must prepare contingency plans for bank bailouts to head of possible systemic risk, the International Monetary Fund said on Wednesday.

In a report following a regular review of Spain, the IMF said Spain had to present plans to cut a ballooning budget deficit and needed to launch reforms in labour and economic markets to raise economic competitiveness.

"Further fiscal stimulus measures should be considered only if warranted by a further worsening of the downturn," the IMF said in the report. "Plans to achieve fiscal sustainability need to be spelled out."

"Without more reforms to increase flexibility, staff is concerned that Spain could get stuck in a low-growth extended-adjustment (L-shaped) equilibrium," it said, adding that Japan, Portugal and Germany had suffered such a scenario.

The IMF said Spanish banks had weathered the crisis well, thanks to strong supervisory policies, but needed support given a struggling economy.

The Spanish government says it is working on restructuring its banks and now is not the time to cut public spending, given the paralysis of construction and real estate sectors.

Deteriorating asset quality and higher capitalisation demanded by markets will continue to weigh on the outlook for Spanish banks and increase chances of mergers, the IMF said.

IMF directors said the vulnerability of Spain's savings banks, stemming from their dependence on local real estate activity, called for close monitoring.

"Prudential banking policies and credibility are strong, but contingency plans are required to augment bank capital if systemic pressures arise," the IMF said.

After 15 years of rapid growth led by a housing boom, Spain has entered a sharp downturn with soaring unemployment after foreign funding dried up during the global financial crisis.

"What started as a soft landing turned into an abrupt unwinding of imbalances," the IMF said.

The IMF expects the economy to contract 3 percent this year and 0.7 percent in 2010, in line with Bank of Spain forecasts.

Spain's fiscal deficit and public debt is ballooning, reflecting discretionary spending measures and a drop in important tax bases, including housing revenues.

"You don't want to dig a hole so deep now that you have difficulty coming out of it when the economy normalises," said Bob Traa, head of the IMF mission to Spain, during a press conference in Washington.

The government has announced 70 billion euros ($90.46 billion) in fiscal stimulus and measures to strengthen banks.

"You cannot continuously keep pushing new fiscal stimulus into the economy because at some point you need to take that back," said Traa. He expected Spanish house prices to fall 30 percent from peak to trough, and said Spain was perhaps half way through that process.

Story from The Guardian

The International Monetary Fund fired off the latest round of criticism, lamenting in a report that coordination between EU countries on the financial crisis had been "far from optimal."

Seven months into the worst financial crisis in generations, Europe is still coming under fire both from at home and internationally for failing to mount a tougher and more coordinated response.

"Stanching the much broader problems that are building in Europe's financial systems - notably those related to deteriorating prospects for loan books, particularly for exposures to emerging Europe - requires a far more forceful and coordinated financial policy response to the crisis," it said.

Forecasting that the eurozone economy would contract 4.2 percent this year, the IMF warned that the situation could turn out even worse, especially if big cross-border banks ran into serious trouble, triggering more sector-wide turmoil.

It also urged the EU to beef up emergency lending measures available to countries that become incapable of meeting their foreign financial obligations in order to ensure they do not "drag down others."

EU governments have already had to double an emergency lending fund twice over the last few months to 50 billion euros, as the credit line proved inadequate to support several struggling countries at the same time.

Looking further ahead, the IMF said that Europe needed more coordination and integration between the various regulatory bodies overseeing the financial sector, welcoming tentative steps under way.

"Ultimately, what is needed is an institutional structure for regulation and supervision that is firmly grounded on the principle of joint responsibility and accountability for financial stability, including the sharing of crisis-related financial burdens," the IMF said. "Otherwise, deleterious national reflexes will continue to prevail during crises," it added.

Europe appeared to be caught largely off guard after the global credit crunch took a turn for the worse in September following the dramatic collapse of US investment bank Lehman Brothers.

While seeking a leading global role against the crisis, EU governments scrambled in October and November to cobble together a range of measures to calm markets such as hiking bank deposit guarantees and underwriting interbank lending.

However, much of the measures were hastily agreed among big EU countries, with smaller countries left playing second fiddle much to the irritation of countries such as Belgium.

"The crisis has exposed Europe's weakness. We were waiting for a energetic response and more leadership, but that did not happen. On the contrary, Europe has faltered," Belgian Foreign Minister Karel De Gucht said on Monday.

Meanwhile, the European Commission has repeatedly come under fire for holding up approval of various national plans to help struggling banks.

In rare public criticism, the head of the German central bank accused the commission of ordering European banks to scale back their operations to their home markets as a condition for receiving state aid, which Brussels rebuffed sharply.

"For a European bank, foreign subsidiaries are non-EU subsidiaries," said Bundesbank president Axel Weber in an interview with the Financial Times.

"I find it surprising - to say the least - that European institutions view cross-border operations within the EU as foreign operations. For me, the euro area is the domestic economy," he added.

Commission spokesman Jonathan Todd fired back that "it is not helpful for people to make misguided public comments concerning the commission's approach for state aid to banks without first discussing the matter with the European Commission.

"If Axel Weber had done so he would have known that the commission is actively defending the single market and working to ensure a recovery from the crisis," he added.

Story from Expatica

Spain could be sliding towards harsh budget cuts like those forced on another former euro zone high-flyer Ireland.

Concern about Ireland's deficit and exposure to bank losses pressured its government to slash spending and hike taxes this month to reassure investors of its long-term solvency.

Although Spain has just launched a bank restructuring plan, it has nothing like Ireland's exposure to bank liabilities nor its dependence on housing-related revenues. This relatively favourable position means bond markets are giving Spain more freedom to spend -- but therein could lie its greatest risk.

Spain's Socialist government may be given enough fiscal room to double its debt level and build a double-digit deficit, then be unable to correct imbalances as growth fails to rebound.

In such a scenario, rating agencies could turn on Spain and impose the same kind of downgrades that have hit Dublin, which launched what critics dubbed "the budget from hell".

"You can think of Spain as a slow-burn situation. If they don't get the right policies over a number of years, they'll get themselves into quite a mess over public finances," said BNP economist Dominic Bryant.

Spain is the only one of the world's eight largest economies that will suffer two consecutive years of contraction in 2009 and 2010 after the collapse of its domestic housing boom coincided with the global crisis, according to Fitch Ratings.

Unemployment in Spain is rising faster than in any other developed country and is widely expected to top 20 percent, or 4.5 million, in 2010.

On the eve of the global crisis, Spain and Ireland seemed in good fiscal shape with balanced budgets and low public debt after running the euro zone's two biggest ever property booms.

In the space of 18 months, the Spanish and Irish governments have had to take responsibility for the collapse of housing and credit bubbles funded by their private banks.

Spain launched one of Europe's biggest fiscal stimulus packages, paid for by public borrowing, and Ireland could see a massive jump in national debt due to its efforts to cleanse banks of tens of billions of euros in risky assets. Most analysts say Ireland's government has been forced to punish its economy to save banks, a situation Spain must avoid.

"I am angry and disillusioned at the price we all have to pay for the failures to manage the economy," wrote Jim Power of financial services firm Friends First after Ireland's emergency budget was unveiled.

