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Spanish Property Swings & Roundabouts

2009-11-06T08:00:00Z

The latest figures for planning approvals show that for the residential construction sector there is still plenty of bad news out there. Bank of Spain to double provisions in move that may drive property prices down.

The depressing news for anyone who makes a living building homes in Spain is that in the year to August planning approvals were down 62% to 76,411 compared to the same period last year, and down 0.4% on a monthly basis.

But these figures don’t tell the whole story, now that the Spanish property sector’s slump has lasted longer than a year. The year-on-year decline in the same period last year was over 50%, so compared to 2 years ago, this year’s decline can only be described as a debacle.

It means that Spain’s residential building trade is shrivelling up. All the resources that used to be dedicated to building hundreds of thousands of homes each year are increasingly standing idle. In the boom years the real estate sector, including construction, accounted for close to 20% of Spanish GDP. By some estimates it has now shrunk to 10%, but that is still substantially above the OECD average and way too high for Spain.

It helps explain why unemployment in Spain is heading for 20%. Every point of GDP lost to the housing slump destroys 200,000 jobs. That in turn is bad news for the housing market, as people without jobs can little afford to buy a home or pay the mortgage.

The Bank of Spain plans to introduce a new rule forcing banks and savings banks (cajas) to double the amount they write off when they own a repossessed property for a year or longer. This will give banks and cajas a big incentive to reduce their prices to liquidate their growing stock of repossessed properties and developments.

Under the new rule, banks and cajas will have to increase their provisions from 10% to 20% of appraisal values for repossessed properties they have owned for a year or more.

In the past they only had to write of 10% at the time of repossession. Now they must write of an additional 10% in provisions for properties they haven’t sold after a year.

The new measure, which is expected to come into force in a few weeks time, is being interpreted as a warning from the Bank of Spain that banks should stop their practise of disguising bad debts by swapping debt for property. It will also encourage banks to drop their prices to reduce their property holdings.

Banking analysts estimate that banks and cajas have repossessed property valued on their books at 36 billion Euros. This implies they may have to write off 3.6 billion Euros collectively when the new rule comes into force.

Note, however, that BBVA and Santander, Spain’s biggest banks, are unaffected by the new rule. They were already making provisions of 20%.

Story from Mark Stucklin

Moneycorp: Sterling's Resilience Shines Through

2009-11-05T08:00:00Z

Sterling's resilience shines through. Have we all forgotten the previous week's appalling UK third quarter GDP performance?

Following the previous Friday's dismal UK GDP figure, there was every reason to suspect the pound would have to face the full force of economic law and aggressive selling from worried FX traders at the beginning of this week. Neither happened and the fact that we saw no new evidence of worsening economic conditions meant the pound duly recovered a good half of its losses against the other major currencies.

Having opened at 1.0854 against the euro, there was only a slight dip into Monday morning, before this recovery kicked in, rebounding to just under €1.10 by the afternoon.

Tuesday saw further gains for the pound against the dollar and the euro, as a Confederation of British Industry report showed UK retail sales climbed to the highest level in almost two years.

On Thursday, net UK mortgage lending was as expected. The rates were therefore influenced by the strong US Gross Domestic Product (GDP) reading, which saw an annualised growth of 3.5%, confirming that America is officially out of recession.

This saw a resurgence in risk appetite and the pound subsequently gave back some of its gains from earlier in the week, whilst holding its ground against the US dollar. This move proved relatively short-lived however, as the markets read between the lines of the GDP figures and the trends from earlier in the week resumed.

With this week dominated by the Bank of England rate decision and accompanying statement on quantitative easing, trading in sterling is likely to be choppy. Significant moves are less likely in the build-up and even after the decision itself, there could be a muted response while the markets wait for the quarterly inflation report released on Wednesday 11 November.

There was little data of note from the eurozone last week and, subsequently, the single currency was at the mercy of news from elsewhere.The primary influence was the growing belief that we are coming towards the end of the stock market bull-run, and that present monetary stimuli are likely to be withdrawn in most major economies in the relatively near future. As a result, short positions in the dollar, sterling and yen were closed out, which lead to euro selling.

The major cross that markets watch is the EUR/USD rate, which had been trading over the psychological 1.50 level through the end of last week and into Monday. After the rate broke back below that level on Monday, stop loss orders were triggered and the pound was able to appreciate against its continental counterpart. This was key in allowing sterling to breach the 1.11, although follow-through came to a halt near 1.12.

The small amount of data we did have was largely negative. German consumer confidence was lower than forecast and down on last month, when a gain had been expected. M3 Money supply was also lower than forecast - which is positively correlated with interest rates - so a weak reading only served to further hamper the euro.

Some other minor German data was on or just above expectations. However, this was not enough to turn the tide, as investors unwound their recent trades and awaited the important GDP figure from the US on Thursday. As mentioned, this figure showed a strongly positive reading, so risk appetite returned to the markets and the euro recouped some of its losses.

Friday morning's flash inflation estimate and Europe-wide employment figure were both on expectation and did not influence the market. Euro movement this week will also be dominated by the central bank interest rate meeting and subsequent press conference on Thursday, with no other data of any real significance due for release in the build-up.

With sterling widely considered undervalued - especially against the euro - we may see the current levels hold, although it is unlikely we will see any significant rally until the market is confident that the Bank of England has finished its quantitative easing measures.

