Words: Ashley Rigg
Published: 27th October 2009
New ruling to address Spanish bank repossessions “myth”
A new ruling by the Bank of Spain could force Spanish banks to release more discounted property onto the market and address what some agents are calling the “myth” that it’s possible to obtain genuine price discounts from banks.
The rule will require banks to provision 20 percent of the value of property for at least a year which will erode the reported profits of banks holding onto large volumes of property containing less than 20 per cent equity.
According to Richard McEnery, Spanish Regional Manager at A Propertys, it is extremely rare to be able to obtain genuine market discounts from banks offering repossessed property. “Most properties aimed at the international market have 100% or even 110% mortgages. Banks are holding onto these properties as they don’t want to make a loss. In most cases it’s a myth that banks are offering the best [repossession] deals, the genuine discounts are coming from private owners who are desperate to sell”.
More developer bankruptcies ahead
The new ruling could change the commercial relationship between banks and struggling real estate developers. Recently, Spanish banks have been keeping the lid on their non-performing loan ratios by accepting property from developers who would otherwise go bankrupt. The new requirement is likely to change the economics of this practice. In certain cases, it will become more “profitable” for banks to let developers go to the wall and write off the loans rather than playing a wait and hope the market recovers game.
Necessary medicine
It’s no secret that the Spanish property market is structurally imbalanced. There are estimated to 3 million unsold properties on the market and banks are keeping prices high by failing to release inventory onto the market. Spain is still the
world’s most popular destination with overseas property buyers but until this inventory is cleared, transaction volumes will remain much lower than they need to be and developers and agents will be sat on their hands with
nothing to do.
Further coverage from
Reuters.
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Commercial real estate allows for all sorts of terms to be discussed. There is the obvious price factor, but then there are down payments, taking back seconds, taking over existing debt and mortgages, short term and long term owner financing, conditional clauses and a myriad of other factors that can make negotiations quite involved, and interesting.
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