Spanish Prime Minister Jose Luis Rodriguez Zapatero has made no secret of his aim to keep up discretionary spending and compensate for a collapse in construction, tourism, and car sectors that formerly drove half of Spanish growth.

He fired Economy Minister Pedro Solbes this month after he said Spain had to respect EU deficit limits and appointed his public administration chief to speed up fiscal stimulus equivalent to nearly 5 percent of gross domestic product.

Spain's government accuses Bank of Spain Governor Miguel Angel Ordonez of alarmism for warning the social security system could enter deficit and Spain must launch structural reforms, the need for which the IMF also emphasised on Wednesday.

In the case of Ireland, pressure from the European Commission and markets helped convince Dublin to place a levy on public servants' pensions to improve social security accounts.

"If you look at a country like Spain it just shows how politically difficult it is to push through these kinds of decisions," said Rossa White at Dublin-based brokerage Davy.

Analysts in Spain recognise the importance of state stimulus, but say Zapatero is doing little to change a crumbling, construction-based economic model.

"The government does not want social conflict, it doesn't want problems, it just wants this crisis to end as soon as possible, and it's going to leave us indebted," said Juan Carlos Martinez Lazaro of the Madrid-based IE business school.

Others expect Zapatero to be forced into drastic spending cuts next year as government income slides, the mood sours on Spanish debt in crowded bond markets and the euro zone's No.4 economy proves unable to stage an export-led recovery.

"We are going to see potholes in highways and rubbish piling up in cities because debt is going to swell and we are going to see brutal spending cuts in the 2010 budget," said Santiago Nino Becerra at Barcelona's Ramon Llull University, who forecasts Spanish unemployment will rise as high as 26 percent next year.

Ratings agency Fitch said in a report last month sovereign lenders with its top "AAA" rating, Spain among them, were at risk of being downgraded if they could not cut swelling public debt and budget deficits over the medium term.

Standard & Poor's stripped Spain of its AAA rating in January over fears of a significant deterioration in public finances and a decline in growth prospects. Fitch and Moody's have so far held ratings and kept stable outlooks, although Fitch sees Spanish government debt next year nearly doubling to 65 percent of gross domestic product from 36 percent in 2007.

Fitch head of global economics Brian Coulton does not see an outright collapse in Spain's fiscal revenues, along the lines of the steep decline seen in Ireland, and says its exporters are keeping a larger global share than competitors in France.

"We expected Spain to go through rebalancing of low trend growth, with the external sector mitigating the adjustment," said Coulton. "The rebalancing is going to be more difficult because of the global recession."

Story from The Guardian

• Spain says restructuring to strengthen banking system
• Spain's banks at disadvantage, savings bank head says
• CECA sees more bailouts after Caja Castilla
• Banking association head calls for capital injections

Spain's government on Wednesday said it would restructure the Spanish banking system as one lobby group warned of "catastrophic" risks without contingency plans to deal with further bank bailouts.

"We shall start a process of restructuring with them (credit institutions) to strengthen the system," Economy Minister Elena Salgado said on Wednesday in the Spanish parliament.

The government must move quickly to set up a fund to bail out troubled financial institutions and should expect to have to intervene again in the sector, the head of savings bank association CECA said at a banking conference in Madrid.

Spain's banks have so far largely avoided writedowns due to their limited exposure to toxic assets.

CECA chief Juan Ramon Quintas said this was no reason for them to miss out on state help, if necessary, to put them on a level footing with foreign rivals.

"It would be a great shame if the best prepared system finds itself in a worse condition than its competitors from countries that have helped their institutions," Quintas said during a conference.

The banking system needs to be restructured if it is to compete with foreign rivals that have been recapitalised after state intervention, said the chairman of the Spanish Banking Association Miguel Martin at the same conference.

"Our competitors have been capitalised without need to restructure, which has allowed them to capture resources at an advantage," Martin said.

"Under these conditions, the system will have to be restructured ... so it may be strengthened, made more efficient and remain competitive," he said.

In March, the Bank of Spain was forced into a bailout of savings bank Caja Castilla la Mancha, backed by 9 billion euros ($11.6 billion) of guarantees. Quintas said further rescues were likely. "Other interventions will probably be necessary," CECA's Quintas said.

The Bank of Spain denied a report on Wednesday in the El Economista newspaper that it had drawn up a list of seven savings banks which would need restructuring.

Further afield, Germany expects a plan for dealing with its banks' toxic assets to be in place by summer, senior ministers said after a meeting of policymakers on Tuesday.

In March, the U.S. government offered incentives for private investors to help rid banks of up to $1 trillion in bad assets, and in February Britain launched a 500 billion pound ($725 billion) scheme to cover banks against losses on risky investments.

Credit quality at Spain's savings banks, which are not listed and have few opportunities to raise capital, has deteriorated rapidly and some analysts believe sector recapitalisation could cost as much as 60 billion euros.

Quintas said last week the creation of a fund to aid the Spanish financial system, hard hit by the economic slump and collapsing property prices, could be just weeks away.

Salgado told Parliament on Wednesday any restructuring would involve a minimal cost to state coffers.

According to the opposition Popular Party, the government has already rejected a Bank of Spain proposal which included a call for the creation of a fund to help troubled banks.

"Before Easter, the Bank of Spain sent a proposal on the savings banks but it was rejected by the then Economy Minister Pedro Solbes. Since the new Minister (arrived), we've heard nothing from the government," said opposition lawmaker Alvero Nadal Belda.

Story from Reuters

• February drop broadly maintains January rate of decline
• No reaction to Q1 price decline
• Estate agents report hefty price falls
• New house sales fall 29.3 percent

Spanish property owners were still struggling to sell homes in February, figures showed on Tuesday, even though price falls gathered pace according to official data and some estate agents said prices were plunging.

Sales fell 37.5 percent year on year to 34,669, the second-lowest number since the series began in January 2007 and the 12th straight month of declining sales, figures from the National Statistics Institute (INE) showed.

Joaquin Garcia, who works in his father's small real estate firm in Benalmadena, a resort near Malaga, said the business was only selling a third of the properties it was shifting during Spain's property bubble that burst at the start of 2008.

"People are waiting to see if prices continue to fall. There is interest but the banks are not offering credit. The few deals we've done have all been cash buyers, Spaniards from the interior buying second homes," he said.

Banks have set tight conditions and higher interest rates on new mortgages than for existing borrowers, while Spain's shaky economy with unemployment at one in six workers is further undermining an already over-supplied market.

Official data shows house prices belatedly responding to the sales freeze, with a 6.8 percent year-on-year drop in the first quarter. However, private surveys show far larger drops which are persuading buyers to wait.

Garcia said Spanish sellers had cut prices by around 15 percent in the last six months, while British sellers were successfully selling homes along the high-rise beachfront because they have been willing to slash prices by up to 30 percent this year, compensated by gains on changing their euros into the weak pound.

After surging more than anywhere else in Spain over the last decade, spawning a massive increase in developments, prices in Malaga province officially fell 10.7 percent year-on-year in the first quarter.

British builder Taylor Woodrow said there was still plenty of interest from Britons in its Spanish developments, although interest had markedly swung towards the cheaper end of the market, properties costing less than 250,000 euros.

