Sunday 25 September 2016

Spain's banks move past crisis and ramp up lending to home buildiers

Sharon Smyth

Published 17/04/2016 | 02:30

CaixaBank is among the financial firms lending to Spanish property again
CaixaBank is among the financial firms lending to Spanish property again

Some Spanish banks are advancing more loans to home builders and cutting their borrowing costs, eight years after they froze credit for construction as the nation's property bubble burst.

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CaixaBank, Spain's third-largest bank, will this year lend €1.4bn for developer financing, more than twice the amount in 2015, the lender said. Banco de Sabadell gave €850m in loans to build homes in Madrid and Barcelona last year as the value of some new-builds rose as much as 10pc, said Joan Bertran, head of real estate investment at Spain's fifth largest bank.

"We foresee that new supply won't keep up with demand and that will translate into healthy house price growth for these new-builds," Bertran said. "Now is the best moment to finance and we want to gain share in this market."

Financing for construction and real estate froze in 2008, helping to spark a real estate collapse that forced Spain to seek a €41bn bailout for its banks four years later.

As demand from buyers returns and financing costs fall, developers are building in Spain's two largest cities where growth in house prices and rents is set to outpace the rest of Europe.

Madrid and Barcelona will lead future gains, according to Philip Wedge-Bernal, a London-based residential research analyst at JLL. House prices in the nation's capital rose 7.5pc in the first quarter from a year earlier and 9.7pc in Barcelona, according to Tinsa, Spain's biggest property appraiser.

Sabadell finances at Euribor plus a spread of between 2.5pc and 4pc, down from a minimum of 4.5pc two years ago, according to Bertran. That compares with around 3.25 to 3.5pc points over Libor for funding development in London, where financing costs are little changed from a year ago, according to David Yeadon, a London-based director at mortgage broker SPF Private Clients.

Spanish lenders were roiled by real estate construction loans during the financial crisis. Non performing loans and foreclosure properties with a face value of €36.6bn were sold there by banks and managers from 2012 through 2015, according to Cushman & Wakefield. There are still almost €290bn of the assets to be worked out, the broker estimates.

Bankia does not provide finance to developers as part of its 2012 bailout package, a spokeswoman said. The bank lost about €19bn that year, much of it from soured property credit. A spokeswoman Banco Santander, Spain's largest bank, both declined to comment on the lenders' strategies for developer finance.

Jaime Pinilla, director general of CP Grupo, a property developer in northern Madrid, says his firm has 800 homes under construction or awaiting licenses. All have been sold and one of the main issues facing developers now is the scarcity of land on which to build, he said.

Banks are now financing as much as 50pc of the cost of building land, said Pinilla. That's less than the 80pc financing for land they would grant before the housing crash but is a big improvement on three or four years ago when they would finance nothing, he said.

"Demand has risen significantly in the last year and it's down to the fact that the final buyer has more confidence," he said in an interview. "The banks know that property developers are a source of revenue for them and they are more willing to lend."

Ignacio San Martin, chief economist for real estate at Banco Bilbao Vizcaya Argentaria, Spain's second-largest bank, says the country's real estate market is luring international investors as falling unemployment, higher disposable income and record-low borrowing costs boost demand for homes and propels prices higher.

CaixaBank forecasts that Spain can build between 100,000 and 280,000 new units per year in coming years compared with just 39,891 units last year and a peak of 597,632 in 2006.

The bank lends as much as 80pc of the cost of developing a project, said Carlos Casanovas, head of real estate financing at the Barcelona-based lender. That compares to funding for development at an average loan to cost ratio of between 60pc and 65pc for London, according to Yeadon.

"When the real estate market collapsed, new supply came to a complete halt as most developers went bankrupt," Rolf Zarnekow, head of real estate at Aquila Capital, a Hamburg, Germany-based firm which plans to build 1,200 homes in Madrid over four years, said in a phone interview. "New stock in the centre of Madrid has fallen to about 1,600 units for a population of 3.2m people -- it's just not enough."

Bloomberg

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