The adjustment of the Spanish Real Estate Sector May 2011
Although struck by the crisis, Spain is a solid economy, showing signs of recovery
Spain resumes an upward trend In the closing months of 2010, the Spanish economy came back on track for recovery, with a q-o-q GDP increase of 0.2%, that sums up for a y-o-y increase of 0.6 %.
Year on year Variation
Quarter on quarter Variation
SPAIN
SPAIN
EMU
EMU
Source: Central European Bank, Statistics National Institue, and Bank of Spain
Sustained growth path for the future  Excluding construction, the demand is recovering: Private consumption grew in 2010 at an average of 1.2% (from -4.3% in 2009), investment in equipment grew on average 1.8% (from -24.8% in 2009), and external demand rose up to 1.1%.  GDP forecasts confirm a positive evolution, in line with other European economies. GDP volume measures excluding construction Q-o-q growth rates
GDP Forecasts Forecasts
Spain Italy France Germany Euro area
Source: Eurostat
Spain Italy France Germany Euro area
OECD 0,9 1,3 1,6 2,5 1,7
2011 EC 0.8 1.1 1.6 2.2 1.5
IMF 0,8 1 1,6 2,2 1,5
OECD 1,8 2,0 2,0 2,2 2,0
2012 EC 1.7 1.4 1.8 2.0 1.8
IMF 1,6 1,3 1,8 2 1,7
Source: IMF, OECD, European Comission
Strengths and political steps  Economic strengths and reforms lay the foundations of a sound and rebalanced growth for the Spanish economy.
Competitiveness Infrastructures: Spain has the biggest highway net in Europe and is the first European country and second in the world, behind China, in high speed railway line miles 47 airports in which 250 airlines operate Quality: First european country with the highest standard of living for expatriates 2nd most valued health system in europe (HSBC Expat Explorer Survey) Performance: 2nd tourist destination in the world by revenue and 3rd for passenger arrivals Business leadership
The Spanish housing sector: facts and features
Housing sector in Spain: main features  High proportion of ownership 85% vs. rent 13%.
 Market duality: main residence 67% vs. vacational housing 33% Homeownership rate (%)
Population by tenure status 2009 (%)
Empty or secondary housing (perhousing 1.000 hab) Empty or secondary (per 1.000 hab) 180 160 140 120 100
UK
Austria
Belgium
France
Ireland
Portugal
Spain
Italy
80 60 40
Spain
Source: Global Financial Stability Report IMF April 2011
Source: Eurostat 2009
Source: Eurostat 2004
U K EU SP A Av IN er ag e
0
G er m D an en y m a Fr r k an G ce re e H ce ol an d Ita Po l rt y ug al
Italy
Belgium
Portugal
Ireland
United Kingdom
United States
Finland
France
Denmark
Germany
20
Housing sector in Spain: main features  Preference for real estate assets: 80% of total assets.
 Social housing ratio below EU average : 11% vs 16% Value distribution of total household assets Fixed income securities 0,2% Investment funds 0,8% Private shares 0,9%
Other 0,7%
Proportion of social housing 2008 Proportion of social housing 2008
Main residence; 54,7%
Social housing 11%
Listed stocks; 1,0% Pension plans 2,0% Bank accounts; 5,3% Jewels, works of art, antiques 0,4%
Freelance business bussinesses; 9,2%
Source: Bank of Spain, Familiy Finance Survey 2008
Free market housing 89%
Other real estate assets; 24,8% Source: Ministry of Public Works
Price overvaluation Economic literature available estimates a range of overvaluation degree between 13% to 30% Following IMF World Economic Outlook (April 2008), the growth of house prices in Spain showed a lower overvaluation component than in other countries, and was largely based on fundamentals: Demographic and socioeconomic factors (immigration, household formation) Permanent real interest rate reduction effect, implying a permanent increase in asset valuations Houseprice pricegaps gaps (IMF House IMF 2008) (2008), 35,0%
Studies estimating the price overvaluation in the Spanish housing market
32,1% 29,2%
30,0% 25,0%
28,0%
Author and year 21,8%
20,0%
17,0% 16,2%
15,0%
11,8%
10,0% 5,0%
1,7%
N
Ita G er ly m an y
U K Fr an ce SP A Sw IN ed en
et h
Ir e
la n
er d la nd s
0,0%
Source: IMF
BBVA - Balmaseda et al . (2002) Bank of Spain - Ayuso and Restoy (2003) Bank of Spain - Martínez-Pagés and Maza (2003) IMF (2004) IMF (2005) OECD (2005) ECB (2006) Ayuso and Restoy (2006) IMF (2008) FEDEA - Sosvilla (2008)
Year of Estimated estimation overvaluation 2002 28% 2002 20% 2002 8-17% 2003 20% 2004 20-30% 2004 13% 2004 30% 2004 29% 2007 20% 2007 7-15%
Source: OECD Economic Surveys: Spain 2010
The housing sector has already got through most part of the adjustment
Construction activity shows a correction phase  Construction activity is still in the process of downward adjustment.  At the end of 2010 residential investment reached a 45% cumulative decrease from its maximum. Relative size of the construction sector (Employment over total employment and residential investment over GDP) 13,6%
14% 12% 9,5%
10%
9,3%
9,2%
8% 6%
4,7%
4,7%
4% 2% 0% 1997
2007 Residential investment
Source: Statistics National Institute INE
2010 Employment
Price adjustment Housing prices have fallen over 15.4% from its maximum in the 1st Q 2008, and over 20% in real terms. Rent to housing prices ratio shows narrow margin for additional adjustment (3% to 7%) Housing price price variation variation (Base Housing (Base1995) 1995)
Rent to housing prices ratio
â‚Ź/m2
Ratio of rent to housing prices
2500 500
2000 400
1500
300
Source: Ministry of Public Works
11 20
10 20
09 20
08 20
07 20
06 20
20
20
20
20
20
20
05
0
04
0
03
100
02
500
01
200
00
1000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Housing / Rent
Average 1997-2010
Source: Ministry of Public Works and Ministry of Economy and Finance
International comparison: deeper adjustment in Spain  House prices rose less in Spain than in other countries, but the difference in the decrease from the peaks reached is smaller.  Thus, comparatively, the degree of the adjustment in Spain is being harder than in other countries. New housing price variation (Base 1996) 420 365 310 255 200 145
UK
Ireland
Spain
Source:ESRI, Ministry of Public Works and Department for Communities and Local Government.
