The Lanzarote property and tourist markets continue to suffer as a result of falling visitor numbers.  As the Spanish airport authority AENA has just released their latest arrival figures for May.  Which reveal that the number of foreign tourists enjoying a holiday on the Island of Fire fell by over 26% last month, versus the same period in 2008.  A sharp decline with serious implications for the many overseas owners of Lanzarote villas and apartments.

According to the latest AENA figures arrivals fell last month from 121,113 visitors in May 2008 to just 89,446 tourists.  A decline of 26.15%.  Whilst the island has now welcomed 118,287 fewer tourists for the year to date than during the first five months of last year.  A hefty drop of 16.91% from 669,451 arrivals to 581,614.

The British market is amongst the worst hit.  Thanks to the damaging double impact of the confidence sapping effects of the credit crunch and the weak state of sterling against the euro.  Which has resulted in many British consumers opting for either a stay-cation in the UK or a holiday outside the euro zone this year.  With the AENA figures revealing that total visitor numbers from the UK have now fallen by 18.76% so far this year versus the same period in 2008. 

All other key national markets are also performing weakly.  With tourism from Germany – Lanzarote´s second largest source of visitor numbers – down by 12.73%.  And from Eire, the islands third largest market – dropping by 14.51%.
With similar falls recorded across the Scandinavian countries, Holland and Belgium too.

Lanzarote is heavily dependent on tourism and overseas visitors and investors have traditionally fuelled the Lanzarote property market.  Which is driven by the island’s all year round holiday industry and a normally buoyant holiday rentals market.

Currently however property transactions on the island have slowed to a snails pace – despite the fact that prices on Lanzarote have been falling since the start of the year.  With many local estate agents blaming the reluctance of local banks to lend to overseas buyers as a key factor in this ongoing decline.

Falling tourist numbers are also impacting upon other related sectors of the island economy.  With ASOLAN, the local hoteliers association, reporting a record low in occupancy figures in Lanzarote hotels last month.  Down to just 49.1%.  The lowest figure ever recorded in over forty years of island tourism.

As per usual, the best one can say about the “news” as to whether now is a good time to invest in real estate is at best confusing, at worst deliberately so. But there are some indicators giving an idea as to when and at what price is a good time to consider re-investing in property. Ignoring the obviously “spun” headlines from the government press release farms such as The Times, these are a few recent, factual articles that might be of interest as it would appear that the commercial real estate bubble is now starting to burst - and as predicted will have an impact on the credit availability in the residential sector.

Morgan Stanley has started writing down more of their commercial property funds - 80% of the properties in Fund V U.S. and 60% in Fund VI International. “Virtually any fund holding highly leveraged real estate assets and loans that were purchased during the last three years is in a very precarious position, given the steep decline in property valuations,” said Scott Farb, managing principal in the Los Angeles office of real estate consulting firm Reznick Group. Pensions and investments

Nick Lesau, one of London’s canniest property investors is starting to get back into the market after selling out at the height of the bubble. His investment fund “Max Property Group,” is paying just 25% of peak 2007 prices. “Mr. Leslau set up the Max Property Group last month and raised £200 million ($329 million) selling shares in what was Britain’s first initial public offering this year. Interest in the stock was so great that Mr. Leslau cut the investor road show short by a week, but the share sale was still oversubscribed.” NY Times

The Spanish banks are now the biggest property owners in Spain, and we feel the amount of real estate sloshing around unsold has reached critical mass. Refinancing this mess is going to be all but impossible when commercial property values drop by 75-80% - which they are going to.

After reading these two articles, it is fair to say the answer is - it depends. If you are a multi million dollar/pound real estate investment trust, and can pick up a property at 75% discount - yes. If you are a private individual, perhaps not just yet - unless you can negotiate a deal at the same level. 25% of peak value is my target price now and I feel this will be able to offer realistic returns - eventually - and only in markets that are likely to recover rather than be bulldozed such as being discussed for Flint, Michigan.

