BANKIA, the bank created by the merger of Caja Madrid, Bancaja and five smaller cajas, has decided to create a “bad bank” which they intend to use to 'isolate' their most toxic assets (valueless building land, construction without buyers and some industrial participation).
Readers have asked us what happens to mortgages which were granted by banks that fail? There should not be any problems, as the entities taking over must respect existing agreements.
Prime Minister gives up
Prime Minister Rodriguez Zapatero has decided not to seek a new term in the 2012 national elections. This is certainly the result of the government party PSOE trailing far behind the opposition in the polls and the Prime Minister's lack of popular support. Primaries will take place after local elections in May. The candidates at the top of the list are Vice President and Minister of the Interior, Alfredo Perez Rubalcaba and Carme Chacon, Minister of Defence.
4,333,669 unemployed
The number of registered unemployed rose 0.80% in March to 4,333,669; 21% of the total workforce and the highest since records began. The financial newspaper “Expansion” reminds their readers that a number of jobless do not appear in the statistics, and that in reality there are 4.8 million seeking work, of which 1.8 million do not get any unemployment support.
In order to reduce the recorded number of unemployed the Government is now studying the possibility of an amnesty for anyone who admits to having worked whilst they were on the unemployment register.
5.7 million foreigners in Spain
Foreigners, 5.7 million are registered as being resident in Spain, now represent 12.2% of the total population of 47,150,819. Population grew last year by 0.4%, whilst the foreign population fell 0.3%. The number of residents coming from other EU countries rose 42,319; 33,043 of whom were Romanians.
The regions with the highest percentage of foreigners are the Balearics, 21.8%, the Valencia Region 17.2% followed by Madrid and Murcia, both with 16.4%.
Immigrants sent 7,186 million euros home
During 2010, immigrant workers in Spain sent 7,186 million euros to their home countries, almost the same amount as in 2009 and slightly lower than the 7,059 millions in 2006. On the other hand, Spaniards working abroad sent home 5,372 million in 2010, 6.1% more than in 2009.
No inheritance tax for close relatives in Catalonia
The new government of Artur Mas (CiU) in Catalonia has eliminated inheritance taxes for close relatives. For relatives of first and second degree – from parents to children and between couples – there is now a deduction of 99%.
Euribor at 2.013%
The Euribor indicator, widely used for calculating the interest rate on mortgages, has climbed to 2.013%, the highest since February 2009. On a mortgage of 150,000 euros this means an annual increase in repayments of 600 euros.
The Euribor reached its historical maximum of 5.393% in July 2008, but fell to 1.215 by February 2009.
The financial “guru” Nouriel Roubini has recently predicted that the European Central Bank will increase interest rates 3 times by 0.25% before the summer. The decision on the first hike may be taken this week.
59% of Spaniards support action against Gaddafi
A study by the Real Instituto Elcano reveals that 59% of the Spanish population support military action against Libyan dictator Gaddafi, and 58% accept a Spanish participation as long as the action is approved by the UN. 22% are opposed to the Spanish participation.
The study also reports that the armed forces are the most valued institution in Spain (with 6.8 on a scale from 0 to 10) followed by the central intelligence services and the monarchy (5.6), the diplomatic services (5.2) and the foreign development assistance (5.0). Political parties score only 3.8 points !
President Camps included in corruption proceedings ……..
The anti-corruption judge in the Valencia Region has confirmed that President Francisco Camps, Vice-President Vicente Rambla and 10 leaders of the regional government and Partido Popular should be included in the “Correa” corruption proceedings. The charges against them include the falsification of public documents against the tax office and the public administration. The charges may result in prison sentences and exclusion from holding public office.
……… and Chavez family going strong
After the million euro subsidy given to a company where his daughter played a leading role, it has now been disclosed that a son of the previous president of Andalusia, and present vice-president of the national government, Manuel Chavez, has benefited also from the close relationship to his father.
A company where son, Ivan Chavez was involved landed 19 contracts for publicity from 8 regional ministries, valued at 5.9 million euros.
