The year of 2011 appears to be a good one for buyers of Spanish properties, but bad for the 23 major banks holding thousands of repossessed assets on their books. The fist quarter of the year has seen the banks release thousands of properties onto the market at highly discounted prices. This process is set to increase as the banks approach the September deadline for them to have reduced their toxic real estate assets.
According to some figures that have been published, the banks had approximately €135 Billion worth of risky assets at the beginning of the year, most of which was in the property sector. Some bank controlled developers have been forced to sell off homes with large discounts and the banks offered 90% associated mortgages to attract buyers.
As a result, many potential investors swooped on Spain hoping for a brilliant deal but ended up being disappointed by the locations and state of the properties. Many who went to buy bank owned assets bought offers from private buyers instead.
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Having failed in their first foray into the market, the banks are now forced to offer much greater discounts if they are to meet their September deadline. Activity is becoming more frantic. The discounts are getting bigger and the financing more attractive.
One governor of the Bank of Spain, Miguel Ángel Fernández Ordóñez explained that bank revenues will be under pressure because of weak demand for credit from the general economy. In addition, financing costs will be high and cash flows will be under pressure because of the cost of massive discounts as toxic assets are disposed of.
He also pointed out that Spain’s small private savings banks, known as Cajas are being required to reorganise themselves to give better liquidity and investor safety. It is expected that the number of Cajas will be reduced by one third as they either merge or become listed companies. The restructuring is entering a critical phase as the Cajas must raise over €14 billion of new capital to meet solvency requirements by September.
Sales manager of the major Spanish property website, www.propertyinspain.net , Ben Walker revealed that whilst some Spanish banks were averaging five sales per day last year, they were making repossessions at a higher rate, so adding to their problem. Repossessions were driven by a stagnant wage economy and increasing joblessness, especially amongst the young.
Mr Walker added that whilst the market had seen some price falls in the first quarter and that these had prompted sales, further discounts are more than likely as the banks struggle to meet the September deadline.
The website has over 16,000 distressed and repossessed properties listed on its pages. They operate a fly-to-buy service when potential buyers can view a selection of properties which may suit their needs. Ben said that there is plenty of choice as there is about 18 months’ supply of homes even if another new house was not completed.
Ben also said that whilst many buyers are attracted by bank sales, they often buy from private sellers instead because they obtain a property in much better condition and often in much better areas. He said that even though the bank deals appear to offer the best price and very attractive financing, they do not necessarily offer the best value for money.