With so much uncertainty surrounding the upcoming decisions from both the UK's Monetary Policy Committee (MPC) and the eurozone's European Central Bank (ECB), it is certainly prudent for buyers of the euro to hedge half their requirement with a forward purchase. Anyone selling euro should still view the current levels as attractive, considering that just two years ago, it would have cost you €1.40 to buy £1.00.

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Spanish Spectre Haunting Europe

2009-11-04T08:00:00Z

A spectre is haunting Europe, but this time it is not the spectre of revolt by the popular masses, or even one of yet another wave of bank bailouts.

No, the spectre which is currently stalking the corridors of Europe's most prestigous institutions is one of a Spanish economy which stays on a flatline while Europe's other economies, one by one, start to struggle back to life.

And the main reason that this particular ghostly image is giving everyone so many sleepless nights is because Europe's current institutional structures, and especially the monetary policy tools available at the ECB are scarcely prepared for such a nighmare eventuality.

France Is Recovering, And The Rebound Is Robust

First it was just a rumour, then it was a possibility, and now it has become a reality - some of Europe's economies are springing back into life. But only some.

It all began quietly, with a barely noticeable 0.3% quarterly growth in French and German GDP in the second three months of this year.

France and Germany will have maintained their modest growth into the third quarter, while Italy has now joined them, leaving only Spain among the Eurozone big four, registering yet another quarter contraction, and, more importantly, showing no evident sign that an early return to normal activity is anywhere near to the horizon.

In fact Spanish gross domestic product fell 0.4 percent quarter on quarter in the third quarter following a 1.1 percent drop between April and June, according to the Bank of Spain monthly bulletin. Spain's GDP also contracted 4.1 percent year on year in the quarter, after a contraction of 4.2 percent in the second three months.

"This is the least pronounced contraction since the beginning of the recession .. and this improvement is linked to state-backed measures with a temporary effect," the bank said.

To this government stimulus effect, I would also add the net trade effect which is being felt as a result of the strong fall in imports, and the consequent closing of the current account deficit.

With imports falling faster than exports (on an annual basis) the net impact is positive growth in the headline GDP number, and the Spanish CA deficit was closing very rapidly indeed in the third quarter.

The impact of the stimulus package can also be seen in the seasonally adjusted unemployment numbers supplied to Eurostat by the Spanish Statistics Office (INE). Unemployment, which hit 19.3% in September, has been rising continuously since mid 2007, but the sharpest increases were registered during the fourth quarter of 2008 and the first quarter of 2009.

It is very hard to see any real difference in the trend rate of increase between the second and third quarters of 2009, and we should expect this trend job attrition rate to continue until it once more accelerates under the impact of either the government being unable to continue funding the stimulus, or the banking sector having a financial crisis (possibly induced by someone being forced into trying to sell some of the Spanish property they are accumulating only to discover that there are no buyers, since the market is effectively dead).

Life, Unfortunately For Spain, Is Elsewhere

But for all our preoccupations growth in 2009 is now no longer the issue. All eyes are gradually moving towards the outlook for 2010, and it is here that those little red lights have suddenly started flashing over at the European Central Bank.

And the problem is a real and growing one, since according to a series of reports which have been published during the last week, while activity in the export dependent German economy remained very fragile, the French one has really starting to hum.

The first sign of this came on Tuesday, with the initial reading for the October Purchasing Manager Index which showed that while the Eurozone economy in general entered the fourth quarter on a strong note, with growth accelerating in both manufacturing and services sectors, the private sector in France started to earn alpha grades by clocking up a third successive month of accelerating growth, leaving us with the impression that France is now seeing its steepest output expansion in nearly three years.

Then on Wednesday the ECB presented its monthly bank lending data, which showed that lending to the euro area private sector shrank by an annualised 0.3 percent in September, the first such contraction since the series began in 1992.

But looking a little more closely at a lending activity on a country by country basis, we find that while lending continues to contract in Spain, in France the credit cycle has turned, and indeed lending to households is now once more rising steadily, indeed it never fell below an annual 4% rate of increase and the annualised quarterly growth rate in lending has been rising since the end of the first quarter.

That is to say, credit is once more starting to flow freely round the French economy, while here in Spain banks continue to accumulate reserves, lending generously to the government, while money for struggling small companies and for young people looking to buy homes is hard to find.

What is more, the stock of unsold new homes – which was in any event never very high in France, maybe 100,000 in the spring – is down by 20% as sales steadily pick up again, while here in Spain we continue to play a guessing game to decide just how many (more than a million surely) such properties there are here, and the number is growing, not declining, since real new sales to private individuals (as opposed to newly completed properties contracted two years or so ago, or exchanges between developers and banks) are almost non existent at this point. Everyone knows prices will fall further, and are waiting for them to go down.

Then on Friday we had the key piece of information, which confirmed what many of us already suspected, since Markit PMI data for October retail sales made plain the presence of very divergent trends across the Eurozone, with ever more robust growth in France contrasting with falling sales in Germany and Italy.

As Jack Kennedy, economist at survey organisers Markit Economics said "While the sense of growing optimism should be treated with some caution – it appears the increase in sales was also supported by widespread discounting and the continuation of the government's car scrappage scheme – the outperformance of France relative to Germany and Italy offers further evidence that it is France that is leading the Eurozone recovery."

