Slash prices by 50pc to sell least desirable new homes says Bankinter

A big chunk of Spain’s 700,000-strong glut of new homes will never sell at current prices, argues a new report from Bankinter, a Spanish bank

“An unsalable asset” is how Bankinter describes 30pc of the 700,000 new homes currently languishing on the Spanish property market in search of a buyer. Perhaps 50pc of them were built with holiday-home buyers from Northern Europe in mind.

Unfortunately for Bankinter and its peers, many of those 200,000 “unsalable homes” belong to the banks, after loans to developers turned sour.

The solution lies in price reductions of 50pc, argues Bankinter, which would imply more painful losses for Spanish banks. Some would argue that 50pc price falls are long over-due, and that banks are guilty of keeping property prices artificially high.

Note that Bankinter is not suggesting that all new homes on the market are unsalable at current prices, just the 200,000 in the least desirable condition.

But that’s still a mighty big problem for banks. Assume the average house price is €150,000 and that means a €30 billion problem.

Further price falls

The market won’t start to recover until 2014, and prices will fall another 6pc on average between now and then, forecast Bankinter. “In the next few quarters property prices need to keep adjusting so that the stock can be absorbed, although it will happen very slowly,” they say. All told, average prices will fall 30pc in real terms (after inflation) from peak to trough, and by much more in the worst areas.

They also forecast that there will be just 200,000 new home sales this year, and the same again next year. “To put this data in recent context, it’s the lowest level in the last 8 years and represents a fall of 55pc compared to 2007, when a record 412,000 homes were sold,” explain Bankinter.

The glut is no longer growing, but thanks to a lack of demand, rising unemployment, the credit crunch and a new recession, it isn’t shrinking either.

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About Mark Stücklin

Mark Stücklin is a Barcelona-based property market analyst and consultant, and author of the 'Spanish Property Doctor' column in the Sunday Times (2005 - 2008). He can be reached by email on ms@spanishpropertyinsight.com.