Pick up a Bargain Property as Banks Offload Assets
July 2nd, 2010
Apparently now is a great time to buy Spanish property as the banks once again play games with their balance sheets. When the financial crises struck the Spanish property market, the banks avoided making massive write-downs by converting the loan assets into hard assets – the homes the loans were on.
This was a great idea at the time but now the 59.7 billion euros worth of homes on the Spanish banks’ books have become as big-a-burden as the troubled loans they were swapped for, and the banks are now offering crazy mortgage deals including no-money-down, ridiculously low teaser rates and long deferral periods of up to 3 years.
This has been triggered by the Spanish central bank forcing banks to increase their loan loss provisions against their property assets within a few months, because of a fear that Spanish banks haven’t properly set up reserves against the risk of their vast property holdings.
Given that increasing loan loss provisions would force Spanish banks to recognize losses in their income statements, many are now eager to sell off their houses.
The banks are once again delaying the inevitable, because loans like this are almost certain to have a high default rate, but the banks know that this won’t have to be dealt with for a few years.
Thoughts on the banks doing this aside, it could present a good opportunity for buyers. Looking at the UK property market now, the recovery is being severely hampered by the fact that only those with a deposit of 10% or more can secure a mortgage. It certainly doesn’t look like this will be a problem shared by Spain.
This may also go some ways against the repossession problem, because the properties going hand in hand with these favourable mortgages are obviously being sold at a reasonable market value, rather than rock-bottom pricing seen with repossessed properties in Spain.
Story from Property-Abroad
Related Posts
- Spanish Banks Face Higher Provisions
- Spanish Banks Saddled With Property Debt
- Spanish Banks Better – But Still Vulnerable
So the Spanish banks are just creating another mini bubble? Thats really smart when you are already thousands of feet underwater. To be honest news like that just makes me delay any spanish property purchase even longer.
It demonstrates there is almost nil fiscal responsibility in the Spanish banking system which makes me think they are hiding even larger losses than is already feared.
This is a very interesting article on the Spanish market and the foreclosures in your market. All real estate markets are local, but the delinquent property market is a worldwide phenomenon. The video link below is a US Market discussion on our “shadow inventory”. That inventory consists of a range of defaulted loans/properties. Only only a fraction of our bank owned properties have been released by the banks.
http://link.brightcove.com/services/player/bcpid1465406675?bctid=105128136001
I hope you find this video interesting.
To M. Morris: on first view, the fact that the banks are offering “crazy mortgage deals” might seem irresponsible, given the fact that the world is already in such a mess due to over-lending. But think again. The banks are only offering such “crazy” deals to purchasers of bank-owned or distressed property. Therefore they aren´t lending you any new money. They are simply asking someone else to take responsibility for the property, pay the SUMA, the electricity etc (and generally stop the property falling into rack and ruin), and over the course of the next 20,30 or 40 years pay for the property. Where the interest is being waived in the initial 3 years, the bank that offers that has in many cases required the promoters to pay that interest (in the case of new build stock). Now does it sound so crazy? And for anyone who thinks that bank properties don´t represent a good deal because the prices are inflated due to the bank´s legal costs etc, I can tell you that some banks are selling such properties for SUBSTANTIALLY less than the existing mortgages on such properties. The last sale we did was for a distressed detached 5-bed villa in Calpe. Existing mortgage 340k. Valuation 320k. Sales price 260k. The bank even paid for the 3% retention for capital gains tax payable by the owner !!
Our recent experience has been that the Spanish banks would only lend 50% of the value of the property to us. We were hoping for between 60% – 70% and now cannot go ahead with the purchase. Yes – I would be uncomfortable at borrowing near on 100% but expecting buyers to put down 50% on a property is not going to move the market forward – especially on all of the property sitting around which are not distressed sales.
I agree with Andy. There are some fine bargains to be had now – particularly from the banks. However, there is an obvious flip side to all this good news for buyers. It is, of course, that matters are pretty desperate for sellers. In that regard, they can rarely expect to be able to compete with bank sales. The only consolation is that a bargain priced property is not always the same as a good buy and there are sometimes very good reasons why some properties have bargain prices!
Why would you buy, sure prices are lower than a few years ago but prices are only going to go lower, THEY WILL NEVER RECOVER. I ran the numbers for our place and it is 30% cheaper to rent than to buy, plus no worries about being stuck with a place we can’t sell
The bank resale property seems still expensive and seems eight to twelve per cent above where the actual sales market is.