And here, with this very outperformance comes the problem, since the ECB policy rate will be set to target average eurozone inflation, which will certainly be lower than inflation in France, and possibly significantly lower. Which means the ECB policy rate will be below the one which the French economy will, in reality, need.

Between 2000 and 2008 the structural dynamics of the Eurosystem were different from now. Spain was the "exceptional student", with above-average growth, and inflation which was consistently over the Eurozone average, and for long periods above the ECB policy rate.

This had the consequence, of course, that French inflation was nearly always below the average. Now things have changed. We are coming out of recession with a eurozone divided into three groups. French growth is becoming robust, while Germany and Italy are dependent on exports and just keeping their head above water.

Spain, on the other hand, fails to recover and continues to contract. This is what makes the current situation critical, since starting in 2010 France will have an inflation rate over the EU average, and in all probability over the ECB interest rate. Which means that if something isn't done, and soon, to force the situation in Spain, and produce a recovery, France will have negative interest real rates during a sharp economic rebound, with all the risks that that implies.

Only last Wednesday Norway became the first western European country to raise interest rates since the start of the financial crisis after its central bank reported finding "signs of renewed growth" in the global economy.

Central bankers from across the global, from Washington, to Sydney, to Delhi and to Oslo are all now busily telling us they are going to take increasing account of future accelerations in asset prices in an attempt to avoid repeating policy mistakes that are presumed to have inflated two speculative bubbles in a decade – and left the entire Spanish economy in a lamentable state.

If France had its own monetary policy I have no doubt La Banque de France would be itching to follow the Norges Bank and raise rates, but there is one small problem, La Banque de France has no capacity to decide on monetary policy in this way, and herein lies the heart of what is now Europe and the ECB's greatest dilemma.

Story from Spain Economy Watch

Spanish Property News Roundup 3rd November 2009

2009-11-03T09:00:00Z

Making sense of Spanish property related articles in the news this week.

In Bank of Spain: Foreign Exchange Rates Key to Recovery, the Bank of Spain says that a recovering US economy bodes well for Spain's export industry IF foreign exchange rates don't mess things up.

Thanks to the economic might of France and Germany, the Euro has remained quite strong against the Dollar, but that strength could scupper any hopes of Spanish exports to the US - hence EU calls to limit volatility in foreign exchange markets.

In Spanish Economic Recovery Mediocre, the Spanish Savings Bank Foundation, FUNCAS, predicted that the service sector in Spain will become a dominant employer. Why?

I think it's because there are no goods to export, few organised unions in that sector in Spain, and greater latitude in reducing tax liabilities in the client's country. In short, it's one of the few industries in which Spain might have a competitive edge.

In Moneycorp: GDP Data Scuppers Sterling, we see the battle waged last week between Sterling, the Euro and the USD. Finally, the surprisingly poor UK Q3 growth figures boosted the value of the Euro.

Moneycorp advise: "The events of last week were a salutary reminder that sterling can go up-and-down, as well as down-and-up. Buyers of the euro should hedge half their requirement."

Finally, as if it were the logical conclusion to all this economic data, we read that Spanish Property Prices Flat Until 2011.

Last week, Knight Frank concluded: "Property prices in Spain have touched bottom but will remain stalled during the next two years. If you put a home on the market at a 35 percent discount to highs from three years ago, prices are going to stay at these levels until 2011."

If you've been reading the Property Pulse newsletter for a while, you'll know that's exactly what we concluded earlier this year. For a Spanish property to sell, it needs to demonstrate a real 30% reduction from the highs of 2007. As a buyer, that's what you are aiming for.

As the recovery in Spain lags that of the rest of Europe, I continue to predict a wave of foreign investment money flowing into Spanish property. Word on the street plus confirmation by Knight Frank that real Spanish property prices have bottomed out means that what we're waiting for now are the investors.

The investors are no longer waiting for Spanish property prices to drop further.

True, much of the Spanish property stock continues to be marketed optimistically, but a little bit of haggling should get you well within the 30% discount zone. Just make a cheeky offer.

Martin Dell, Kyero.com

Bank of Spain: Foreign Exchange Rates Key to Recovery

2009-11-03T08:00:00Z

Spanish gross domestic product contracted again in the third quarter as the recession, sparked by the global financial crisis and the housing sector collapse, dragged on.

Spain's GDP shrank 0.4 percent quarter-on-quarter in the June to September period after a drop of 1.1 percent in the second quarter, the fifth consecutive quarterly contraction.

In annual terms, Spain's economy contracted 4.1 percent year-on-year, the central bank said in its monthly report, after a contraction of 4.2 percent in the second quarter.

The estimates come ahead of preliminary data from the National Statistics Institute due for release on Nov. 12.

'This is the least pronounced contraction since the beginning of the recession ... and this improvement is linked to state-backed measures with a temporary effect,' the bank said.

The Spanish government has passed one of the largest economic stimulus plans in the world in relative terms to pay for around 30,000 infrastructure projects across the country aimed at filling the hole left by the burst Spanish property bubble.

The government expects GDP to shrink 3.6 percent year on year in 2009 and has said the economy will remain in recession until the second quarter of 2010.

An economy is considered in recession after two consecutive quarters of quarter-on-quarter contraction in GDP.

The 16-member euro zone would likely register positive GDP in the third quarter of 2009, the central bank said, after a quarterly decrease of 0.2 percent in the April to June period. 'Available indicators suggest growth could turn positive in the third quarter,' the bank said.