Checking the voting list
The period allowed for you to check that you are included in the electoral census, started on the 4th April and runs until 11th April. The lists are no longer put up in Town Halls due to data protection so voters must go in person and ask the clerk to check their inclusion in the list and fill in a reclamation if they are not listed. This reclamation period is for Spanish and EU resident voters and is the final opportunity to ensure your entitlement to vote is registered before the election on 22nd May.
spain's property crash casts a long shadow over a place in the sun
The Guardian, Saturday 2 April 2011
Spanish homeowners used to have little in common with the wealthy north Europeans snapping up holiday villas and apartments on the Costas. Now both are united in adversity. Both are suffering in a market preoccupied with falling values, negative equity, a glut of unsold new property and, in some cases, doubts about the legality of new estates.
An estimated 600,000 new homes, and 200,000 part-completed ones remain unsold, a sizeable proportion of which are in holiday areas. The Bank of Spain says official house prices have fallen 17% since 2007, but many observers believe that the market is much worse than that, as the bank's index is based on valuations, not achieved sale prices. Estate agents say prices of homes have typically fallen 20% to 50% in different parts of the country, with no sector unaffected.
"There is an entire generation of young Spaniards with a millstone round their necks," says Enrique Quemada of One to One Capital Partners, a business consultancy. "They will have to work their whole lives to pay for houses now worth half what they bought them for."
Meanwhile, the holiday home market also remains in the doldrums. A three-bedroom bungalow in Castellon, north of Valencia, has been slashed by its British owner from £109,000 to £79,000, and then to £66,000, but still has no takers. Taylor Wimpey, a British developer which has been building homes in Spain for more than 50 years, has new villas on the Costa Blanca for sale at £140,000, down from £235,000.
On the Balearic Islands, until recently thought of as immune from the crash, prices are down as much as 40%.
"There are some real bargains, especially at the top of the market," says a spokeswoman for Savills estate agency, which has one new luxury villa on Mallorca slashed from £15.4m to a mere £9.5m.
Desperate developers are also faced with a slump in British demand because of the poor euro-sterling exchange rate. As a result, a golfing resort in Catalunya is selling its homes with a guaranteed rate of €1.25 to the pound on all purchases over the summer; the market rate is €1.14.
Most commentators believe that more price falls are inevitable, but even if Britons choose to buy now, the prospect of getting a Spanish mortgage is "pretty bleak," according to Melanie Bien of broker Private Finance.
"Spain stands out with a housing market and a lending record that's far worse than France, Portugal or Italy. If you must buy, somehow try to remortgage money from your own home back in Britain," she advises.
The latest figures to emerge from Spain show little respite from a downturn that is now in its fourth year. Although there was a small rise in the number of homes sold early in 2010, this was driven by the desire to beat deadlines for the scrapping of mortgage tax relief and a rise on VAT on new homes. By the end of last year, sales volumes were again on the slide.
Despite the glut of unsold new homes, another 257,443 were completed in 2010. Even so, there has been a 43% collapse in the value of the Spanish construction industry, according to EU figures, and a collapse in land prices of about 50%.
Spanish banks – many of which hold thousands of repossessed homes as assets – are legally obliged to start selling these homes after holding them for two years. As a result, more properties are expected to flood the market for sale this year.
Meanwhile, as if that's not enough, the scandal of Spain's "illegal homes" continues. For more than a decade there have been disputes over some new developments retrospectively declared illegal by councils, controversial compulsory purchase powers given to developers by some local authorities, and politicians who have been jailed for accepting bungs.
The most recent controversy blew up last month when 12,697 new homes were declared illegal in the Almanzora Valley in south-east Spain, an area popular with holiday-home buyers. Some 920 have been earmarked for demolition, while the remainder may be rezoned, thus allowing them to be declared legal and have utilities connected.
"How many will be made homeless, or lose their life savings, if 920 houses are demolished? Who's going to compensate those who bought in good faith?" asks Maura Hillen, president of Abusos Urbanisticos Almanzora No, a local pressure group composed mainly of British residents. Similar groups of disgruntled UK buyers exist across many of Spain's tourist areas.
Now the housing crash has become so much a part of the modern Spanish psyche it has been accorded the ultimate tribute – its own television soap opera.
Crematorio has a storyline that includes unhappy foreign buyers, corrupt councillors, lurid affairs, drugs and violence against a backdrop of the Spanish Costas.
Far-fetched? Not this time. Many believe the fiction is some way behind the fact.
Britain and Spain aren't a million miles apart when it comes to home ownership aspirations.
Both are big on owner-occupation. Spain has one of the highest rates in the whole EU – a whopping 82% – with the rental market concentrated in a few major cities such as Madrid and Barcelona, says the Rics European Housing Review 2011, a major annual study of Europe's property markets.
