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OPINION

Weekly Report  (25.02.12)  

By Per Svensson

miércoles 22 de octubre de 2014, 11:21h

‘Increased mobilisation’ against labour reform

The trade unions have started a campaign against the so called labour reform of the Rajoy Government, with meetings and demonstrations bringing hundreds of thousands onto the streets. The move is expected to culminate in a  general strike. The nationalist trade unions in the Basque Country, Navarra and Galicia have already called a general strike for 29th March, but opinion is divided between the main unions.

 

Police excesses in Valencia

The Minister of the Interior, Jorge Fernandez Diaz, has admitted that the action by the police in detaining students demonstrating against the cuts in the budget for the university may have been excessive, whilst placing the main responsibility for the clashes on the students.

 

Lower interest rates on new bond issue

Only hours after the decision on the new Greek rescue package was taken, the Spanish treasury succeeded in placing 2,500 million euros worth of 3 and 6 months bonds on the market, at an interest rate below that of the last offer.

 

Spain’s country risk has fallen to 310 points.

Extremadura finds uranium

If tests made by the Australian mining company Berkeley Resources, are correct, there are great amounts of uranium in the soil of Extremadura. The company is one of the world leaders in the industry.  If the findings, mainly in the province of Caceres, are confirmed, the poor region of Extremadura may become one of the world’s main producers of uranium.

 

More strikes for Iberia

Iberia’s pilots are leading calls for new strikes on the 24th and 29th of this month. The action is directed against plans to create a new low-cost carrier, called Iberia Express, which it is hoped will be able to compete with Ryanair and the other low cost companies. Ryanair already brings more passengers to Spain than Iberia. The strike held on the 20th left 120 planes on the ground, although 200 flights were unaffected.

 

Spain consumes 2.461 cubic metres of water per head per year

According to a resent investigation, Spain consumes 2.461 m3 water

per person and year.  China, India and the United States consume 38% of the available resources world wide. Citizens in the USA consume 12.842 m3 per person, India 1.089 and China 1.071.

 

Expensive electric car from Vigo

The company ‘Little Electric Cars’ in Vigo (Galicia) are producing small electric cars that so far have been exported to the island of Martinique in the Caribbean. The cars have 4 seats, can carry up to 400 kilos and run 100 kilometres on one charge.

The cars cost 14,000 and 25,000 euros respectively for the two models, but with bigger orders the price may be reduced by 50% due to subsidies from the Ministry of Industry.

 

From 45 saving banks to 17

The number of saving banks (Caja de Ahorros) since the start of the crisis has fallen from 45 to 17, but even so there are still too many weak entities. With the recent demand by the Government that banks must set aside funds to cover billions of euros in bad property assets, the pressure is on.

The Government has estimated the additional provisioning will reach 50 billion euros and that total ‘problem property assets’ in the banks is 175 billion.

 

Banco de Valencia lost 887 million in 2011

Banco de Valencia, the mismanaged bank which required the intervention of Banco de España in November, after adjusting the value of property on its balances, showed losses of a total of 887 million euros last year. With the losses, the bank now has funds of 325 million.

 

Iran cuts off oil to Spain

Due to political unrest in Libya, Spain shifted it’s oil requirements to Iran last year, but will now loose half of that due to the EU trade embargo against Iran. Spain is the biggest European importer of oil from Iran and depends on it for 50% of its supply.

95 octane super gasoline increased 1% last week, to 1.392 euros.

40% of hotels on Costa del Sol close for winter

The Junta de Andalusia invests 80 million euros every year in tourist promotion, especially to promote hotels on the Costa del Sol. That is several times the funds invested by other important tourist areas, including Catalunia, the Balearics and the Canary islands. However, 40% of the Costa del Sol hotels close for the winter.

 

Less mortgages

The banks agreed 6% less mortgages last year compared with 2010, the greatest fall in the history of the mortgage business. The reasons are of course the huge fall in the sale of new dwellings and buildings, but also serious difficulties for buyers to obtain mortgages, unless they buy the property from the bank.

It is anticipated that the fall will continue in 2012.

 

Unpaid debt increasing

Unpaid debts by families and businesses increased 9% during the first half of 2011. Businesses accounted for 75% of the total, but the debts of families were also increasing. This is the highest level of unpaid debts since the recession of 1992 to 1994.