'(Growth would be) driven by an improvement in international commerce and stimulus policies for aggregated demand and support for financial markets, which have helped stabilise markets.'

However, risks for the euro zone remained, the Bank said.

'The labour market, which has been relatively resistant until now, the deterioration in public accounts, deleveraging trends within the banking sector ... are fragile elements which must be paid special attention in the next few months.

An improvement in global trade and exports from the euro zone could be hampered by volatile currency shifts, the bank said.

'The advance in world trade and exports from the euro zone area could be slowed by erratic movements in exchange rates,' the bank said.

Earlier on Thursday, the EU's top economic official Joaquin Almunia said major economies should coordinate to limit volatility in foreign exchange markets.

Story from Forbes

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Spain & Britain Stuck in Recession

2009-11-02T08:00:00Z

Spain's economy shrank further in the third quarter new data revealed Thursday, making it the only large European economy along with Britain to remain in recession as the US also returns to growth.

The economy shrank 0.4 percent between July and September from the previous three months, its sixth straight quarterly decline, and by 4.1 percent from a year earlier, the central bank said in an initial estimate.

"The indicators relative to the third quarter confirm the tendency towards a slowdown in the contraction of (economic) activity," the central bank reported.

The national statistics institute will publish its preliminary third-quarter GDP figures on November 12.

Spain's economy, the fifth-largest in Europe, shrank by 1.1 percent in the second quarter from the previous three months and by 4.1 percent from a year earlier.

But while the pace of contraction in the third quarter was the slowest since Spain entered into its first recession in 15 years at the end of 2008, it is far below the 0.5 percent growth London-based Capital Economics estimates the entire eurozone posted during the period.

Eurozone heavyweights France and Germany both posted surprise GDP growth in the second quarter of 2009, technically bringing an end to their recessions.

The United States announced Thursday that its economy grew at a seasonally adjusted 3.5 percent in third quarter from the previous three months, its strongest growth in two years as government stimulus boosted consumer spending.

Spain's economic performance instead mirrors that of Britain, which unexpectedly slumped 0.4 percent in the third quarter.

Capital Economics expects the Spanish economy will continue to trail its European peers.

It predicts Spanish GDP will contract by around 1.0 percent next year, after shrinking 4.0 percent this year, while the eurozone will expand by around 1.5 percent in 2010.

"Looking ahead, we expect Spain’s considerable economic imbalances, problems in the banking sector and the growing threat of deflation to ensure that a sustained recovery remains a long way off," Capital Economics' European economist Ben May said in a statement.

The Spanish economy has proved especially vulnerable to the global credit crunch because growth relied heavily on credit-fueled domestic demand and a Spanish property boom boosted by easy access to loans.

Socialist Prime Minister Jose Luis Rodriguez Zapatero's government approved an additional 5.0 billion euros (7.5 billion dollars) on Friday for public works programmes in a new bid to stimulate the recession-hit economy.

The fund would be in addition to EUR 8.0 billion (USD 12 billion) allocated in November 2008 for infrastructure projects and which led to the creation of 421,000 jobs since April but which is now winding down, the government said.

That stimulus package has not prevented the unemployment rate from rising to nearly 18 percent, twice the eurozone average, which has led to a drop in consumption which in turn has caused retailers to slash prices, raising the threat of deflation.

Spain's annual inflation fell 0.6 percent on the year in October, its eight straight month of decline, statistics institute INE said Thursday.

Earlier this month, the head of the Bank of Spain, Miguel Angel Fernandez Ordonez, warned that the country's growth model was "unsustainable" as it was excessively based on construction.

He also called for reforms in the labour market, without which he warned Spain faced a long period of high unemployment.

Story from Expatica

Spanish Economic Recovery Mediocre

2009-10-30T08:00:00Z

The Savings Bank Foundation, FUNCAS, warns that economic recovery will be mediocre and employment will not be created until 2011.

Director, Angel Laborda said, during a conference on the current situation of Spain against the global economic crisis, that the growth in Gross Domestic Product (GDP) will take a lot to achieve rates of 3% and may provide the first positive numbers in the spring of 2010, although he predicted that this year it will end in recession with a GDP decline of 1%.

In this regard, he said that the problem is that the crisis in Spain is lasting longer than in other countries around Europe.

He said job growth will not be significant until the second half of 2011 and the unemployment rate will peak in the third quarter of next year, to 20.5%, resulting in 4.5 million unemployed.

Therefore, he criticized the minister of Finance, Elena Salgado, as she had announced green shoots in the second quarter of this year, when she was rushed to talk about them.

He estimated that the service sector will be the niche in job creation from 2011, the industry will soon recover and that the Spanish property market will be in negative rates for many years.

Laborda also warned of the medium term problem the huge hole in the public deficit, which he said will cause problems in the medium term in the Spanish economy.

He said sooner or later will have to endure a tax increase to bring back the deficit of the state bordering on 10% of GDP. According Laborda, 2010 will be a difficult year for businesses, and the cost of capital and labour will continue to weigh on the balance sheets.

Story from Barcelona Reporter

Moneycorp: GDP Data Scuppers Sterling

2009-10-29T08:00:00Z

The UK economy shrank in the third quarter of 2009, seriously disappointing investors. Purchasing managers say Euroland is back to growth in all sectors.