February's fall in house sales followed a 38.6 percent drop in January and continued falls of over 25 percent in almost every month since INE started publishing the figures at the start of 2008.

INE data showed sales of existing houses fell 45.2 percent while deals on new homes were 29.3 percent lower year-on-year, and 8.7 percent down on a month earlier.

Story from Reuters

Thousands of UK holiday-home owners face losing a range of tax benefits under changes announced in the Budget.

From April next year, holiday property landlords will no longer be able to write off "trading" losses from second homes against their tax bill. Capital allowances and capital gains benefits will also go.

Tax experts say the move is likely to anger tens of thousands of people - many of who based retirement plans on the current tax rules for second homes.

In a small silver lining, those owning homes within the EU, but outside the UK, will get the tax benefits currently enjoyed by owners of UK holiday homes until April 2010. However, these will then also be scrapped.

"You are going to see a very vocal, articulate section of society screaming blue murder about this," said tax expert Anne Redston, Visiting Professor at King's College, London.

"People have bought holiday properties and worked out their projections based on the tax rules as they exist at the moment."

Currently a home qualifies as a holiday property if it is furnished, being run as a commercial business and available for rent to the public for at least 140 days per year. It must also be let for at least 70 days a year to attract the tax benefits.

HM Revenue and Customs said it was extending the tax benefit to those owning holiday homes inside the EU but outside the UK until next April because it feared it was unlawful to have the current discrepancy.

Story from BBC

Politicians and commentators find reasons to be less gloomy. Even so, this week could be tricky for sterling.

Sterling extended its uptrend for a third week, adding two more cents before topping out a little above €1.1350. After the failure of five attempts to break higher the pound retreated on Friday. When London opened this morning it was trading at €1.13 and looking nervous.

On both sides of the Atlantic there have been murmurs that the end of the economic downturn may be nigh. Politicians have studiously avoided any mention of the "green shoots" that inspire such derision among cynics, and the word "tentative" is ubiquitous, but there seems to be a spreading belief that the bottom of the recession will come this year, followed by a return to slow but positive growth in 2010.

President Obama spoke of "signs of economic progress". Federal Reserve Chairman Ben Bernanke saw "tentative signs that the sharp decline in economic activity may be slowing." The Royal Bank of Scotland's survey of purchasing managers showed "further evidence that the worst of the downturn... may now be behind us." Morgan Stanley economist David Miles, the chap who will replace David Blanchflower on the Monetary Policy Committee, was "guardedly optimistic" about the economy when he wrote about it in the Western Mail. The Confederation of British Industry says "there are a few tentative signs that the steepest phase of the recession is now behind us."

Although they have been in short supply during the last couple of weeks the UK economic data can be used to support this understated optimism, as long as only the better ones are selected. In Britain the RICS house price balance improved for the first time in months. Rightmove's house price index went up by 1.8% in April (admittedly it does not tell the whole story because it relates only to asking prices).

Euroland's data profile was not quite as low as the UK but there too the numbers were scarce. Inflation was confirmed at +0.6% in the year to March, the headline number having been dragged down by lower food and energy prices. Core prices rose by 1.5% in the year, not enough to dampen the European Central Bank's appetite for another rate cut next month. Industrial production fell by 2.3% in February, down 18.4% on the year. The figures compared unfavourably with equivalent falls of 1% and 12.5% for the UK but investors decided against making a big deal of it.

The media pounced on the possibility of boardroom tiff at the European Central Bank. On Wednesday Bundesbank President Axel Weber told journalists that euro interest rates should not be taken below 1%. ECB President Jean-Claude Trichet dismissed that view in Tokyo 36 hours later, saying "central banks must do all they can to restore, preserve and foster confidence among households and corporations in order to pave the way for sustainable prosperity." Analysts inferred that he was open to the idea of euro rates falling beyond the 1% they are expected to hit next month and the euro briefly came under pressure.

The week ahead could be a tricky one for the pound. On the agenda, among other things, are inflation, unemployment, first quarter GDP and the Chancellor's austerity budget. None of them is loaded with promise. Nor is the technical picture looking terribly clever for sterling/euro.

The three-week uptrend is vulnerable and a correction looks possible. At this stage it does not look terribly dangerous but we could well see the pound lower at this time next week. Buyers of the euro with a short time horizon should increase their hedge beyond the usual 50% or be prepared to live with a pound two or three cents lower in the next few days.

Story from Moneycorp

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This could hardly be called a cheery week for Spanish property news. Even the fact that Sterling is worth more Euros this week than last, is more of a reflection of European pessimism, than UK optimism.

The eagerly anticipated Tinsa index failed to offer any crumb of comfort regarding early signs of an economic recovery in Spain. No frantic straw-clutching could succeed in putting a positive spin on this month's set of numbers.

Still, at least the Tinsa data seems to be reliable. Not even the Spanish government believe their own official statistics about the shape of the housing market.

Yet, there is hope contained in Spanish Property Prices Continue to Fall: "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.

As I outlined in What Will You Pay for a Spanish Property in 2010, vendors know precisely how to price their property to sell - just 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. (I say 'nominal' because a house is only worth as much as someone will pay for it, and, until it is sold, who knows what they will pay?).

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.

As I commented before in Spanish Property Market: Heal Thyself, 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.

Martin Dell, Kyero.com

Spanish property prices fell at their fastest rate since records began in the first quarter, government data showed on Wednesday, while analysts forecast more big falls in property values.

House prices in Spain fell 6.8 percent in the March quarter, compared with the same period in 2008. On a quarter-on-quarter basis prices declined by 3 percent -- the fourth consecutive fall and the biggest yet.

Credit Suisse analysts said supply and demand were out of kilter, with one in six people out of work and 1.5 to 2 million houses sitting unsold. The average Spanish home costs 7.2-times the average household's annual income, against 4.6-times in Britain and 3-times in the United States, the bank said.

'In our opinion, the market continues to be significantly overvalued. Unemployment is fast increasing and that is a leading indicator of future delinquencies in the banking sector and potential declines in house prices,' the Swiss bank said in a note after the figures were published.

Most industry experts say government data underplays price declines in the Spanish property market, which saw a 39 percent fall in the volume of sales in January, year on year.

House prices in Ireland, whose housing boom is most frequently compared with Spain's, fell 9.7 percent year on year in February -- the 24th consecutive month. In the UK, prices had dropped 12.3 percent over the same period.

'I think we are all aware that prices had not adjusted to their true value. This tendency shows the adjustment,' Anunciacion Romero, housing ministry director general told journalists. She declined to say were prices would go from here.

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.

Most analysts said prices would not bottom out until at least next year, and that it would take at least three years to absorb Spain's supply overhang.

Spain's TINSA property valuation consultancy reported a 9 percent drop in February prices from 12 months before.

Story from Forbes

Where are you if you can’t see anything around you, and don’t have a map? Lost, most likely, just like the Spanish property market, where a lack of reliable data means nobody really knows where the market is heading, other than somewhere South.

But at a time like this, when the property market is the key to an economic crisis, having some idea of where you are is crucial. Which is why the government plans to create a ‘housing map’ to quantify the scale of Spain’s housing bust. It will be the most “up to date and detailed analysis possible of the residential construction sector in Spain,” a spokesperson from the Ministry of Housing told the Spanish news website elconfidencial.com.

