The president of the Spanish consultancy RR de Acuña, Fernando Rodríguez Acuña, has been interviewed in the Spanish press about the Spanish property market. It is a good interview with frank and honest answers to understand in brief what has happened and when the property crash will end.

There are surprising revelations and controversial points.

His point of view about the present market situation is clear: 2011/Q1 has been a disaster in terms of property transaction.

The end of the tax exemption for property buyers in 2011 meant that November and December 2010 had larger numbers of transactions. Also, according to Fernando Acuña, the lack of credit, the rise of the euribor (interest rate) and the increase of second-hand houses in the market and the large stock (1,5m according to Acuña – who seems to The Spanish Brick to be very conservative at this point) are points to be bear in mind in 2011.

The main problem is credit to acquire land

According to Fernando Acuña, the main problem of the banks with regard the property market is not the large credit conceded to buy properties but the credit granted to developers in order to acquire land. “We are talking about 130,000 million Euros invested in land that was overvalued. According to our calculations, urban land is devalued now by 65% whereas outside urban areas, land price depreciation is above 90%”.

The problem is that, during the property boom, speculation on land value became an easy way to generate money by developers. So, credit was given to developers in order to speculate with land rather than to develop, said Fernando Acuña during the interview.

“If the demand of properties in this decade is going to be one million and we have land to build up three million units, what is the value of land?” comments Fernando Acuña. “it is worth nothing… in many cases the land price is just symbolic”.

Subprime property portfolio

Apart from land, the president of RR Acuña states that the biggest problem of Banks is the subprime property portfolio: “50% of the second-hand property portfolio of Banks is subprime… but there are prime properties in badly located areas”. It is taking too long to sell this sort of product even with 50% discounts.

During the interview, Acuña mentioned that the second-hand offer increased by 20% in the second half of 2010. In other words: “the stock is not being reduced”. Also, the pace of transactions is too slow; especially because of the credit shortage.

When will the activity improve?: “We will see an improvement in the property market and sales during the 2012/2nd half but it will be from 2015 when the market will become healthy as long as Banks’ stock is reduced. To reduce Banks’ stock involves lower prices”.

The logic process of recovery

During the interview, Fernando Acuña explains the logic process of recovery should be as follow:

1) Reduce the stock

2) Less stock will enlarge credit because the banks have eased their stock

3) More credit will allow new developments to be undertaken

4) The GDP will improve

5) The national demand will be normalised

Acuña added an extra factor that will help the market: “to bring back Tax exemption for property buyers”. The Spanish Brick strongly disagrees at this point with Acuña because to bring back tax exemption means to bring the property market to the front line of the economy when Spain needs alternative markets to rely on. Also, it will go against the natural growth of the rental market, which works very well in other countries and Spain needs to back.

What went wrong during the property boom?

Acuña says that the problem was, unlike the 80s and 90s crisis, the credit expansion and property over-evaluation during the boom. Property evaluation agencies were valuing properties at an average of €230k whilst the real value was €180k on average. What is the reason for that margin of €50k? According to Acuña: Black money, VAT tax evasion and asset transmission tax evasion. “Nobody wanted to see it and nothing has been done”.

Acuña consultancy is one of the leading and more relevant property consultants in Spain, having published for 25 years now an annual review of the property market which has always been a reference in the market.