click for larger graphic
Source: The Pain in Spain
>
Real Estate comprised 79% of Spanish household assets, according to Jon Carmel at Carmel Asset Management (he credits the chart above to Oliver Wymann). That is 50% more than many other European countries, double the UK and triple the US.
I would expect mean reversion to be rather discomforting.
With all eyes on Greece, Carmel sees Spain as “worse than the market anticipates.” He points out these 5 bullet points as to why Spain’s RE market has much further to fall:
1. Spain’s national debt is 50% greater than the headline numbers
Spain’s debt-to-GDP balloons from 60% to 90% of GDP with regional and other debts2. Spain’s housing prices will fall by an additional 35%
Spain built one house for every additional person added to the population during the
past two decades; the fall will decrease GDP by ~2% each of the next two years3. Spain has “zombie” banks with massive loans to developers and to homeowners
Banks have not begun to realize losses and are vastly undercapitalized4. Spain’s economy has not stabilized and will continue to deteriorate
Spain has the highest unemployment in the developed world, one of the highest overall
debt loads, and the most uncompetitive labor market in Europe5. The EU will not have the firepower or political will to bail out Spain
Rescue fund headline numbers are misleading and count capital that is not yet
committed
Fascinating stuff . . .
Category: Credit, Mathematics, Real Estate, Really, really bad calls
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
Other than that, things look pretty good in Spain.
I’m dumbfounded that Spanish residential RE has only dropped about 23% since ’08, while, for example. ours has dropped well over 30 and 50 in some places. How did that happen?
Oh, and, according to that chart, household assets in the US are only 26% RE, and nearly 70% financial? Really? Is that mean or average? I find that hard to believe. More like the opposite, I would think, for the average schmoe, with even less “financial” assets.
Spain did build a lot of accommodation in a short time. However Spain is the biggest sun and sand tourism destination in Europe if not the world. So there could be a great deal of demand for second/holiday homes from Northern Europe who have kept their powder dry, at the right price of course ;-)
I’m dumbfounded that Spanish residential RE has only dropped about 23% since ’08, while, for example. ours has dropped well over 30 and 50 in some places. How did that happen?
Spain’s REPORTED drop is 23%. We have shadow home inventory they have shadow RE declines. Ireland the other major Euro RE second home bubble has a reported drop of 50%. Ireland has high unemployment but no where near Spain’s 25%. Spain must be down half from the top like Ireland and the US sand states, the authorities just don’t recognize it
Spain did build a lot of accommodation in a short time. However Spain is the biggest sun and sand tourism destination in Europe if not the world. So there could be a great deal of demand for second/holiday homes from Northern Europe who have kept their powder dry, at the right price of course ;-)
If you were an astute real estate investor and there was a fairly good chance that Spain could go BK and get ejected from Club Euro would you buy property (priced in Euros before) or in pasetas after the bankruptcy and currency chaos? Think there are many Germans closing on Spanish vacation villas today?
Developers built thousands of units where no one in their right mind would want to live. Much of it is now owned by the banks and they are loathe to sell anything at a loss, Spanish mentality. Good luck.
So how is reason number two, “Spain’s real estate market will fall by an additinal 35%” as one of the five reason’s Spain real estate market will fall. A typo? And that GDP will fall by another 2%? How does he know that?
One key thing to bear in mind, is that it is my understanding, that foreigners are not allowed to rightfully OWN land in Spain. They may buy property, but they can never own land if they were not Spanish born.
Can anyone check my math on that factoid, and speculate as to how this can make Spain’s RE market different than everyone else?
Location, Location, Location !
When the taxpayer is no longer capable of a bailout, blame Germany.
ashpelham,
“Today the legal restrictions for foreigners buying a property are almost non-existent.
Except for certain military areas, especially close to the borders, you are, as a foreigner, free to purchase any private property. We stress the word private property. The reason is that there are also state-subsidised dwellings for sale in Spain. A foreigner can only buy such a subsidised dwelling (called VPO – Vivienda de Protección Oficial) if he is, or firmly intends to become, a resident in Spain. There are several limitations as to income and family situation, as well as to resale of such dwellings. “