One of the big questions to answer will be ‘how large is the surplus stock of new properties that is keeping developers and banks awake at night?’ Developers say between 650,000 and 700,000, whilst other experts and analysts say between 900,000 and 1 million.

“The Government has a major interest in knowing how much unsold stock there is. The longer we take to quantify it, the longer it will take for the housing market, and therefore the job market to recover,” said the Ministry of Housing.

It doesn’t help that Spain has the highest ratio of properties to households in Europe, and one of the highest in the world. With a housing stock of 26.2 million compared to 18 million households, there are almost 1.5 properties to every household in Spain, according to figures from the Bank of Spain. So it’s not as if there is an acute shortage of housing, though some would argue there is a shortage of the right kind of property, in the right place, at the right price.

Story from Mark Stucklin

A total of 58,686 foreclosure auctions took place last year compared to 25,943 in 2007 and is set to rise over 75,000 this year, says Spain’s judicial body.

The number of foreclosure auctions of homes and businesses more than doubled last year in Spain, official data showed Monday, as people struggled to make mortgage payments amid the country's worst recession in a generation.

A total of 58,686 foreclosure auctions took place last year compared to 25,943 in 2007, according to the body that oversees Spain's judiciary, the General Council of the Judiciary (CGPJ).

The number of foreclosure auctions in 2008 was more than in the previous three years combined, it added.

There were 21,2111 foreclosure auctions during the last quarter of 2008, compared to 13,487 during the previous three months and 8,836 during the last quarter of 2007.

The judicial body predicts another 76,463 foreclosure auctions will take place in 2009.

Formerly one of the eurozone's chief engines of economic growth and job creation, Spain suffered an abrupt change of fortunes last year when the global financial crisis accelerated a downturn that was already underway in its once-buoyant property sector, which had fuelled a decade of growth.

The slump in the building sector has spread to other areas, pushing the unemployment rate to 15.5 percent in February, the highest level in the 27-nation European Union and nearly double the average of 7.9 percent for the entire bloc.

Spain's unemployment rate is rising at the fastest rate in the developed world, according to the Bank of Spain.

Story from Expatica

• Industrial production in Britain falls by less than others.
• Four-day week and lack of data dampens activity.
• More of the same likely this week.

Sterling hesitated around Monday's €1.10 opening level before moving up to €1.1150 on Tuesday. More hesitation took it back down to €1.10 on Thursday. Then it was up to €1.1150 again, where it opened in London this morning.

The pound's daily movement last week seemed to owe more to chance than to any fundamental economic factors. Its net performance against the majors was almost random; virtually steady against the dollar, down by two yen and a cent and a half better against the euro.

The shortened week meant fewer economic data than usual. Britain's balance of trade and the producer price index brought marginal improvements: the trade deficit narrowed slightly, as did the gap between manufacturers' costs and factory gate prices. Nationwide's index of consumer confidence hit a record (five-year) low at 41 in March, two points down from he previous month.

The figures that everyone chose to ignore were those for industrial production in February. In no way could the 1% monthly fall have been considered good, let alone the 12.5% annual decline. However, judged against the opposition, the numbers were less than embarrassing. Britain's 1% monthly fall does not look so shoddy when compared to The United States' -1.4%, Germany's 2.9% and Japan's 9.4% for the same 28 days.

Thursday's interest rate decision was always going to be a non-event and that was how it turned out. A brief press release from the Bank of England noted that its 0.5% Bank rate would continue until (at least) May and that it would buy another $49 billion of gilts over the next two months.

After all the crowing (and crow pie, for that matter) it was instructive to see the final figures for fourth quarter GDP slippage in the Euro zone. It was not just educational, it was spooky. We had already seen the final revision to Britain's Q4 GDP, which showed a contraction of 1.6% over the three months. In the States an annualised 6.3% contraction translated into a quarterly shrinkage of 1.6%. And what was the figure for Euroland? -1.6%. The global economy: It does what it says on the tin. Critics still allege that Britain's recession will be deeper and longer than elsewhere. They could well turn out to be correct but, nine months into the slump, the evidence is still wanting.

This will be another slow week for UK and Euroland statistics. House prices and retail sales are the only offerings from Britain. The Euro zone highlight will be the data for industrial production in February. In the context of sterling/euro the figures to beat will clearly be -1% on the month and -12.5% for the year: It isn't going to happen. Whether the Euro zone's weaker performance will weigh directly on the euro to any appreciable extent is a different matter.

Sterling/euro is looking good, having cleared the traffic jam at €1.11, but its recent history is littered with false dawns. We must therefore stick to the tried-and-tested neutral approach: Buyers of the euro should continue to hedge their exposure, fixing a price for half of whatever they need and using a stop order to protect the balance against unexpected nightmares. Optimists - and there will be many - should under-hedge. On the other hand, if price certainty is essential there is no alternative but to cover the whole amount.

Story from Moneycorp

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The eagerly awaited March Spanish house price index from Tinsa is, unfortunately, not good news.

You can download the latest three page Spanish and English guide here.

After analysing last month's report, we commented "Comparing January 2009 with January 2008, the index (and therefore house prices) had decreased by 10%. The glimmer of hope contained in the Tinsa index for February 2009 shows this rate of decline slowing to 9%. Hardly cause for celebration yet - but let's face it, any good news is welcome at the moment. Many people, including myself, will be eagerly awaiting the first Tuesday of April to see if that trend continues in the March edition of the Tinsa index."

The March edition of the Tinsa report shows their index decreasing by 9.7% - more than in February, but less than in January - by a whisker.

Basically, these numbers show nothing - other than the Tinsa index, and therefore property prices in Spain have been dropping by around 10% Y-O-Y for the past three months.

There's no sign of a recovery in the Spanish property market in this month's Tinsa index.

An article in ‘El Mundo’, one of Spain’s leading news papers, suggests there may be signs of recovery in the Spanish property market, in one of the first positive articles on the outlook for the market since the crisis began.

“It appears to be the beginning of the end of the worst period for property sales since the crisis began,” says the article. Pointing to encouraging signs that real estate markets may have bottomed out in the US, the UK, and France, the article suggests that Spain may be part of the trend.

The optimism also comes from a new report by Gonzalo Bernardos, a property market expert and professor of economics at the University of Barcelona, who argues that Spanish property market will come back to life this year, after a dismal 2008.

“There are five key reasons for saying that there will be more home sales in 2009 than there were in 2008,” writes Bernardos in his report. “Interest rates are lower; house prices have fallen back to their 2003 levels; banks are lending more; investors are coming back; and many people who were thinking of renting have decided to buy.”

Demand for housing is tempered by the cost of mortgage borrowing. With interest rates declining, Bernardos expects sales to pick up. “There is a fundamental variable,” explains Bernardos. “People buy homes in response to mortgage costs, which have gone from rates of 6.25% in September to 3.25% today. We are talking, in general terms, of a fall in mortgage repayments of 40%.”

There is, however, a flaw in this argument, which the article in El Mundo does not pick up. Euribor – the base rate normally used to calculate mortgage rates in Spain – may have fallen rapidly to historic lows, but the average interest rate charged on new mortgages is actually rising, and credit terms getting tighter, making it more expensive for new borrowers to buy homes. Falling Spanish mortgage rates are only benefiting existing borrowers, who already have a home.