 

Giving back the property to the bank

Luis de Guindos, minister of finance, has proposed a ‘codex of good behaviour’ for the banks (they really need it!), including the possibility of giving back a mortgaged dwelling as part payment. The possibility shall be open for families where all members are unemployed, and they would be able to live for two years in the dwelling.

 

The crisis this week:

On Monday night , after long and hard negotiations, the finance ministers of the Euro Group released the 130 billion euros in the second rescue package for Greece

The money, coupled with completion by Greece of certain conditions, will be paid out in instalments up to 2014.  In the meantime, the funds are to be kept in a blocked account

The ‘troika’ will be permanently installed in Athens, to control the implementations of the conditions imposed

 

Private creditors had to accept a ‘haircut’  by 75%

With this the Euro Group expect that Greece in 2020 will reach a level of debt equivalent to 120% of its Gross Domestic Product

However, experts have calculated that if the recession in Greece worsens, the country may need an additional 50 billion euros. German Minister of Finance, Schauble, has called Greece a ‘bottomless barrel’

Spain is supposed to pay 15,600 million euros as it’s part of the Greek rescue, plus 1,000 million that represents the ‘haircut’ on Greek bonds held by the Bank of Spain

 

Property market crashing

By Per Svensson

Banco Santander, the important international bank of Spain, is desperately trying to sell apartments in Seseña (Toledo) which it had to take over from the famous promoter Francisco Hernando, when he was unable to repay the bank’s mortgages. Our readers will remember the promoter, ‘El Pocero’ and his gigantic property project (in reality a small town) on the dry plains of La Mancha, with lack of water and communications.

Fearing that the properties, listed on their balance sheet at mortgage value, will drag down the value of the bank, Santander is slashing prices. Half a year ago it tried to sell 2 bedrooms apartments of 94 m2 for 89,000 euros, which in 2007 was sold for up to 190,000 euros.  However, even that enormous reduction was not enough and today their price has been further reduced to 65,000 euros (excluding taxes).

From 190,000 euros to 65,000 in 5 years. If that’s not a crash, nothing is !

 

Cost and value

The property ‘experts’ are now busy telling the world, that the new prices in Seseńa, means they are trying to sell at a price below the construction cost of 650 euro per m2,  which equated to more than 60,000 for a 2 bedroom apartment, and that is without taking into account architects fees, licences and local taxes.

Many ordinary families, who bought apartments in the development at up to 190,000 euros, are now facing the bitter reality that their homes have a market value of no more than 65,000. The properties were bought on up 100% mortgages with variable interest rates, believing the banks when they said, ‘The low interest rate will not increase’ and ‘property values will continue to rise’. They are now prisoners in their un-sellable homes.

There are many Seseña’s in Spain, many ‘Pocero’s’ and a number of dumb and uninformed bank directors.  All over the country there can be seen half finished buildings, stationary building cranes and posters announcing ‘Se vende – For sale’.

 

Property sirens chanting

Every time some property sales are registered (in a selected short time period, in a specific location, during a special event or for abnormal reasons) the sirens of the property sector are chanting that ’the market is recovering’  ‘the time has come to invest in property’ or ‘homes will never be cheaper than now !’   We have heard the

same song all the time since 2007, when buyers withdrew from the property market. Luckily, our readers had a proper warning, but others bought ‘cheap’ property at 190,000, which now has a market value of maybe 60,000.

We have said that at some point the market will hit bottom and prices will stop their downward spiral and slowly start to recover, but we are not yet at that point; as the banks desperately prepare themselves for dooms day, and as the national and regional governments are dumping maybe hundreds of thousand of public employees and leaders of public companies onto the unemployment lines, the number of house buyers and property prices will shrink. Do not expect a turn-around this year.

Property surveyors Tinsa report that home prices dropped 9.4% in January this year, compared with the same  month lat year and that the market square metre value of a built dwelling now stands at 1,714 euros, a value similar to that of 2005. There are considerable local variations, in the province of Alicante the average m2 in Benidorm is up to 2,486 euros, whilst in Elche it is only 1,594 and in Torrevieja 1,374….

 

Good news: Less cement produced

Demand for cement fell 23.35% in January, from same month in previous years reaching the lowest level for the past 20 years. (This is the good news of the week, take note!)  It says much about the situation in the building business, even if some of the fall is also due to a reduction in public works.