For the last two years, the Spanish banks have been slowly but surely turning themselves in to the biggest property owners in the country. The amount of “debt for equity,” swaps and bank repossessions is almost impossible to calculate. In fact, there is a suggestion that the banks themselves do not know exactly how much property they own. Obviously the intention behind this practice has been to artificially inflate the value of property and prevent a complete collapse.

Distressed property sales in Spain on the rise

Some time ago, I suggested that property prices in Spain will only start to reflect the genuine state of the market when it reached the point where the banks were forced to unload the massive stocks they are holding. Spanish property insight has taken the trouble to compile a list of bank owned properties and some of the efforts being gone to by the banks to dispose of these properties in a way that keeps the market inflated. This is the list they compiled:

• Banco Santander (Spain’s largest bank)
  1,300 discount properties, 400 of which have already been sold to the bank’s employees or other select groups (such as employees of Telefonica, Spain’s version of BT) with discounts of 20% to 30% and 100% financing with terms of 40 years. Now starting to sell to the general public through its property division Santander Altamira Real Estate.
• BBVA (Second largest bank)
  900 new builds and 600 resales all around Spain. On sale to the general public with ‘offers’ but no overall discount policy. Available through property division Anida. Best ‘bargain’ on offer flat of 56m2 in Madrid for 125,000 Euros
• Banco Popular
  700 properties around Spain on offer to general public, but preferential financing terms only offered to employees and family. Selling through property division Aliseda Gestión Inmobiliaria. Best ‘bargain’ on offer flat of 93m2 in Manresa (near Barcelona) for 166,000 Euros.
• Banco Sabadell
  Property portfolio largely comprised of building land, rather than housing. Selling to professionals through property division Solvia Gestión Inmobiliaria.
• Banesto
  1,3000 new builds all around Spain, with prices that “reflect the market situation.” Selling through 20 agents, including Knight Frank, to general public, offering preferential financing terms of Euribor +0% for 40 years. Reported to be closing more than 100 sales a month; star product 2-bed flats in Ensanche de Vallecas (Madrid) for 164,500 Euros. Setting up own real estate portal Casaktua.
• La Caixa (Spain’s biggest savings bank)
  2,000 resales all over Spain, largest selection being 320 resale properties in Murcia. Offering discounts of 25% minimum, and 5% on top for good clients. Selling through own real estate division Servihabitat, branch offices, and select estate agents. Best ‘bargain’ 76m2 flat in La Latina (Madrid) for 205,200 Euros.
• Caja Madrid
  1,000 properties primarily located in big cities and on the coast. Biggest selection in Madrid (244), Valencian Region (276), Catalonia (177), and Murcia (91). Offering discounts of up to 40% and financing of Euribor +0.5% with no opening commissions. Selling to general public through website and auction house Reser. Best ‘bargain’ 67m2 flat in historic Old Town of Barcelona for 152,500 Euros.
• Bancaja
  800 resales at prices “adapted to the times” but no across the board discounts other than “3 properties at give away prices every week” available from its website. Half of stock located on the coast, Valencia (240), Alicante (134), Castellon (59), Murcia (24). Best ‘bargain’ 90m2 flat in Barcelona for 225,000 Euros, down from 290,000 Euros.
• Caixa Catalunya
  Stock of 3,600 properties all over Spain, 1,700 on offer with discounts of up to 30%, and 1,800 properties available for rent with option to buy. Selling to general public through real estate division Procam, promising to repurchase property if buyers run into problems paying the mortgage. Best ‘bargain’ 85m2 flat in Chueca, the ‘gay’ district of central Madrid, for 157,500 Euros or 540 Euros/month in rent.
• CAM
  2,500 properties (not all residential) with discounts of 20% to 50%, sold through real estate division Mediterranean Inmobiliaria with auction and bidding system online. Best ‘bargain’ 98m2 flat in Elda (Alicante) for 35,610 Euros.

