Monday 15 December 2008

A strange Christmas

Christmas is here and this year it arrives in the midst of a strange financial and economic crisis. We have not experienced a period of adjustment as severe as this for many years and this means that for many families this will not be such a happy Christmas. In previous years the real estate sector saw a wealth of lavish company dinners and Christmas gifts. This year things are very different and austerity is the name of the game for companies which are managing to survive the crisis but, as always, the Christmas spirit is still here as this special time of the year comes round once again.

At this point in the crisis everyone has adapted to the new situation: families have cut back on spending, governments are injecting public money into the economy, companies have reduced their budgets and cut down on staff, and developers have significantly lowered property prices.
Many constructors are launching special offers until the end of the year and I invite you to visit our web page to see our proposals. Perhaps this is the time to “treat yourself" to a home on the Spanish coast.

Although the situation is more difficult for some, many others are still able to enjoy a good lifestyle, and we should not allow pessimism to become widespread and put a stop to all economic activity. All situations come to an end and, although it may be a cliché, the economy is cyclical. Just like Christmas.

Happy holidays to you all.

Monday 27 October 2008

A small respite

The international financial sector has seen weeks of continuous upheavals: US, British, Belgium and German banks and insurance companies on the verge of bankruptcy, one country’s financial system in meltdown (Iceland), stock exchanges at record lows, all European governments launching economic intervention plans even more ambitious than the Bush Plan. Each day has brought a new surprise.

At last it seems that the joint effort of all these governments has restored faith in the system and, if all goes well, it should soon recover some liquidity.


Will this have an effect on Spain’s housing market? In my opinion, it will.

There are two main causes for the current problem of the Spanish housing market: Continuous price rises which have caused what is known as a "bubble" and a financing problem which is the result of the international financial crisis. The shortage of financing caused by a lack of liquidity on the interbank market also has two effects: financial problems for developers who cannot finance the stock they have accumulated, and difficulties in accessing loans by end customers. Both situations inevitably lead to the fall in prices we are currently experiencing.

If the intervention measures approved (injections of liquidity, purchase of assets by States, acquisition of holdings in banks with problems, government guarantees of interbank loans) achieve their goal, part of Spain’s house sales problem will have been resolved. Because developers will be able to refinance their debt more easily. And because buyers will once again have access to credit under more or less normal conditions. Never again will we see the excesses of the past, but at least the “short circuit” that has occurred in the housing market will be repaired.

Without doubt, the negative effect for buyers will be the following: as the credit situation returns to normality, the dramatic falls in house prices we have seen in the last 5 months will level off. There will be less pressure on developers to sell and so the continuous drop in prices will lose pace. What is true is that, given the excess stock on the Spanish market, even if prices do not drop any further they will remain at current levels for some time.

Wednesday 24 September 2008

A Good Example

A number of real estate colleagues were very critical about my views on the necessity of lowering prices in order to end this crisis. I understand that no one wants to earn less money or even sell at a loss, but I’m still convinced it’s the only way to get out of the current situation.

I’ll give you an example. The Al-Andalus resort in Almería was extremely successful right from the start, but because of the crisis found itself with various unsold units.

What did the developer do to get out of this situation? He lowered the prices. And it worked: sales increased again.

There will always be people who are interested in buying property such as Al Andalus, a resort renowned for its high quality, location and communal zones. At the right price (set down by the law of demand and supply) they are selling lots of properties, many of them with QSD.

The combination of a good product and an incredible price has made it possible to sell real estate when no-one else is.

Those who don’t believe me, should watch the little video attached to this message and imagine the number of people who would be interested in a good product at an excellent price. If the majority of real estate promoters would follow this example and lower their prices, the amount of unsold units would quickly decrease. It is better to lose some money over a short period of time and then to quickly get on top of the situation, than to find ourselves in a prolonged state of agony.

Tuesday 15 July 2008

A fast reaction

The real estate crisis was upon us faster and with more strength than anyone could have imagined. With each new article I write, I’m surprised by the amount of new negative data. The excess stock of built property and the financial crisis are damaging our industry, with sales falling dramatically in certain areas.

The result: companies in danger of bankruptcy, an increase in unemployment, a loss of consumer confidence, a fall in consumption.
The real estate companies´ swift reaction has pleasantly surprised me. Instead of timidly waiting for the problems to pass and moderately lowering prices, many have reduced them drastically (up to 30% in some cases!). They are aware of the fact that the sooner they sell excess stock, the quicker we will overcome this crisis.
Logically, the real beneficiary will be the buyer.

It´s a common idea among economists: the faster the fall towards the crisis, the shorter in time its consequences will be. The fall in sales has been so abrupt, that real estate companies have decided to immediately drastically lower their prices. No negotiations, just the lowest price possible (even with losses) in order to sell the properties as soon as possible. This attitude is proof of an understanding of the situation that goes beyond complaining about the consequences of the crisis or the fall in demand of European buyers.

During a few months there were still a lot of offers trying to hide the fact that prices were falling: e.g. gift cheques, e.g. mortgage paid for the first year, to name just a couple.
Fortunately, these measures were soon replaced by a drastic reduction in prices. According to classic economics, that is one of the best ways for supply and demand to come closer to each other.
And when that occurs, we will have ended the crisis, at least in real estate.

Wednesday 28 May 2008

A Necessary Adjustment

It is a fact no one denies. The adjustment in the Spanish real estate market was necessary. Necessary in order to reduce the market price of land. Necessary for the health of the Spanish economy, which could not remain dependent on one sector. Necessary to boost the country’s other productive sectors. Necessary for a democratic revival in those town councils which have been funded by construction licenses (and in some cases by other agreements with a clear lack of transparency). Necessary so that Spain can tackle once and for all the issue of conservation of its environment and coasts.