According to the European Commission, the Spanish Mediterranean coast has the greatest soil erosion problem in the EU, due to unsustainable urban building activity between the years 2000 and 2006. Greenpeace maintain that several parts of the Mediterranean coast are eroding by one meter per year due to this activity.

Maybe the economic crisis will save the beaches….

 

240 billion in ‘problematic exposure’

By SUZANNE DALEY and RAPHAEL MINDER

YEBES, Spain — It is a measure of Spain’s giddy construction excesses that 250 row houses carpet a hill near this tiny rural village about an hour by car outside of Madrid.

The few families who live in Yebes, where some roads were built for units that were never started, keep dogs to ward off strangers.

Most of these units have never sold, and though they were finished just three years ago, they are already falling into disrepair, the concrete chipping off the sides of the buildings. Vandals have stolen piping, radiators, doors — anything they could get their hands on.

Those few families who live here keep dogs to ward off strangers.

Yebes is hardly unique. The wreckage of Spain’s once booming construction industry is everywhere. And much of it sits as bad debt on the books of Spain’s banks, which once liberally offered financing to developers and homeowners alike.

Just how big a loss the banks are facing is unknown, at least publicly, and that has investors worried — the cost of financing Spain’s debt rose 18 percent in the last month alone. But the potential costs of failure go far beyond that. Spain’s economy, the fifth largest in Europe, is much bigger than Ireland’s or Greece’s, and a bailout of its banks could be far more costly, an event that could push the government into default and end up dooming the euro itself.

The Bank of Spain says the banks have about $240 billion in “problematic exposure” out of $580 billion invested in real estate and construction, a situation, they say, the banks are capable of handling.

But not everyone believes that. Unlike American banks, Spanish banks have done little to open their books. Along with other banks in the euro zone, they underwent a stress test last July, and all but five of Spain’s smaller savings banks passed.

The trouble is that some Irish banks that also got a clean bill of health in that round of tests subsequently collapsed, raising a threat to the country’s solvency that has still not been quieted — on Friday, Moody’s slashed Ireland’s credit rating to near-junk status and warned of further downgrades — despite a bailout. Those failures undermined the credibility of the whole stress-test exercise and forced regulators to announce recently that the results of further tests would be published early next year.

The Bank of Spain is moving to lift confidence in its banks by forcing them next year to disclose more details about their holdings and to start acknowledging troubled assets faster. But just how much are those assets worth?

Rafael Valderrabano, who founded the Básico real estate company 18 months ago to help banks sell property they are repossessing from developers, says the country is full of situations like Yebes. Right now, he says, he is trying to sell units in 40 apartment blocks near Cuenca, an area southeast of Madrid that is sparsely populated.

“Who went to develop in this place?” Mr. Valderrabano asked. “Who did this? Worse, who financed this?”

A better known real estate debacle is a sprawling development in Seseña, south of Madrid, one of Spain’s “ghost towns.” It sits in a desert surrounded by empty lots. Twelve whole blocks of brick apartment buildings, about 2,000 apartments, are empty; the rest, only partly occupied. Most of the ground floor commercial space is bricked up.

The boom and bust of Spain’s property sector is astonishing. Over a decade, land prices rose about 500 percent and developers built hundreds of thousands of units — about 800,000 in 2007 alone. Developments sprang up on the outskirts of cities ready to welcome many of the four million immigrants who had settled in Spain, many employed in construction.

At the same time, coastal villages were transformed into major residential areas for vacationing Spaniards and retired, sun-seeking northern Europeans. At its peak, the construction sector accounted for 12 percent of Spain’s gross domestic product, double the level in Britain or France.

But almost overnight, the market disappeared. Many immigrants went home. The national unemployment rate shot up to 20 percent. And the northern Europeans stopped buying, too. But government officials now say the worst is over, with housing prices down a modest 12.8 percent from the peak, according to the Bank of Spain.

“Most of the adjustment in housing prices has already taken place,” José Manuel Campa, Spain’s deputy finance minister, said recently, though he allowed that there was a lack of good information on real estate sales.

Still, skeptics abound. One is Jesús Encinar, the founder of Spain’s most popular property Web site, Idealista.com. He says that the Spanish authorities are striving to engineer a soft landing of the housing market that would give more time to offload surplus housing at reasonable prices.

But he believes prices still have a long way to fall, by 30 or 40 percent, maybe more. “Some people who said there was no housing bubble are now saying we are at the bottom,” Mr. Encinar said. “But I say we have several years to go.”

 

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