Starting from €1.09 sterling rose to €1.11 before running into serious resistance on Wednesday. It had another look at that level on Friday morning before turning tail. A sharp fall saw it lose two cents in as many minutes and it carried on down to open in London this morning at €1.0850.

Sterling had a potential mountain to climb almost every day last week. Public sector net borrowing would show just how deep in the mire were government finances. The Monetary Policy Committee (MPC) minutes may point to more "money printing" by the Bank of England.

Retail sales data for September would show whether to not the consumer was back in business and Friday's figures for third quarter gross domestic product (GDP) would hopefully show the British economy was out of recession.

The first three of those obstacles were handled without drama. Monthly government borrowing was slightly less than forecast; box ticked.

The MPC minutes said nothing that Bank officials had not already said in the previous couple of days; box ticked. Retail sales did not rise by as much as expected, in fact they did not rise at all, but they did not go down; box ticked.

The unhappy denouement came on Friday, with a consensus among analysts that GDP would have grown by +0.2% in the third quarter of 2009. Most of them got it dreadfully wrong. Instead of the small but still positive increase they expected, investors were asked to swallow a -0.4% decline. Not surprisingly, they choked. A lot of psychological stock had been invested in the GDP number and most of it had to be written off.

The euro's biggest problem last week was its position against the US dollar. The $1.5=€1 level provided both a technical and a psychological obstacle that has carried through to this morning (although it is now coming under pressure).

There were very few pan-euro-zone economic indicators to carry things along. The only ones that mattered were the provisional purchasing managers' indices (PMIs).

The PMI aims to quantify whether business is growing, in which case the index will be between 50 and 100, or shrinking with an index between 50 and zero. For the first time in nearly two years both the manufacturing and services sectors reported growth, with PMIs of 50.7 and 52.3 respectively.

The PMIs were accompanied by data showing a third successive month of growth for industrial orders. Orders are still more than a fifth below the levels of a year ago but they are up by more than 8% since May.

At first glance that negative GDP number appears to have undone all the good work that sterling had put in during the previous ten days. On the other hand there are signs that sterling's weakness might have run its course.

A growing number of commentators believe it is wrong to think that things can only get worse. Accountancy firm KPMG reckons confidence among UK executives is as an 18-month high. Goldman Sachs is sticking to the "buy" recommendation it made a month ago.

There is even talk that the budget deficit might be smaller than we thought, although it will be difficult to know for several months.

The events of last week were a salutary reminder that sterling can go up-and-down, as well as down-and-up. With that uncertainty in mind there is no reason to adjust the hedging strategy.

Buyers of the euro should hedge half their requirement with a forward purchase. Those with a short time horizon who do not want to cover their whole exposure should at least protect themselves with a stop order.

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Spanish Property Prices Flat Until 2011

2009-10-28T08:00:00Z

Property prices in Spain have touched bottom but will remain stalled during the next two years, a partner for property advisor Knight Frank said on Friday.

"If you put a home on the market at a 35 percent discount to highs from three years ago, and partially-financed, prices are going to stay at these levels until 2011," Prieto told Reuters in an interview.

But for sales to go ahead, properties need to be located in prime areas within cities' metropolitan circles.

"If you're trying to sell somewhere like Valdeluz or Sesena, 100 kilometres outside of Madrid, forget it. Properties on the coast or with these kinds of setbacks are going to be stalled for years," Prieto said.

The Spanish property market is going through its worst crisis in a decade after an abrupt end to a construction boom that coincided with tightening credit markets, triggering price drops for both residential and commercial real estate.

However, Knight Frank said commercial real estate has experienced a slight recovery thanks to investors looking to make money on rental assets.

"Our perception is that there's money for investment deals. Investors are looking with quite a lot of interest at real estate companies assets," said Prieto.

A slew of Spanish companies -- from realtors like Reyal Urbis to builders like Ferrovial -- have put their real estate assets or headquarters on the market in recent months.

On the downside, the market could soon be saturated by this type of product, which runs the risk of further downward price pressure, Prieto said.

Story from Reuters

Spain: Volatility & Opportunity in Equal Measure

2009-10-27T09:00:00Z

I am constantly frustrated by Spanish bureaucracy and how it negatively affects Spain's ability to compete in business internationally.

However, this week, I caught sight of an article about Community Enterprise which praises Spain for its commercial initiatives in the 1950's:

"The Mondragón cooperatives in the Basque region of Spain are perhaps the best cited example of how a co-op system might work. Created in 1956, the Mondragón co-ops took a devastated region and turned it into an economic powerhouse with more than 90,000 workers. In 2008 the co-ops had annual sales of nearly 16.8 billion euros."

Wow, inspirational stuff. I'd like to see more of that.

In other news this week, Moneycorp reports on a surprisingly positive outlook for Sterling and is further proof that, if you are looking at property in Spain, you need to think seriously about your currency exchange options.

There are a handful of other articles which deserve mention. They are not specifically about Spanish property, but I think they each provide useful background information for anyone wondering when will be the best time to get in on the act.

Three articles from Edward Harrison try to make sense of what's happening to property markets around the world.

In Why Are London House Prices Hitting New Highs?, he tries to make sense of this seemingly absurd situation and concludes: "this is the natural response to easy money when the economy (is experiencing) asset price inflation."