Another positive sign, says the article, is that housing starts picked up in the last quarter of 2008, rising by 7% compared to the previous quarter.

The recovery is already underway, suggests Bernardos, who says that, so far this year “sales have been between 25% and 40% higher than in the same period last year.”

So the market bottomed out in 2008, goes the argument, when house sales fell by 28.8% (13% for new builds and 41% for resales) whilst property prices fell by 5.4%, all according to official figures. On the question of prices, Bernardos doesn’t believe the official figures. “The fall in prices hasn’t been less than 20%, and in some places much more,” says Bernardos.

Another real estate expert cited in the article say that sales rates at new developments have picked up significantly. “In many developments they have sold more in the first quarter of 2009 than in the whole of 2008,” he says, also arguing that “prices have already bottomed out.” “Banks didn’t know where the bottom was, now they do and they are giving 80% mortgages because the feel the market has bottomed out,” he goes on, whilst also warning that “nobody should expect bargains at 50% discounts. That’s not going to happen.”

Whilst Bernardos expects the market to return to life this year, that doesn’t mean he expects prices to start rising soon.

“Sales will start to rise in 2009, whilst prices will stop falling in most places by the end of 2010,” writes Bernardos in his report.

But if Bernardos is right, and prices continue to fall this year, that will encourage people to delay their purchase decision, and reduce the number of sales. The article does not pick any holes in his arguments.

And at no point does the article mention of the second home market, which operates differently to the primary housing market. Given the present state of the economy, with unemployment rising across Europe, it’s not hard to imagine that it may take a while longer for sales of holiday homes to pick up.

Story from Mark Stucklin

Demand for properties in Spain stated falling in 2007, but the number of completed new properties kept growing steadily in 2008, rapidly inflating Spain’s excess housing inventory. Now, finally, the number of construction completions has started to decline, according to data from Spain’s Ministry of Development.

There were 33,670 construction completions in January, 34% less than the same time last year, and 24% less than in December. Experts expect housing completions to decline steadily for the rest of the year, helping to take some pressure of a property market struggling to absorb a glut of new homes.

Figures from the same source reveal that there were 615,072 residential construction completions in 2008, just 4% less than the 641,419 homes completed in 2007. So in 2008, a year in which the Spanish property market crashed, the number of new homes coming onto the Spanish property market was almost triple the equivalent number in the UK.

Construction completions are the end result of a process that begins with housing starts, which have collapsed this year. Construction completions will continue to decline as the fall in housing starts feeds through the system, and should fall below 200,000 in the next couple of years.

Story from Mark Stucklin

Several experienced agents in the Costa del Sol are starting new ventures in response to the recession, with fractional and distressed sales in particular providing opportunities.

New sales company Property Revolution is being managed by Richard Diaz, sales and marketing director for The Fractional Ownership Consultancy, while David Honeyman, formerly of Andalucian Dream Homes (ADH), is acting as a consultant to the firm.

“We are entering quite exciting times and carrying on with the same things won’t work,” Honeyman told OPP. “I previously worked with off-plan properties, but off-plan investors no longer exist. People have realised that overbuilding and speculation are not good for anyone. I believe that fractional sales provide a lot of opportunities.”

Honeyman remains a non-active partner in ADH but he stressed the company is separate. “I’ve got some things to tie up but Property Revolution needs a fresh start and is not an offshoot of ADH. Although it has a lot of experienced people it is a new company with new investment.”

Another established name moving into a different market is Mike Liggan, former CEO of developer MRI Overseas Property. He started Marbella-based agent DCC International Property at the end of last year. “Our focus is on bringing deals to clients and we are offering distressed and discounted properties, some with 40-50% off,” he said.

Liggan’s new firm is occupying offices once used by MRI. However, Liggan told OPP: “It’s a completely separate company, something new and fresh. Although we occasionally sell MRI property in Portugal, DCC is mainly focusing on Spain.

“It’s still pretty tough and the market is down. Buyers are willing but one thing is holding them back: they need to feel buying is the right thing to do and not be driven by the media. We want to get that message out.”

Repossessions are also opening up new areas for existing companies. UK-based agent Azure Property International, in partnership with agent Casacalida, is selling repossessed properties acquired by one of Spain’s biggest mortgage providers, CAM bank.

Azure’s managing director Geoff McClure told OPP: “The recession is sad but for some it also offers opportunities. We have never sold in Spain before and we probably wouldn’t have if it had not been bank property. It means we can ensure ethical practice because people buy directly from the bank. Transactions are transparent with no hidden costs. We just charge an admin fee of 5%.”

McClure also highlighted the future prospects created. “If this works, we’ve now got a network of contacts and are building relationships, which creates sales opportunities.”

Adding that the scheme may not work in other countries, he said: “Spain is unique because of its overstock and everything is marketed and sold centrally. In somewhere like Florida it would be more complicated because of regulation.”

Story from OPP (registration required)

Spain’s financial system avoided the US subprime mortgage party, which helps to explain why Spanish banks have coped with the financial crisis better than many of their peers in the US and Europe, at least until now.

But though Spain’s banks never consumed or sold US toxic assets, that doesn’t mean they weren’t getting high on some fairly toxic financial products 100% ‘made in Spain’.

According to a recent article in the Spanish daily ‘La Vanguardia’, loans to developers are the closest thing Spain has to “toxic assets”, and with 318 billion Euros in loans outstanding, whilst default rates are surging, this is a looming issue for Spain’s banks.

Figures from the Bank of Spain show that the value of outstanding loans to Spanish developers has gone from just 33.5 billion Euros in 2000 to 318 billion in 2008, a rise of 850% in 8 years.

One expert mentioned in the La Vanguardia article claims that loans to Spanish developers are 6 times greater than in Germany and France.

If you add in construction sector debts, the overall value of outstanding loans to developers and construction companies rises to 470 billion Euros. That’s almost 50% of Spanish GDP.

But the really mad thing is that loans to developers almost doubled between 2005 and 2007, from 162 billion to 303.5 billion Euros, at a time when there was no shortage of signs that Spain was suffering from a property bubble.

The madmen lending vast amounts of money to developers at the blow off stage of the property boom were mainly regional savings banks, known as cajas, who wrote 54% of new loans to developers in 2008, compared to 41% for the commercial banks.

“The cajas have tried to grab market share with aggressive strategies,” explains Eduardo Martínez Abascal, a finance professor at IESE Business School in Barcelona, quoted in the article. “In the past they used to grant 100 mortgages to 100 home buyers, but recently they have preferred to lend 100 million to a developer. They didn’t realise that the risks were different, that ordinary borrowers will pay the mortgage above all else because otherwise the bank repossesses their homes.”

Now the boom has turned to bust, sales have collapsed, and numerous developers have gone bust. All of a sudden those 318 billion Euros in loans to developers don’t look like such a good idea. Default rates have surged from below 1% in the boom to 3.8% in January, and many expect the rate to go to 6% this year, as banks write off bad loans and accept all manner of property collateral instead.

