Unbridled Optimism About Spanish Property
December 9th, 2008
I get criticised for only reporting on the ‘bad’ aspects of the Spanish property market. I’m regularly asked, why can’t I include more news articles with a rosier outlook?
In reply, I normally make 4 points:
- I don’t write the news articles (apart from this summary). All of the stories in the news that touch the property market are decidedly un-rosy. Most likely, they will continue to remain bleak for some time yet – in Spain, in Europe, and further afield.
- The upbeat stories that are circulated – are just that, stories – mostly in the form of press releases. I’ve got nothing against them – there’s a need for them – but not in a news roundup such as this.
- The purpose of this blog and the Property Pulse Newsletter is to provide an overview of the week’s news stories and attempt to put them in perspective. If it contained press releases instead of news, you’d stop reading it. If you can’t trust me to be objective, there’s no point in me writing it at all.
- Last, making a concerted effort to promote transparency in the Spanish property market is the right thing to do – and is in the long term interest of the market itself.
Now, having defended my manifesto of gloom, I do believe there is some good news this week – it requires a little bit of digging but I definitely see clouds with a silver lining coming this way.
Mark Stucklin reports that UBS and Credit Suisse both state that the recovery in the Spanish property market will come later than in the rest of Europe. While most of Europe will turn the corner of recession during 2009, Spain will lag this by a year or more – thanks mainly to its crazy oversupply of new build properties. Bear with me, the silver lining part is coming.
The week’s big news story is the debt for equity deal worked out by Metrovacesa. The deal gave a handful of Spanish banks majority ownership of the company – in exchange for cancelling some of the debts owed by Metrovacesa to the same banks. The deal kept the company out of administration and it continues to trade.
Still looking for that silver lining? Here’s how I see it.
The Metrovacesa deal demonstrates that the financial analysts at Spain’s largest banks can see the turning point for the economy. Last time I checked, banks aren’t great at being charitable, they prefer profit with as little risk as possible. Why then, would they trade debt for equity if they didn’t feel warm and fuzzy about the long term viability of the company?
Of course, they made a killing by trading debt against the company’s current suppressed valuation, but for them to ever see a profit, the company must make a comeback at some point in the future. A majority share in a company worth nothing is itself worth nothing. Spain’s banks are forecasting a recovery – and they’re betting on it with billions of their own Euros.
UBS and Credit Suisse agree with the Spanish banks – but they say that the rest of Europe will recover well before Spain does. They also say that the only way to absorb the oversupply of new build properties in Spain is to keep prices low.
Putting these two stories together, sometime in 2009, I see a more buoyant European economy, with an improved flow of credit and renewed optimism in the property market. At some point in 2009, European property buyers will be investing in overseas property once again – but they will be very price conscious.
Meanwhile, the situation in Spain will have remained largely unchanged – except that property prices will still be suppressed and Spanish buyers and Spanish mortgages will still be thin on the ground.
Next year, I see an opportunity for European buyers to acquire Spanish property at bargain prices. In fact, this has already started with the more adventurous vulture funds snapping up entire developments in Spain. Now is probably too risky for most private buyers to take the plunge, but the signs are that the time will come sometime in 2009.
How’s that for sheer unbridled optimism about the Spanish property market?
Martin Dell, Kyero.com
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