Spain’s new government is determined to force the country’s banks to “get real” on property prices and to understand that there won’t be a bail-out or setting up of a “Bad Bank” taking over billions of Euros worth of property related trouble.
Luis de Guindos, Finance Minister and former head of the Spanish branch of failed Lehman Brothers, made the government’s point of view plain to banks.
Banks must swallow the losses incurred themselves through the profits they generate – which will undoubtedly force banks to flood the market with even more heavily discounted villas and apartments, currently priced at around 43% below their 2007 asking prices, when Spain’s housing boom was the envy of the Eurozone.
The Bank of Spain, in its capacity of regulator, has already instructed smaller, weaker banks to merge and everyone to tidy up their balance sheets, which are currently carrying some €176 billion of “troubled” real estate. Shockingly, only around 40% of this housing stock would be of any interest to foreign investors.
The new government consists of a pro property People’s Party that has introduced numerous measures to help the housing market, such as giving out a €8,000 subsidy on the average cost of purchasing a newly built home. The 50% cut in property purchase tax (now 4%) has already fuelled renewed interest among international investors over the past four months, helped also by the weak state of the Euro against other currencies like Sterling, hugely discounted properties and generous finance packages of between 80% to 107% on key-ready, brand new apartments in sought after locations like the costas.
One of the property specialists offering such Super Deals is Propertyinspain.net saw some of their property developments sell out in the space of a few weeks thanks to the Super Deal combination of cheap finance on bank-owned property, low asking prices and weak Euro.
Meanwhile, Finance Minister Mr de Guindos, stated that most banks are able to make extra provisions to cover for real estate losses through the profits they generate, a process that might take a few years, before things return to normal.
He explained: “There is an issue, which also fundamental, which is that banks and savings banks are filling up with real estate assets and apartments and because these apartments are not valued at market prices, they don’t go to market.”
Over the next few weeks Spain’s property market should undergo further adjustment, as banks rush to make some money from now realistically priced property assets. Such properties have already shown to attract international buyers, especially when offered with a high level of loan-to-value finance packages which may go up to 107% to include cost of purchase.
The government’s House Price Index shows statistics that indicate the average price for a home in Spain has fallen by 18% since the housing boom in 2007 peaked. Most industry experts, however, believe this does not accurately reflect the real drop in price, which is closer to 43%.
The head of one of the country’s largest banks, Isidre Fainé at La Caixa, is of the opinion that Spanish house prices need to be adjusted downwards by as much as 60% peak-to-trough, before the housing market has finally reached rock bottom.
Fitch, the international rating agency, is less drastic in their calculation and estimate a 30% to 35% drop will do – which is nearly what has already occurred in Spain so far.
SOURCE: www.propertyinspain.net