Tax breaks have encouraged people to invest in housing, though many of these have now been scrapped as part of the recent austerity measures.
And it's not just Brits and other northern Europeans who have responded to the siren call of Spain's sun-kissed beaches. The Rics study points out that, among Spaniards, "there is also a high propensity to aspire to own a second home in the countryside or on the coast: over a fifth of households own one. This helps to make crowded urban conditions more tolerable for those that can afford it".
The latter point is a reference to the fact that Spain's houses are typically pretty busy, bustling places. Says the report: "This cramped lifestyle reflects cultural factors, as well as housing shortages, as several generations of families may live together in dense urban accommodation. The number of rooms per dwelling is quite high by average EU standards, yet they tend to be small, with the usable floor area towards the bottom of the rankings."
Property prices may have fallen, but last month Spain was named one of the world's most overvalued housing markets. A report in The Economist claimed Spanish homes are overvalued by more than 43%, and said this compared with just under 30% for Britain, 20% for Ireland and -12% for Germany (ie, the market in Germany is "undervalued"). It reckons home prices should reflect the rents that tenants pay, so its index calculates the ratio of prices to rents in 20 economies. Spain was the fourth most overvalued after Australia, Hong Kong and France.
But, writing on his Spanish Property Insight website, Mark Stucklin says: "You have to take these figures with a pinch of salt as far as Spain is concerned." The problem, he says, is they are based on official figures which "significantly understate the true extent to which prices have fallen. Spanish prices have fallen much further than this index suggests ... If you want to know what's going on in the residential property market, a much more revealing figure is the collapse in planning approvals, down by 90% since 2006". Rupert Jones
THE WALL STREET JOURNAL:
More Rain in Spain for Country’s Property
A significant rebound would only come with an upward movement in activity in the real estate sector—and chances are there won’t be any for a while.
In a welcome bout of openness, Spain’s central bank Governor Miguel Angel Fernandez Ordonez said Tuesday the reform of Spain’s savings banks, saddled with bad property loans like no other, should have been done sooner.
He is right. The hit from Spain’s property bust has left savings banks, which account for close to half of Spain’s banking business, unable to provide credit to the economy. That, combined with soaring unemployment tied to builders being left with nothing to build, has left Spain’s economy as key European underperformer.
According to data released Tuesday, the purchase managers’ index for Spain’s services sector dipped back to negative territory in March, to 48.7, from 50.8 in February, indicating a decline in activity. That compares with a rise in the overall services PMI for the euro zone, to 57.2 from 56.8 in February.
All of this comes as the property sector remains underwater. In the first quarter, Spanish property prices dropped by 5.1% from the same period last year, a faster pace than the 3.4% fall posted in the last quarter of 2010, data compiled by IESE business school shows.
In part, that is due to the expiration of some tax breaks for property purchases on Dec 31. But even if new tax breaks were approved—which is unlikely as the government scrambles to maximize revenue and lower budget deficit to 6% of gross domestic product this year from over 9% last year—the housing glut works against a recovery in prices.
Spain, with a fast-aging population of 47 million, has between one and two million of empty homes, and just over 400,000 homes were sold in the whole of last year, according to Spain’s statistics institute, INE.
As the European Central Bank is widely expected to hike interest rates later this week, the worry is that property prices will drop for a while more. And that is exactly what the banks, which already require around €15 billion to recapitalize themselves this year according to the Bank of Spain, don’t need.
Last month, when Moody’s Investors Service cut Spain’s debt rating to Aa2 with a negative outlook, from Aa1, it cited the hole left by property losses in banks’ balance sheets as a key reason.
Moody’s believes that, under the Bank of Spain’s own rationale, the banks may need €40 billion-€50 billion; in a more stressed scenario, funding requirements could soar to approximately €110 billion-€120 billion.
Moody’s analysts said that this is because they anticipate a 30% drop in peak-to-trough property prices in Spain, in line with similar trends seen in bust-afflicted countries like the U.S. and the U.K. They declined to provide an estimate of where we are now exactly, but official figures show a decline of around 15% from the peak level.
Thus, Spain’s government finds itself in a paradoxical situation—hoping that its own numbers are wrong, and some private sector estimates of a 20%-plus drop in prices from the peak, which would imply a price rebound is due any quarter now, are closer to the mark.
By David Roman
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