In Next Economic Crisis Already Underway and The Latest Bubble Warning, Mr Harrison continues with the same theme and concludes:

"..When interest rates are near zero we must use increasingly heavy-handed tactics to get the economy going. Terminal debt is fast approaching - where no more debt can possibly be accumulated to revive growth. All roads lead to a W-shaped recession (which) will invite a policy response which kills the recovery."

Last, on a more positive note, this article from the FT in praise of the growth of Banco Santander.

At the start of the decade, Santander and BBVA, the country's number two bank, were roughly the same size in terms of market capitalisation: about €40bn. Today Santander is worth about €90bn and BBVA €47bn.

I honestly don't know what to make of all this, but normally, where there is such volatility there is opportunity in equal measure.

Martin Dell, Kyero.com

Spanish Mortgage Tax Relief Chop

2009-10-27T08:00:00Z

Investors buying holiday homes to rent out in Spain will not be affected tax wise by the Spanish government’s plans to abolish mortgage tax relief from the beginning of 2011 as it will only affects primary residences.

However, the latest move could eventually be detrimental to the property market in general as prices could go up further to compensate for the money primary owners will lose as a result. The proposal follows another plan to raise VAT on new homes in 2010.

Currently borrowers can deduct 15 percent of their mortgage payments up to an annual limit of just over €9,000. Figures released for 2008 revealed that this provided an average saving of €900.

Specialists have estimated that as a normal mortgage term for a Spanish property is 24 years this adds up to around €20,000 over the period of the loan.

However the proposal to abolish the mortgage tax relief may not go ahead as specialists also believe that the government may be pressurised into backing down before the legislation is passed.

Overall Spanish property experts believe that although property values in the country will continue to decline in the current economic climate there are some signs of stabilisation.

Recently released figures by the Housing Ministry show that property prices fell 7.8 percent year on year in the third quarter of this year compared with an 8.2 percent fall in the previous quarter.

The current falls means there are still holiday home bargains to be picked up by cash rich investors who can put down large deposits.

Story from Fly2Let

Spanish Q3 Unemployment Lower Than Expected

2009-10-26T08:00:00Z

Spanish unemployment was unchanged at a better-than-expected 17.9 percent in the third quarter, but analysts said a fall in the number of people looking for work disguised continuing job destruction.

The number of unemployed workers totalled 4.1 million in the third quarter, down by 14,100 from the second quarter when the rate had also been 17.9 percent, the National Statistics Institute said.

Spain's unemployment rate is the highest in Europe, as it pays the price for a decade-long boom during which most of its growth was based on adding low-productivity labour in the construction and services sectors.

'We expected a much higher rate,' said Estefania Ponte of BNP Paribas. But she added: 'The number of people seeking work has fallen, and that's made the headline figure look a bit better.'

The number of people with jobs fell by 7.3 percent from a year earlier, she pointed out.

'A lot of employment is still being destroyed in Spain, which doesn't give you a very good base going forward,' she said.

Economists surveyed by Reuters had forecast unemployment would rise to 18.6 percent in the third quarter.

With Spain's economy expected by economists to contract by roughly 4 percent this year and to continue to decline in the early parts of 2010, the government has forecast unemployment will rise to a maximum 18.9 percent.

Things would be considerably worse if it were not for massive government spending, centred on a public works programme which has torn up streets all over Spain and is set to push the budget deficit to close to 10 percent of gross domestic product this year.

Many private economists are more pessimistic than Socialist Prime Minister Jose Luis Rodriguez Zapatero and expect Spain's relatively uncompetitive labour force will continue to contract as the economy suffers the hangover from a decade-long private sector debt and Spanish property binge.

'We expect unemployment will continue to rise in the fourth quarter and that we'll hit 20 percent in 2009,' said Jose Luis Martinez, of Citigroup.

The workforce participation rate slipped to 59.8 percent, down a quarter of a percentage point from the previous quarter.

Particularly hard hit have been immigrants, whose unemployment rate was 27.5 percent compared to 16.1 percent for Spaniards.

Economists point out that while Spain's official employment rate is terrible, many supposedly unemployed workers are surviving in the burgeoning black economy. Unions say this has been a key factor in avoiding social unrest.

Story from Forbes

Stop the Spain Bashing

2009-10-23T07:00:00Z

Having lived in Spain for over five years now I am one of the first to acknowledge what is wrong with the country and the difficulties people can experience living here or buying a property here.

I was asked the other day if I would ever consider returning to England to live. My response was that of course I would. It’s not that bad there. I was actually quite happy living and working there for many years and I don’t remember it as a horrible place to live. Nowhere is perfect and the UK has much going for it. However, for the time being I am quite settled in Spain and don’t have any real reason to leave yet. Who knows what the future may hold though.

The main difference that I can see between the Spanish and the British is that the British are very quick to complain about the UK, whilst the Spanish are very proud of their country and tend not to find so many faults. The main problems our Spanish friends seem to be frustrated about are more to do with the current unemployment situation than anything else. They are generally very contented and satisfied people.

There is a very good programme on the main Spanish TV channel TVE1, called “Españoles por el mundo”, where they visit Spaniards living in other parts of the world. If there is one thing that all these Spaniards living in other parts of the world have in common it is their love for their home country. They all dearly miss Spain and talk passionately about it. The food, their families, the lifestyle and so on. None of them ever say anything bad about Spain. In fact it’s the total opposite. They talk about their home as “mi tierra”, which means “my land” and speak as though they are marketing their town abroad.