I have a feeling this is an under-estimation, but even so, it is clear the problem has now become so large that these properties will eventually have to be released onto the market at realistic prices. Which is when we will see a genuine market price. The ECB was recently forced to inject 60 billion euros into the Spanish property market by buying Spanish covered bonds with money created out of thin air. This is not going to solve the problem, nor is it going to prevent the market from eventually correcting. At best, it will delay the correction, as it has been doing for the last few years. There will be hundreds of thousands of distressed properties in Spain for sale, because there is somewhere between 1.5 and 2 million empty properties in Spain right now. Look out for some bargains in the near future.

These are a few recent headlines and predictions about when the real estate market will bottom out. Of course, there are a select few who have been calling the bottom for some time now. Oddly enough, these tend to be real estate agents and newspaper columns. Speaking of newspaper columns, we are sad to see the end of “Raising the Roof,” the erstwhile International Herald Tribune and more recently, New York Times’ very own property blog. Kevin Brass will continue to write the print edition property column for the NYT, but the online version is no more. Honestly - this was one of the few international newspaper property blogs worth reading, and I don’t think I ever once saw a “We have reached bottom, Buy Now!” headline - which may be why it has gone the way of all things? Newspaper advertising is drying up faster than the 120% mortgages did.

Back to the meat of the matter:

House prices rise by 1.2%, says Nationwide. House prices staged a tentative recovery in May as the cost of the average British home unexpectedly rose by 1.2 per cent, in its strongest monthly gain for 19 months, according to figures from the Nationwide Building Society. The Times I wouldn’t get too excited about a UK recovery just yet - we have been watching median prices rise in a number of markets for the last two years as sales volumes dry up and the only stock moving is heavily discounted, more expensive properties. Eventually sellers drop their prices enough to sell in the lower end and median prices come into line with lower sales volumes.

Bernanke Bid to Lift Housing Scuttled by Rising Rates, Defaults. Federal Reserve Chairman Ben S. Bernanke’s efforts to bring down borrowing costs to revive the housing market and help the economy are stalling. Mortgage rates are almost back to where they were in March before the 30-year rate fell to a record and sparked a refinancing boom. Mortgage delinquencies rose to a record 9.12 percent of U.S. home loans and house prices dropped the most on record in the first quarter, industry reports show. Bloomberg. No great surprises here - if anyone seriously expected the low interest rates to be passed on to the end consumer, they need their head examined. 12% next year anyone?

Spanish newspaper, El Pais was calling the bottom of the Spanish property downturn just last week after a miniscule rise in the amount of mortgages written in Spain. Once again, nothing worth getting t0o excited about here. Move along, just another desperate attempt by a newspaper to halt the inevitable slide. On a year-to-year basis new mortgage approvals have fallen for 21 months without a break, and residential mortgage approvals in the first quarter of this year are 36% lower than the same period last year. The value of the average residential mortgage signed in March was down 16% to 119,067 Euros, 3.7% lower than in February, and interest rates are now up to 5.1%. Spanish property insight

Kuwait real estate prices decline 50%. Prices of real-estate properties namely the housing units have fallen by 50 percent, the Commerce Undersecretary announced on Monday. Rashid Al-Tabtabaei, in a statement to journalists after inaugurating the 22nd Real-Estate and Investment Fair, indicated the prices of properties vary from region to another with regard of the location of the plot, nature of the region and the services available. Economic sectors, namely the real-estate, the finance, the tourism and the oil, in Kuwait and other countries, have been affected with fallouts of the international financial crisis. Arab Times

Nicaragua Real Estate Sales Fall 35 Percent. Property sales in Nicaragua have fallen by up to 35% in the last year with second home investors deserting the emerging real estate market. The market peaked in early 2008, according to Brooke Rundle, a broker with Coldwell Banker Nicaragua. She estimated that the number of transactions has decreased 30 to 35% since. Nuwire. Turns out this is not actually the case because property sales in Nicaragua have been declining since 2006, which is not exactly a shock either - seeing as most buyers in Nicaragua are American real estate investors.

Both the recent S&P Case Schiller and Knight Frank global house price index show prices steadily falling in all but a few markets with no end in sight as yet. There are a few interesting properties bouncing around at the moment though - a British couple are selling their English Farmhouse - private plane included. Luxury property