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
90
Price adjustment: regional analysis  The national average may not be noteworthy, as housing market requires regional analysis - 16,3% - 16,9% - 16,7% - 15%
- 16% - 17% - 15,7%
- 19,2%
- 18%
Housing price decrease per province
- 21,9% - 19% - 21,5% -17,5%
1st Q 2008 – 1st Q2011
- 22,3% - 18,4% - 16%
- 16,7% - 15,7%
- 21,6%
- 21,1%
- 19,2%
> -20% -15% - -20% Source: Ministry of Public Works
- 15,4% - 22,2%
- 15,2% - 19,6%
- 19,7%
Provinces where price drop from the peak is above the average
Price adjustment: second-hand housing
Price adjustment: new housing (1st Q 2008 – 4th Q 2010)
(1st Q 2008 – 4th Q 2010)
-15.3% -17.6%
-16% -16.3%
-16.5% -16.8%
-15%
-17.2%
-15.2% -18% -16.3%
-20.3%
-20% -20,99%
-15,7%
-16%
-18%
-19.6% -17,2%
-20%
-16% -17.5% -22,4%
-20.2%
-15% -25%
-15%
-19.6% -15.4%
-16.6% -19.3% -16.4%
-16.2%
-21.5%
-18%
-16% -15.7% -24.5%
-20.2%
-16%
-21.2%
-18%
-19.5%
-18%
-17.2%
-15.6% -21.3%
-18%
-19%
Municipalities over 25,000 hab. with higher new housing price drop Castellón de la Plana -37.8%
National average: -25% Mediterranean coast provinces: -26%
Denia -29.8% Calpe -49.1%
Eivissa -29.4%
Villajoyosa -32.4% Torremolinos -28.3% Chiclana -28% La Línea de la Concepción -34.1%
San Roque -41.1%
Benalmádena -32.8% Marbella -40.1%
Estepona -35.3%
Ciutadella de Menorca -49.1%
Fuengirola -29.2%
Torrevieja -30.9% Mazarrón -33.1%
Puerto del rosario -28.9% Adeje -28.5%
Housing market tends to stabilization The number of housing transactions (491,000) tends to recovery, partly due to fiscal incentives, partly because affordability indicators are once again at historically low levels. Foreign demand is starting to react to price signals: ∆ 20% aquisition by expats resident in Spain in 2010. Y-o-y housing housing transactions Affordability indicator (% of disposable % y-o-y transactionvariation variation (% Base 1996) income) 2004-2010 10,0%
5,9%
5,9%
60
5,0%
55
6,3% 0,0% 2005
2006
2007
2008
2009
2010
50
-5,0%
45
-10,0%
40
-15,0%
-12,4%
35
-17,8%
-20,0%
30 25
-25,0%
-32,6%
20
-30,0% -35,0%
Source: Ministry of Public Works
Source: Bank of Spain
Stock reduction  Stock of unsold houses has started shrinking in 2010 Net stock and stock variation Net stock
Stock reduction path
%Y-o-y variation
800
100 89,8% 90
700
80 600
70
700.000
60 600.000
500
48,3%
50 500.000 %
51,3%
400 688,044
40,1%
300
687,454
613,512
30 300.000 12,1%
20
413,642
200
200.000
10
273,363 100
40 400.000
-0,09%
195,184
100.000
0
102,825
0
0
-10 2004
2005
2006
2007
2008
2009
2005
2006
2007
2008
Started housing construction
Source: Ministry of Public Works
2009
2010
2011
2012
2010 Finished housing construction
2013
Housing Stock: regional distribution % stock / number of total houses 1.9%
0.8%
2.5%
% stock / total stock 1.7%
1.2% 1.6%
0.4%
5.7%
1.3%
4,7%
0,77%
2.6%
2.5%
6,2%
2.3%
4.3%
15% 2.6%
7,4%
1,7%
0.5%
1.8% 0.7%
4.1%
7.8%
0.5%
19.3% 2.4%
2.8%
3.7%
4.3% 16.3%
2.5% >4 3-4 2-3 <2 Source: Ministry of Public Works
>10%
3.8%
5 - 10% 0 - 5%
5.9%
Investing in spanish real estate sector is safe
Strong legal and institutional framework Public Cadastre
Examination of the physical and legal condition of the house
Contract
Public deed
Urban Information Service
Public Land Registration Office
Legal security Additional measures to consolidate legal security: • Compulsory town planning information provided by the Public Land Registration Office • Public access to property information in English language through UK embassy in Spain • Creation of the figure of the Town Planning and Environment Public Prosecutor
• Creation of specific police departments against urban development delinquency • Land Use Act to fight against urban development corruption
• Penal Code reform to prosecute urban development corruption
Thank you for your attention
www.fomento.gob.es/spanishrealestate