As a total contrast to this, the British expats in Spain seem to absolutely detest their home country and would rather die than return there. This seems a bit extreme to me but that’s how so many feel. The majority of British expats really do love Spain very much although most struggle to master the language and can probably count the number of their Spanish friends on one finger. Each to his own I suppose and everyone has a reason behind their choices and decisions in life.

Therefore, the Spanish love their country and the expats here love it just as much if not more. So why do so many people still knock Spain and persistently put it down?

It’s not just the UK press and TV channels that love to paint a very bleak picture of life in Spain and the property market here. It just seems that there are so many people that will no longer give Spain a chance.

Here are some examples of what I’m referring to…

Three weeks ago we released our shock report: “The Resurrection of the Spanish property Market – Proof that it’s finally here”. If I may say so myself there is some excellent data and analysis in that report. I spent weeks putting it together and it shows a very interesting trend, a very positive trend, a trend that goes against what everyone else is talking about. I knew it would be controversial but the data in the report speaks for itself.

When I sent the original email out to our subscribers about this I wasn’t quite prepared for the bashing that I got.

Without having even read the report many people were calling me all sorts of names and saying that this was the most ridiculous report ever! Those people, who I’m sure will be reading this article, just could not entertain the fact that there is some positive news on the horizon. They have spent so long bashing Spain and putting it down that when someone publishes anything remotely positive they are branded a heretic.

And remember, these people hadn’t even read the report! And incidentally, the majority of these people that sent me those nasty emails….live in Spain. This stinks of hypocrisy to me.

Let’s take another example.

The recent “Spain: Paradise Lost” programme on ITV. My heart went out to the guy on this programme who was having to finish off the development where he had bought. For most of the others, many had taken a gamble, in terms of property investment or setting up a business, and the stories would be the same anywhere in the world.

In fact, I was so annoyed at the way this programme was edited that I wrote a whole report on this alone. You can read that free report here.

And here’s a much more recent example which is what truly drove me to write this article.

Last Sunday, 18 October 2009, the Guardian newspaper published an article titled “Condemned Spanish apartments advertised to UK buyers” written by Graham Norwood. You can read this article here.

This is the biggest load of rubbish I’ve read in ages. It seems that the UK press must be getting very desperate for something bad to write about Spain and especially the Costa del Sol.

This article talks about the infamous Banana Beach development in Marbella. It’s infamous because it is totally illegal and even in the new PGOU plan for Marbella, it needs to come down. There are people living there, Spanish as well as expats, but the development is earmarked for destruction as the original licence of first occupation was later revoked following the Marbella corruption scandals. I do feel very sorry for those caught up in this mess, and similar messes elsewhere and I hope there is some positive news for these owners very soon.

However, in the Guardian article, Graham Norwood refers to the fact that some websites are still advertising Banana Beach for sale and specifically mentions the agents, Interealty and a couple of related websites.

Firstly, Interealty has been out of business for years! They screwed over hundreds of people but have been out of the scene for a few years now.

One of the websites he mentions belonged to Interealty and has not been updated in about 5 years and the other has also not been updated for several years too.

These websites are NOT selling property at Banana Beach…they just haven’t been updated. It’s as simple as that….and I know because I know who runs them!

So all this scare-mongering by the newspapers goes on but maybe they need to check their facts a bit better. How can they publish such inaccurate articles? It beggars belief.

I’m sure the Spain bashing will continue. ITV achieved some astonishing viewing figures for its Spain programme and I’m sure the newspapers enjoy publishing the negative side to Spain but wouldn’t they be better off actually doing something to help those who have been caught up in the corruption scandals who stand to lose thousands?

Why doesn’t the UK press do something to try and get the EU to take a very serious stance over, for example, the fact that many Spanish banks are NOT honouring bank guarantees, for which the law in Spain should have protected these people?

Surely it’s time for a change in direction for those who think just bringing Spain down is actually going to achieve something? Over to you….you know who you are! Do something positive, don’t just send me nasty emails!

Story from Eye On Spain

Moneycorp: Euro Weekly Update

2009-10-22T07:00:00Z

An unusually good week for sterling. The coming week will be even more critical, bringing data for government borrowing, retail sales and third quarter GDP.

For the first half of the week sterling remained below Monday's €1.0750 opening. On Tuesday it went as low as €1.06. A Wednesday bounce above €1.07 was followed by a storming rally on Thursday that saw the pound score its best one-day rise in a year. It peaked at €1.10 and spent the weekend consolidating around €1.0950. When London opened this morning it was trading at €1.09.

The early nervousness came as a result of a government initiative to raise £16 billion by selling off non-core assets such as the Dartford crossing. Compared with the admitted budget deficit of £175 billion this year, investors saw the measure as no more than a flea-bite out of the problem.

At the same time they also saw a report from the Centre for Economics and Business Research that suggested we could be looking at a 0.5% bank rate for another 18 months and one no higher than 2% by 2014. It was not new news but it was an unwelcome reminder of an unpleasant situation.

On Tuesday a speech by Bank of England Deputy Governor Charlie Bean on the subject of 'Quantitative Easing: An Interim Report' could have had the pound on the run, if only for its title. Investors do not like quantitative easing, which they see as an inflationary tactic; good for the economy maybe but bad for the value of the currency. In fact they took kindly to Mr Bean, perhaps because he was the first bank Grandee in recent months not to talk sterling down.

