Since 2010 when I published Bye, Bye Bricks and Mortar, I’ve spent considerable time observing and studying the property sector, and the behaviour of the players involved to find out what we did wrong, and what we should change to avoid a painful repeat of this crisis that seems to coming to an end. All that I’ve learnt has been put into words, together with a lot more information, in Come Back Bricks and Mortar, a new book I have just published with Susana Burgos.
There’s no doubt that the current scenario is different to 2000, and that it’s very nature will keep us away from some of the dangers of that time – for example the unsupervised savings banks no longer exist, the change to Euro only happens once, the arrival of millions of immigrants is unlikely in the medium term an,d above all, the change of the mortgage paradigm from fixed rate to variable rate won’t happen again.
So, there are few levers today to boost the market to the same extent. However, there are some, for example, the “help to buy” programme that has been tried in the UK. This is an instrument by which the State helps buyers with a deposit on a home. But there’s no point in banks being inflexible with an 80 per cent loan-to-value maximum if the state then gets involved in buyers’ decisions to the point of taking away all individual responsibility. These are the sort of measures that, when things are going well, nobody takes any notice of. But when the market does an about-turn, they show up the system’s vulnerability. Immediate gain for short-term pain.
In addition, and given that over the last few years they’ve been drastically reduced, fiscal incentives are another very important lever to boost the market. Although they can be justified temporarily to reactivate the market, we all know that they are not phased out when the market booms, but rather increased in search of short-term objectives such as GDP and employment gains.
However, there are some sensible measures available to help the market recover without introducing new risks, for example reducing high council taxes (IBI in Spanish), or bringing back the price level restatement coefficient, whose elimination struck me as confiscatory.
And to be fair, the Bank of Spain and the Government have put in train measures that favour market restraint: For example greater independence for property valuers, limits on mortgages over 30 years, demands for written recognition for those who enter swap agreements, a multi-currency mortgage or interest-rate base clause, and even boosting rentals through REITs.
So I’m optimistic we can avoid sowing the seeds of another crisis, but we can’t let our guard down.
via Spanish Property Insight
Adaptation and translation of an article published by El Mundo.
By José Luís Riuz Bartolomé, property consultant and co-author of the recently published book ‘Come Back Bricks and Mortar’.