New homes with no future

Part of the new home gut on the Spanish coast

Part of the new home gut on the Spanish coast

Fitch – an international ratings agency – argue in a new report that many of the new homes on the market in Spain will never find a buyer, whilst Solvia – a real estate servicer – say many of them will end up abandoned.

How do you sell properties in bad locations and in terrible condition? You don’t, is the conclusion that Fitch have reached, with some 150,000 properties in mind.

With an estimated 600,000 new homes on the market (new in this case means never previously sold), the 150,000 that Fitch describe as “unsaleable” represent a quarter of the Spanish new housing inventory, which largely now belong to banks.

SEGMENT STORY

The recovery, such as it is, Fitch describes as “uneven”. Some segments, like Barcelona and Madrid city centres, are benefiting from the growing economy and mortgage lending, whilst many other properties of poor quality remain “vacant and unsaleable” on the periphery and depressed areas.

“The Spanish housing recovery is uneven,” says the report. “Prime urban properties are benefitting from economic and credit growth, but many poor quality residential units are still vacant and unsellable in peripheral, economically weak areas. This large overhang and constrained demand, and the physical deterioration of repossessed homes, will keep loss severities on such assets high in the medium term.”

The latest average writedown banks have to swallow to sell their repossessed homes is “61% of the loan balance at the time of repossession”, according to Fitch.

SERVICER SAYS UNSALEABLE GLUT WILL BE ABANDONED

Fitch are not the only organisation to warn that a big part of the Spanish property glut has no market. Solvia, the property division set up by Banco Sabadell, and one of the biggest real estate servicers, claims in a recent report there are “developments in marginal areas which will end up being abandoned……as there is no demand in the medium or long term.”

Solvia say that 30% of the new homes inventory, which they estimate at 535,734 (see graphic below), has no market, whilst Bankinter – another lender – concur with Fitch that there are 150,000 new homes for sale with no hope of finding a buyer, mostly located on the coast and in ghost towns of the interior.

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