Last week the Bank of Spain had to bail out Caja Castilla La Mancha (CCM), a regional savings bank from the Castilla La Mancha region. It was the first time in this crisis that the Government has had to save a Spanish lender. It won’t be the last.

What it also means is that banks and cajas aren’t going to start lending freely again to home buyers anytime soon. They’ve got a big problem on their balance sheets to deal with first.

Story from Mark Stucklin

1. British PMIs lead the way in manufacturing and services sectors.
2. Non-controversial G20 communiqué welcomed by markets.
3. ECB rate cut to 1.25% leaves room for more next month.

The pound climbed steadily throughout the week. Starting from €1.07 last Monday it added three cents to open in London this morning at €1.10.

Little as the market cares for economic statistics at the moment it could not ignore two minor triumphs for the UK economy last week.

Purchasing Managers' Indices are compiled by national professional associations in several countries. Precise methodologies differ from place to place but there is a common theme. Firms are canvassed about their perceptions of current trading activity and their plans for the future.

Those who think things are going well or who expect improvement in the months ahead register a plus. The pessimists go in as a minus. When all the results are in they are consolidated into a PMI that covers a range of 0-100.

An index of 50 is neutral; as many firms are doing well as are doing badly, implying zero growth. Publication of the figures for Britain, the Euro zone and the United States is coordinated to happen on the same day. First come the manufacturing sector PMIs, followed a couple of days later by the services sector numbers.

For a year or more the indices in every country have been significantly below that breakeven point for obvious reasons. Last week however, the UK economy delivered better results in both categories than either the Euro zone or the United States.

Britain's manufacturing PMI came in at 39.1, four points better than the previous month and three points ahead of the nearest opposition. The services PMI did even better, less than five points short of breakeven at 45.5 and comfortably ahead of the US at 40.8 and Euroland at 40.9.

Adding to the positive tone for sterling, mortgage approvals rose in February to their highest level since May last year and consumer confidence improved from -35 to -30, still negative but heading in the right direction. Nationwide and the Halifax told contradictory tales about the direction of house prices in March, effectively cancelling each other out.

The G20 meeting managed to meet investors' modest expectations so was considered a result. President Sarkozy did not walk out and the free-marketeers compromised on the matter of heavier regulation for the financial sector. A G20 agreement was never going to revitalise the global economy at a stroke. On the other hand, public disharmony could have postponed recovery by denting confidence. It did not happen, for which we must be grateful.

The G20 effect, both before and after the event, was to raise confidence levels among investors. That worked against the euro and to the benefit of riskier currencies, including the pound. The euro also had other pitfalls to negotiate. Spanish bank Caja Castilla la Mancha had to be nationalised, needing €9 billion of guarantees to keep it afloat. The long-awaited downgrade of Irish sovereign debt came when Standard & Poor's replaced its triple-A status with an AA+ rating.

The European Central Bank's interest rate decision on Thursday was a two-edged sword for the euro. On the positive side the 25 basis point cut, which took the refinancing rate down to 1.25%, was smaller than anticipated. Balancing that on the debit side was the hint of a further cut next month. There is also the possibility of "further non-standard measures" which analysts take to mean the buying of either government or corporate bonds.

This week's meeting of the Bank of England's Monetary Policy Committee should be less of a challenge than usual for the pound. With the Bank rate already down to 0.5% the MPC has little scope - and probably even less inclination - to take it lower. The general paucity of economic data ought to allow the pound to build on last week's foundations but experience shows that recovery for sterling is almost never a one-way street.

Buyers of the euro should continue to hedge their exposure, fixing a price for half of whatever they need and using a stop order to protect the balance against unexpected nightmares. If price certainty is essential there is no alternative but to cover the whole amount.

Story from Moneycorp

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In last week's newsletter, I suggested that there were early signs of an encouraging level of activity at the lower end of the Spanish property market.

Not every one agreed with me. Newsletter subscriber, David Jesner commented: "You are encountering curiosity and assuming this equates with, and will translate into, sales. Even if the politicians meddle on an unthinkable scale, public confidence has been severely shaken and will take a long time to recover."

A recent Moneycorp article about the sterling/euro exchange rate agrees with David's notion about confidence being the main issue. It notes that Sterling's recent revival against the Euro has more to do with a vague notion of 'optimism' about the outcome of the G20 talks, than any strict analysis of the underlying financial data.

In a post about the high level of visitor activity on US property portal Realtor.com, its chairman wonders what needs to happen to translate these 'window-shoppers' into actual purchasers:

"Two ingredients are needed for buyers to re-enter the market. One is their ability to pay. The other deals with confidence. Affordability and the ability to get financed isn't the sole issue for some buyers on the sidelines. So what does it take to cause these visitors to act now?"

He goes on to say that buyer confidence is the overriding factor controlling the volume of house purchases today. Two of this week's articles chip in on this same subject.

In How to Get Ahead on the Med, Nick Barnes, head of international residential research at Knight Frank comments: "People aren't willing to dive into the stock market, they don't trust banks and may want to do something with a lump sum for their pension, so they're putting money into tangible assets such as housing."

In Realistic Optimism in the Spanish Property Market, Simon Rubinsohn, chief economist at RICS comments: "Further evidence that the pick-up in buyer interest in the housing market is feeding through into actual activity is evident in the latest mortgage approvals data from the Bank of England. The number of mortgages sanctioned in February climbed to the best level since May 2008."

In Spain, the dominant factor controlling consumer confidence is their ability to pay the rent. In Spanish Jobless Total Slows in March, we see a positive 'spin' on a devastating statistic.

However you dress the numbers up, a car accelerating at a slower rate than it did previously is still accelerating, rather than slowing down. So it is with Spanish unemployment - currently the highest in Europe, still growing, and tipped to exceed 20% of the workforce this year or next.

Faced with a statistic like this, it's easy to see why there might be a lack of consumer confidence in Spain, why that might suppress property prices - and how that might be to the advantage of buyers from outside the country.

Martin Dell, Kyero.com

Jerez de la Frontera - Home to sherry, dancing horses, flamenco - and bargain property?

Despite the weak pound, bolt holes in some of Europe's best-loved regions can be had for less than £150,000.

Holiday homes abroad have dropped down the list of priorities recently, what with many of us being more concerned with paying the bills and holding on to our jobs. But for those with a bit of money stashed away – say £100,000-£150,000 – a property in an attractive European location could be a sensible long-term option for your savings.

"We're talking about an amount of money that's not enough to retire on or change your life, but may be something from an inheritance or a lottery win," says Nick Barnes, head of international residential research at Knight Frank estate agency. "People aren't willing to dive into the stock market, they don't trust banks and may want to do something with a lump sum for their pension, so they're putting money into tangible assets such as housing."

Two years ago, when global property markets were booming, a £150,000 ceiling would have ruled out most places west of Warsaw. Now, with prices falling almost everywhere, Spanish property is once again within reach – and that's despite the pound's recent dismal performance against the euro. So what will £150,000 buy you in Spain these days?

Prices in the overdeveloped areas of Spain's Mediterranean coastline are being cut by 50% or more, as developers try to offload unsold stock and British owners sell up, but you don't have to confine your search to the built-up costas. In some of the country's most beautiful regions, such as the Costa de la Luz, inland Andalusia and even Mallorca, you can buy desirable holiday homes in prime locations for less than Cristiano Ronaldo's weekly wage.

