>Where do Londonites go for the weekend in the summer? And how expensive
>are their houses there?
Spain?
http://www.iht.com/articles/2007/03/20/bloomberg/bxinvest.php
Investing: A bust in Spanish vacation homes?
By Esteban Duarte and Charles Penty Bloomberg News Wednesday, March 21, 2007
LONDON: Prices for vacation homes in Spain, a leading indicator of the European property market, may face a slump that is worse than the real estate decline in the United States, based on the loan terms banks are imposing on developers.
The property magnate Fernando Mart n, the former Real Madrid soccer chairman, and Promociones Habitat are paying five times more to borrow than U.S. developers like Centex in Dallas. Even United Airlines, which was bankrupt last year, pays a lower risk premium on its loans.
"Banks are imposing terms on real estate firms similar to those for defaulted loans," said David Malpica, who helps manage $5.6 billion of real estate and distressed debt assets in Europe and the United States for CarVal Investor in London. "It reflects the high volatility of real estate assets."
Property agents in Spain, the hottest housing market in Europe this decade, are likely to cut vacation home prices by as much as 10 percent this year, according to RR de Acuna & Associates in Madrid, which values real estate for about 40 percent of mortgages.
A slowdown may have a "psychological" effect throughout Europe, said Tobias Just, an analyst at Deutsche Bank in Frankfurt.
Spanish home prices averaged 276,300, or $367,000, in December, according to Sociedad de Tasaci n, a Spanish property company. They are twice as expensive today as in 2000, beating growth rates in Britain and Ireland, according to figures from the European Mortgage Federation and Irish Life & Permanent.
British, Irish and German vacationers and retirees fueled sales of four million homes to foreigners, according to the Vacation Homes Agency, an organization in Madrid financed by developers. Construction made Spain the biggest driver of economic growth in the euro region this decade.
Real estate spending by foreigners dropped 11 percent during 2006 to 4.9 billion, according to the Bank of Spain figures released last week. New mortgages sold to Spanish families fell by 10 percent, according to the Spanish Mortgage Association. Applications declined as the European Central Bank raised interest rates seven times in the past 16 months to 3.75 percent.
Opening a sales office "is no longer enough to sell houses," said James Stuart, who has marketed vacation homes since the 1980s in Marbella on the Costa del Sol, and is the local agent for Savills, the largest publicly traded commercial real estate broker in Britain. "I don't know any project in default, but banks are asking for more guarantees and more sales to be agreed before lending any money."
The Costa del Sol is on Spain's southern coastline.
Spanish homeowners may be more vulnerable than Americans to defaults as interest rates rise because about 98 percent of mortgages in Spain have floating rates, according to the central bank. In the United States, most mortgages have fixed rates.
In January, the Organization for Economic Cooperation and Development, based in Paris, said house prices in Spain might be overvalued by as much as 30 percent. A sudden acceleration in interest rates could cause an "abrupt adjustment in which prices would plunge," the OECD said.
A 30 percent slump could reduce Spanish economic growth by as much as 1.8 percentage points, according to Just, the Deutsche Bank analyst.
Re/Max International, the real estate brokerage company, said it cut prices as much as 26 percent on more than 5,000 homes in Spain in January. Over all, prices in Spain rose at an annual rate of 9.1 percent in the fourth quarter, slowing from 9.8 percent the previous quarter and 12.6 percent a year earlier, Housing Ministry figures show. Home prices in the United States fell 2.7 percent last year, according to the National Association of Realtors.
"When sales slow, the first area to suffer is vacation homes and then first homes are next to get hit," said Dani Alv rez, former head of international sales at Don Piso, a Spanish real estate brokerage company.
A slump may hurt Spanish banks. Santander Central Hispano and Banco Bilbao Vizcaya Argentaria are the leaders among banks that are owed 1.3 trillion by developers, builders and mortgage holders, according to the Spanish Mortgage Association.
The 379 billion of loans to property firms is equal to about half of all corporate loans, according to Bank of Spain data.
Property developers pay a premium over other industries to borrow. Fernando Mart n's Grupo Martinsa is paying Morgan Stanley, Caja Madrid and Caja de Ahorros de Barcelona an interest premium as high as 2.5 percentage points over interbank rates, according to regulatory filings.
The 4.1 billion loan will help finance Martinsa's acquisition of Fadesa Inmobiliaria, a real estate company. Fadesa has built properties ranging from vacation homes in the Canary Islands to golf courses near the Spanish city of M laga.
By contrast, Metrovacesa, the largest Spanish real estate company, paid an interest margin of only 0.60 percentage point last year for a loan to refinance debt from its purchase of Gecina, a developer in Paris.
United Airlines paid 0.50 percentage point less than Martinsa on its loan last month, a year after the company exited bankruptcy.
Martinsa had to guarantee lenders it would cut debt by selling equity within 15 months, company filings show.
"Banks are demanding real estate companies cut debt or increase equity," said Antonio Hern ndez Chao, deputy head of syndication at Ahorro Corporaci n Financiera in Madrid, the biggest Spanish issuer of mortgage-backed bonds.
Charles Penty reported from Madrid.