The following day the Financial Times published an interview with Paul Fisher, a Monetary Policy Committee (MPC) member and the Bank of England's Director of Markets. He made several points, among them an observation that quantitative easing is working, a reminder that it may or may not be extended when the current £175 billion kitty runs out next month and a statement that the Bank does not deliberately set out to guide the currency in any particular direction (i.e. down), however it might appear.

Investors' initial reaction was to focus on the "may or may not be extended" bit. Very quickly though, they looked harder at the "quantitative easing is working" part and decided they liked it. In reality, so much of the world had sold so many British pounds that they needed an excuse to buy them back. The sterling rally accelerated.

Once again the economic data had far less impact on sterling than did the Bank of England. It was not much different for the euro. Euroland industrial production was up by +0.9% in August, roughly as expected. Inflation - sorry, deflation - was steady at -0.3% and the trade surplus narrowed more sharply than predicted.

One of the main factors for the euro was a speech by European Central Bank President Jean-Claude Trichet. Although much of what he said was a rehash of recent ECB press conference pronouncements, he again made the point that it is still too early to say the financial crisis is over. Investors did not need to listen too carefully to his words to realise that he was trying to discourage them from buying the euro. With a weak dollar on one side and a weak pound on the other, the last thing Euroland's economy needs is to have the only strong currency in town.

The coming week is peppered with uncertainties for the pound. Tuesday's figures for net public sector borrowing will show the government needing another £15 billion pounds or so. Wednesday's minutes of the September MPC meeting will reawaken fears that more quantitative easing could be in the pipeline.

Retail sales figures on Thursday will show how the consumer is faring. Top of the pile, and we will not see it until Friday, is the first estimate of how the UK economy performed in the third quarter of the year. Gross domestic product (GDP) has fallen by an average of -1.2% every three months in the last year. The forecast is that it will have risen by, well, not much in the three months to September.

As long as it did, the newspapers will be trumpeting the end of the recession. If the number is less than zero it will qualify as new bad news and sterling will come under renewed pressure.

With so many important UK data to come in the next four days it is impossible to take a sensible view about sterling's direction. Last week's strong rally proved that the game is not up.

Better-than-expected figures could extend the recovery but it is just as easy to imagine worse-than-expected data causing it to fall flat on its face. Buyers of the euro should hedge half their requirement with a forward purchase.

Those with a short time horizon who do not want to cover their whole exposure should at least protect themselves with a stop order.

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Spain's Rental Market in Need of Reform

2009-10-21T07:00:00Z

Spain’s housing market is broken and urgently needs fixing, argue a group of top-flight economists from Fedea, one of Spain’s leading economic policy think tanks.

In a new report just released, 'For a Housing Market that Works: A Proposal for Structural Reform’, a group of economists at Fadea, including Pol Antràs of Harvard University, Luis Garicano of the LSE, and Javier Díaz-Giménez of IESE Business School, explain how and why Spain’s housing market should be fixed to reduce social problems and help the economy recover.

The report identifies a dysfunctional rental market as lying at the heart of the problem, causing serious economic and social consequences such as a bloated real estate sector, low productivity, over-indebted families, unaffordable housing, and low labour mobility.

Just 13% of Spanish households live in rented accommodation, compared to >40% in Germany and France, and around 30% in the UK. The report blames Spain’s regulatory framework and calls for immediate changes to liberalise the market.

For example, the law restricts rental contracts, which makes it difficult for landlords and rental clients to agree conditions that might suit both parties. Even the Governor of the Bank of Spain is critical. “It’s ridiculous that the law prevents landlords from renting their properties for less than 5 years, even if tenants agree,” he told the Spanish press.

Low labour mobility, reduced access to housing, high levels of unsatisfied demand for housing (especially amongst the young, as 65% of Spaniards between 25-29 live at home with parents, compared to 20% in France, Holland and the UK), and a glut of empty homes are all consequences of Spain’s small rental market.

To encourage renting over buying, and address other structural problems in the housing market, the report recommends 4 urgent policy steps:

Liberalise rental contracts and give landlords better legal protection.
Remove all fiscal incentives that encourage buying over renting.
Stop selling social housing and offer it for rent instead.
Reduce or do away with taxes on property sales such as VAT and transfer tax.

These steps should help mop up Spain’s housing glut, rebalance the market, improve access to housing, increase the incomes of small landlords, reduce the impact of the economic crisis on household budgets, and help reduce unemployment, argue the economists from Fadea.

When experts of this calibre call for immediate action to solve a serious problem the government should sit up and listen. Sadly, the signs don’t look good.

The Fadea report included some housing market statistics that can be summarised as follows:

1 million empty properties in Spain, the equivalent of 3 years of sales, compared to just 9 months of sales in USA.
16% of Spain’s housing stock lies empty, an exceptionally high level compared to other countries.
65% of Spaniards between 25-29 live at home with parents, compared to 20% in France, Holland and the UK.
Just 13% of Spanish households live in rental accommodation rent, compared to >40% in Germany and France, and around 30% in the UK.
Spanish property prices doubled in real terms between 1999 and 2007, only comparable to the UK.
Spain accounted for two thirds of all the homes built in the EU between 1999 and 2007.
The average home in Spain cost 7.7 x average disposable household income in 2007, compared to just 3.6 x a decade earlier.
95% of Spanish mortgages are variable rate

Story from Mark Stucklin