In Andalusia, in the old town of Jerez, with its cobbled streets and sherry bodegas, is Plaza Mirabal, a new boutique development of eight flats set in a former palace that retains its ancient facade. High-ceilinged two-bedroom flats start at £151,700, with 30% payable before completion, through Mercers. "When the Spanish property market started to falter in 2007, Jerez was in a strong position, as prices were 46% lower than the Spanish average and rental demand was good. So it has proved a shrewd mid-to long-term investment," says Chris Mercer, the agency's director.

The Costa Blanca's coastal market may have collapsed, but its northern stretches – particularly historic inland towns such as Xativa, 30 minutes by train from Valencia and barely known to international buyers – offer appealing options.

"Two years ago, it was impossible to find anything there for less than £150,000, but today traditional townhouses in the old part of town can be bought for as little as £60,000," says Lisa Francis of the buying agency The Property Finders. "I've also found a three-bedroom villa with a pool and two and a half acres of land in Anna, six miles from Xativa. It would have cost £280,000 at the top of the market, but the owners will now take offers of about £140,000."

Barbara Wood, who runs The Property Finders' office in Andalusia, says: "For the first time in a couple of years, I can find well-located village properties for less than £140,000. They usually need restoration, but building costs are falling too." In Villanueva de Tapia, a small town surrounded by olive farms, about 45 minutes' drive from Malaga and the same from Granada, Wood has found a "gorgeous two-bedroom village house, recently renovated and very authentic, that needs nothing doing to it". It is being sold by Britons in a hurry for £70,000.

In southwest Mallorca, where a househunter with a £150,000 budget would have been laughed off the island a few years ago, Cluttons has a one-bedroom flat in San Agustin on sale for £147,600. It's fully habitable, though in need of a little updating, with a large terrace overlooking the seafront. "One would normally have to hunt around the east coast to find this sort of price, but this is right on Palma's doorstep, in a popular area," says Nick Russell-Hughes, director of Cluttons Mallorca. "This really is a bargain, and has been priced to sell," he says.

Story from Times Online

A new regime to end the years of financial free-for-all was unveiled by world leaders yesterday. They said the regulatory revolution would give capitalism a conscience and correct the excesses behind the economic crisis.

Moves to open up the secretive world of hedge funds, curb executive pay and risk-taking, toughen rules for credit rating agencies and name and shame tax havens were all agreed by the G20.

In what amounts to an effort to rewrite the rules of capitalism, the move is a clear acknowledgement that nation states can no longer keep global financial powerhouses in check.

The aim is to prevent a repeat of the worst market turbulence in more than 60 years.

Strengthening financial regulation would 'rebuild trust', while reform of international financial institutions would help 'overcome this crisis and prevent future ones', the G20 leaders said last night.

'We have agreed that all systemically important financial institutions, markets and instruments should be subject to an appropriate degree of regulation and oversight.'

Gordon Brown insisted there was 'agreement to do whatever is necessary to return to growth'. French President Nicolas Sarkozy hailed the deal as a 'huge step forward'.

While countries will maintain control of their own markets and companies, the G20 sought for the first time in decades to enforce a new set of global rules backed by greater international cooperation. The measures include:

• An international umbrella body - the Financial Stability Board - to oversee regulators from individual countries. It will work with the International Monetary Fund to provide early warnings of potential threats;

• Banks will be forced to put aside more money during good years to avoid the collapses seen in the current crisis;

• Hedge funds or their managers will have to be registered and required to disclose information needed to assess risks they pose to the financial system;

• Credit rating agencies - blamed for allowing banks to bundle up toxic debts then sell them on as safe investments - will be subject to regulatory oversight and must provide full details of packaged products;

• Pay and bonuses to bankers will have to be linked to 'long-term goals and prudent risk-taking'.

Leaders also thrashed out a fudge on the sticky issue of tax havens after President Obama demanded a deal, resulting in the partial publication of a blacklist.

Economists said the measures were hugely significant in reforming the global economy. Nobel Prize winner Joseph Stiglitz, a former adviser to President Clinton, said the G20 had taken a major step forward in saying markets should be subjected to greater state control.

Last November, the G20 in Washington couched regulatory reform in general terms. Yesterday saw the full detail and concrete moves demanded by both Germany and France.

Mr Sarkozy said yesterday: 'The very fact that our Anglo Saxon friends have accepted all this is a huge step forward. If it is not refounding capitalism with a conscience I am not sure what is.'

The moves received a cautious welcome from UK business leaders, who know the financial crisis was caused by excess but do not want markets wrapped up in red tape.

Miles Templeman, of the Institute of Directors, said: 'We hope that world leaders don't rush into hasty and ill-thought-out regulation, which would risk choking off recovery.'

Richard Lambert, of the CBI, said: 'Effective regulation will be critically important in rebuilding longer-term confidence in the financial system but this should not be done in haste or it could do more harm than good.

'More transparency by individual countries of their treatment of tax is welcome but it should not be seen as a key action to tackle economic recession. Tax sovereignty is an essential national prerogative.'

Story from This is Money

The number of unemployed in Spain registered the weakest gain in six months in March compared to February, but the overall jobless total rose to 3.6 million, the highest since 1996, the labour ministry said Thursday.

By the end of March there were 3,605,402 unemployed workers in Spain, up 3.5 percent or 123,543 from the previous month and the highest number since 1996 when the current method of calculation was introduced, the ministry said in a statement.

It was the 12th straight monthly increase and the sixth consecutive monthly rise of more than 100,000 registered unemployed in Spain, a recession-strapped nation of around 46 million.

"While the rise in the month of March is the lowest of the previous six months, it still represents a high number of people who have lost their jobs and are going through difficult times," said employment secretary Maravillas Rojo in the statement.

Formerly one of the eurozone's chief engines of economic growth and job creation, Spain suffered an abrupt change of fortunes when the outbreak of the global financial crisis hastened a correction that was already underway in its once-buoyant property sector.

The Spanish economy, the fifth-largest in Europe, entered into its first recession in 15 years at the end of 2008.

The government expects the economy will shrink by 1.6 percent this year after expanding 1.2 percent in 2008 but many economists are predicting a sharper contraction.

Bank of Spain governor Miguel Angel Fernandez Ordonez has said the country's unemployment rate is rising in the country at the fastest rate in the developed world and new economic reforms are needed if it wants to return to high rates of growth.

The figure for the number of registered unemployed is separate from the unemployment rate, which is released quarterly by national statistics agency INE and stood at 13.9 percent in the fourth quarter of 2008.

But according to European Union statistics agency Eurostat, Spain's unemployment rate rose to 15.5 percent in February, the highest level in the 27-nation bloc. The average for the entire EU was 7.9 percent.

Spain's unemployment rate has risen each quarter since it dipped to 7.95 percent in the second quarter of 2007, its lowest level since 1978.

The government expects it will rise to 15.9 percent this year before gradually starting to fall, but the European Commission, the executive arm of the EU, is more pessimistic.

It sees the jobless rate continuing to rise in Spain to 16.1 percent in 2010 and 18.7 percent the following year.