What is not good, and could not be predicted, is the abruptness of this adjustment. In the first quarter of 2008 some of Spain’s leading real estate companies saw sales fall by 70% in comparison with the same period in 2007. For some, the adjustment has come to represent a serious threat to their business project.

What factors have contributed to this abruptness? In my opinion, the following:

  1. The global financial crisis. Although Spain has scarcely been affected by the credit crisis sparked by US sub-prime mortgages, the lack of liquidity on the markets is causing Spanish banks to be much more conservative with regards to developers and private individuals. If the end customers cannot raise financing, sales will clearly fall. A drop in sales brings about an increase in the stock of properties on the market and logically prices fall. As prices fall, evaluators update the market values they had proposed to the banks, resulting in an even greater reduction in the amount customers can borrow from the bank. And so sales fall again, creating a vicious circle. Without doubt the combination of a high offer of properties in Spain and the international credit crisis is the main cause of this severe adjustment in the level of sales.
  2. Pressure from some foreign media. A small group of journalists (no more than 5 or 6) have systematically criticised some aspects of the Spanish real estate market. Sensationalist articles, often with no real basis, which leave an entire sector with not chance to defend itself. Individual initiatives or an organised campaign? There is some doubt within a number of Spanish forums. Very possibly European governments did not favourably view the mass exodus of taxpayers to other countries, in particular Spain. Many people who buy properties in Spain become tax residents, which means that their taxes go to the Spanish government, while they continue to receive benefits or pensions in their home countries. We will never be able to confirm this suspicion, as any action of this kind by a government would breach the most fundamental agreements of the European Union with regards to free movement of people and capital. Anyone residing in Spain, whether Spanish or foreign, can confirm that the horror stories being published are either exaggerations or simply false. Bulldozers are not pulling down houses, organised crime is not rife in residential estates, the government does not expropriate the houses of poor, defenceless buyers. But someone is interested in spreading these stories.
  3. Internal political battles in Spain. The political parties are attacking one another using town planning as a weapon. They are encouraging these attacks even in public forums like the European parliament, not in order to improve town planning, but to obtain political advantages and to change regional voting trends. The political classes are clearly not rising to the occasion.

In any crisis, someone is always a winner. Who will take advantage of this adjustment? Without doubt, the buyers. In these difficult times the real estate companies face, it is the most astute buyers who will benefit, those who buy when the best opportunities arise. A basic rule for any investor is to buy when prices are low and sell when they are high. And, of course, to buy what you can afford. Simple common sense. The buyers with the most available cash to invest will be those who dominate the market over the next two years as they will not be dependent on the credit companies and will benefit from the best offers.

Tuesday 29 April 2008

In times of crisis…

It can seem difficult to be optimistic about our business. The markets have crashed, the bubble has burst, the cycle has reached bottom, the financial crisis, the devalued pound, Spain is sinking under the waters of climate change. All clearly exaggerations, but undeniably ideas which make their mark on our buyers’ subconscious. Nobody is buying property in Spain any more. Or maybe they are?

This is an excellent year for buying a property in Spain and I will now try to explain why at QSD Group we are convinced that this is the case.

Firstly, we should be realistic and analyze the arguments of those who are so negative about the Spanish real estate market individually:

Prices in Spain have stabilized (it is extremely unlikely that they will experience any significant decrease in the areas most popular with our clients), but this is not necessarily bad news. It is bad news for the speculators, those who seek to obtain fast, easy profits, who will just as happily invest in a house in Spain as in any other country or in any other profitable option. For some time now Spain has ceased to represent a good market for this type of client. Our current buyers want to enjoy their home and their lifestyle in Spain. In any case, if we take a look at the historical data, in the long term property in Spain is always a safe, profitable investment.

The financial crisis is also affecting Spain. True, but only up to a point. Spain’s financial system has not been as seriously affected by the US sub-prime mortgage crisis as that of other countries. This is because the Spanish banking sector is traditionally extremely conservative with regards to the levels of risk assumed when granting mortgages. The banking system is in excellent health, with almost all entities showing indisputable profits (banks earned 19.72% more in 2007). Without doubt the international liquidity crisis will mean that mortgages will be analyzed more carefully, and the maximum loan percentages will be reduced to 70%, but this does not really affect foreign buyers who usually provide a significant volume of savings for their purchase.

The pound is low against the Euro. This is a fact. A property paid for in full now costs more in pounds than before. And this is where the key lies, not to pay for it cash. At QSD Group we are advising clients to keep part of their funds in pounds, earning a good interest rate, and to finance 50% of the value of their home with a Spanish mortgage in euros. This mitigates the immediate impact of the fall in the pound, and if the situation changes, which will happen sooner or later, they can then exchange their pounds for euros and cancel the mortgage in euros. If, on the other hand, buyers choose to wait for a better exchange rate instead of buying now, they may find that there is less to choose from later on and property prices in Spain may have gone up again. No-one can have it all.

The climate change represents a danger to properties on the coast. No comment. It would be funny if it were not for the fact that statements like this have caused serious problems to developers in areas such as La Manga del Mar Menor. A great example of “scientific accuracy” sponsored by campaigns like Al Gore’s, fantastic businesses based on predicting the Apocalypses.

In short, I do not deny that the circumstances of the market have changed, but I refuse to accept that properties cannot be sold or bought in Spain. Indeed, I believe that it will be some time before we again see the kind of opportunities available to us this year in Spain.