Spanish Property Prices Poisoned By Toxic Bank

Fears are growing that banks in Spain look set to put the skids under the country’s property prices as they offload their real estate holdings.

In a bleak market that has seen prices tumble since the 2008 property crash, the move will weaken prices further and scupper any hopes for a property revival this year.

The issue is that the banks were left holding massive portfolios of hundreds of thousands of homes belonging to bankrupt owners, along with half-built commercial and residential developments.

They also hold large tracts of land from developers and borrowers who ran into financial trouble.

Spain’s property crash is one of the major reasons the nation had to go cap in hand to Brussels for a £34 billion bail-out.

Discounted homes

One of the loan conditions was for a ‘toxic bank’ to take the worst debts from the main banks in a bid to help them become solvent again.

That bank, Sareb, is now known as Spain’s bad bank, and holds around £53 billion of assets. The first 13,000 repossessed properties were put on sale in January at rock-bottom prices.

Property analysts say the problem is that Sareb is heavily discounting its properties to find buyers – and the other banks are looking like they will have to follow suit.

However, this causes a problem, since the banks took a 40-50% write-down hit on their foreclosed property assets last year and now those values will have to drop even lower.

Market prices are 50% below the market peak of 2007 – and distressed sales are even lower.

Coupled with a lack of buyers and unemployment running at 26%, the housing market looks unlikely to pick up any time soon.

Prices cut by up to 80%

Even foreign investors are noticeable by their absence, despite the temptation of weak prices.

To offload their massive property portfolios to equity firms and hedge funds, the banks will have to slash prices even more – perhaps as much as 60% to 80%, making losses on the mortgaged properties huge.

Waiting in the sales pipeline is the rest of Sareb’s foreclosed portfolio, and they aren’t saying how many properties are involved.

Analysts predict another 89,000 properties are ready to release on to the market this year at heavily discounted prices.

The European Union is forcing the sale as Brussels wants to recoup some of the bail-out loan – but the paradox is the sale will depress prices even more.

In total, Spain has are around 200,000 repossessed properties and another million new homes standing empty.