Story from Expatica

As prices in the world’s most popular second home destinations for international buyers hit rock bottom, interest rates fall and stock markets remain volatile, a growing number of industry specialists believe that the first signs of recovery in the market are being seen.

Leading the charge are high net-worth (HNW) individuals, according to the latest Wealth Report from Knight Frank, with 55% recognising present fundamentals and planning to increase their exposure to residential property over the next two years.

“In turbulent times the wealthy want their investments to be both tangible and transparent,” said Liam Bailey, head of residential research at Knight Frank.

HNWs are not the only ones looking for a relative safe-haven for their money at present. In spite of difficult economic conditions and significant falls in the value of Sterling, searches for international property on Primelocation.com increased in January 2009 by 72% month-on-month and broke through the one million barrier in February, according to data released on Friday.

Some analysts believe that the resurgent mortgage market in the UK is also behind the sudden rise in confidence.

"Further evidence that the pick-up in buyer interest in the housing market [UK] is feeding through into actual activity is evident in the latest mortgage approvals data from the Bank of England,” said Simon Rubinsohn, chief economist at RICS. “The number of mortgages sanctioned in February climbed to the best level since May 2008.”

Behind these fundamentals, a growing number in the industry are recording a rising level of sales.

“Considering the current economic situation, we are quite surprised as our rate of enquiries is actually increasing,” said Chris Mercer, founder of Spanish state agency Mercers. “These enquiries are from both Spanish nationals and Brits as well as other Northern Europeans. We made nine sales in the first seven weeks of 2009 which is very encouraging.”

Andrew Benitz, founder of Costa de la Luz-based agency Titan Properties, added: “Interest in Spanish property hasn’t really dwindled, it’s just the type of buyer who’s changed. Investors have all-but disappeared and it’s the lifestyle buyer who has stepped in keen to find a holiday home in the sunshine at a good price.”

Across Spain there seems to be a realistic, but optimistic sense that the beginning of the end could be approaching as more buyers discover the value.

“I believe that there will be enough volume of sales this year that people will start to wake up and think that they better get in now before prices rise any further and the bottom of the market is reached,” said Chris Clover, founder of Marbella-based agency Panorama. “This means that the beginning of a recovery can commence, with total recovery happening within three to four years.”

Spain is not the only market to record a rise in sales in the last few weeks.

In Florida, agents have reported an increase in activity, while in Italy, Luca Catalano of developer Realitalia, said: “March 2009 was our best month since maybe summer 2006. In fact we have collected a much higher number of contacts compared with recent months and we are seeing the come back of American and English buyers.”

Further east along the Med in Egypt, a rise in UK and French investor activity has also been recorded.

“We have fielded enquiries and had five inspection visits in the last few weeks for our Egypt development,” said Tahir Ali, from estate agency Egypt-Revealed. “We have also had our first queries for Tunisia which we launched last month and had our first sales confirmed. I think it's a combination of low interest rates (meaning investors want out of the UK as their savings are doing nothing) and low outlay in these two markets. People are willing to risk £20,000 - £30,000 in two very promising emerging markets.”

In Cyprus, two of the island's biggest developers have also reported a recent upswing in transactions in just the last two weeks, mostly from the UK and Russia.

“I believe that with the latest announcements from the strong economies of this world, people feel a bit more confident now, it is a matter of pure psychology, the market has its ups and downs, but will not last for ever and more investors are realising this,” said Panayiotis Michaelides, group marketing manager for Cypriot developer Aristo.

Pantelis Leptos, vice chairman of developer Leptos, agreed, adding: “Over the last few weeks, as the UK mortgage market has improved again, there are definite signs that the British second home buyers are back in Cyprus. In March, Leptos Estates has enjoyed a marked increase in enquiries. In the past month, there has also been a growing number of enquiries from and sales to international buyers from around the world, particularly Russia and other established Leptos markets.”

Story from OPP (registration required)

Spain's banks have been among the most robust and profitable in the world since the financial crisis began last year, but the country's weaker lenders now face a challenging period of mergers and restructurings following the crash of the Spanish property market, according to regulators, government officials and analysts.

Unlike crisis-hit peers in the UK and elsewhere, no bank in Spain has been formally nationalised as a result of the crisis.

Spanish banks were protected by regulatory disapproval of off-balance sheet investments and by reserves of "counter-cyclical" bad debt provisions set aside in the boom years.

Santander and BBVA, the country's two largest banks, unveiled higher net profits for 2008, earning €8.88bn ($11.8bn) and €5.41bn respectively.

As the recession deepens, however, Spanish banks and cajas - unlisted savings and loans institutions usually controlled by regional politicians - have been buffeted by rising bad loan ratios and debt downgrades issued by credit ratings agencies.

As alluded to in Unicaja Merger: First of Many in Spain?, yesterday - in the first such bank takeover since 1993 - the Bank of Spain announced that it had replaced the directors of Caja Castilla La Mancha, a troubled lender in central Spain.

The central bank will lend money to CCM, backed by a central government guarantee of up to €9bn, to solve its liquidity problems and allow it to meet obligations to depositors and creditors, the government said after an emergency cabinet meeting yesterday. It noted that CCM accounted for less than 1 per cent of the banking system.

"You had other countries like the US and the UK where banks were immediately and obviously in bad shape at the start of the crisis," says David Stix, chief executive of Iberian Equities, a broker in Madrid. "Here, the banks started off in much better shape, but things are going to get worse."

Government ministers are preparing a "road map" on how to proceed, negotiating with the Bank of Spain and with the opposition Popular party to avoid political arguments that could destabilise the financial system.

"My view is that this won't produce problems that we can't cope with," José Luis Rodríguez Zapatero, the prime minister, told journalists last week. "It's normal to think that after the financial crisis there will be a restructuring in the system that will affect basically the small institutions."

Although there has been talk among bankers and investors of mergers among commercial banks - between Banco Sabadell and Banco Popular, for example - the weakest institutions are found among the country's 45 cajas , which together comprise half of the banking system.

Some cajas are heavily exposed to the collapsed domestic property market, through loans to developers and through mortgages, lending now known as "Spanish subprime". Few benefit from the diversification enjoyed by Santander and BBVA with their Latin American interests.

Apart from the political discussions over which party or region will control any future merged entities, there are likely to be arguments over the provision of central bank or government funds for troubled lenders.

The method favoured by the government is to raid the relevant deposit guarantee fund. But the funds are supposed to be used to compensate depositors in the event of failure. Nor do the funds, with a total of more than €7bn, have enough reserves to finance more than a handful of rescues.

Executives at both the biggest Spanish banks and the smaller cajas have, meanwhile, been using every means at their disposal to strengthen the capital of their institutions.

They have sold and leased back their offices, tried to sell their remaining industrial holdings and issued new stock - in the case of Santander, through a pre-emptive strike back in November with a deeply discounted €7.2bn rights issue.

Lastly, they have tried to limit the rise of their bad loan ratios by swapping debt for equity.

It is a far cry from the heady years before the crisis when Spanish banks were liberally disbursing loans to homebuyers and developers.

Story from Financial Times

Is any property below €50,000 a cheap Spanish property? Are cheap Spanish properties only to be found at auction or as bank repossessions? How much below market value does a Spanish property need to be to be considered cheap?