This is a website for buyers, owners, and sellers of property in Spain, offering reliable information and resources to help you get things done with confidence. It is run by Mark Stücklin, author of the Spanish Property Doctor Column in The Sunday Times (2005-2008), and the book ‘Need to Know: Buying Property in Spain’ published by Collins.
Luis de Guindos, the Economy Minister, says house prices have fallen 35pc since the peak, much more than official figures suggest.
According to an article in the Spanish daily El Pais, de Guindos says it is his “impression that finished housing sells at a discount of 35pc compared to prices before the crisis.”
That’s not enough for De Guindos, who has introduced financial-sector reforms forcing banks to make bigger write-downs on their properties, with the stated objective of bringing down house prices.
De Guindos has criticised banks for only lending to buyers of their own properties to “maintain the fiction of the value of their properties,” something he hopes his reforms will discourage.
The reforms introduced by De Guindos had an immediate impact on vendor expectations, with a 30pc increase in asking price reductions (by an average of 9.5pc, or €26,200) in the week after De Guindos announced his banking reforms, according to figures from Idealista.com, a property portal (see chart below).
Steve says:
Having been following this market for several years, what astonishes me is the huge number of properties still being advertised as much as 30% and even 50% higher than their peak price was back in 2007-08. In other words these properties are now being advertised at up to double their current market value. Bizarre!
Steve says:
Just been checking lowest asking prices in Benelmadena in Malaga. Genuine prices there peaked at E2118 psm in 2007-08. I reckon that with a bit of shopping around and haggling you can buy property there now for E14500 psm. Which is indeed a drop of 35%. A fall back to 2003-04 prices. Of course very few asking prices are this low – but then they won’t sell, will they.
Mark says:
Hi Mark,
As we are working on certain bulk buys at present and I have been researching the new provisioning rules as released by the Ministry of the Economy a couple of weeks ago.
It appears that property assets with a book value – in the hands of the Bank – of say €1.0m that have been held by the Bank for 36 months or more then the Bank will be require to provision at 50% – of “new money” – or €500k by the end of the proscribed four month period. Consequently, provided the sales price achieved by the Bank is around 50% of their book value then the Bank is not losing anything other than the need to provide the new money. Rather they are gaining cash flow from the sale.
No-one seems to be able to answer a relatively simple question – whether the book value in the bank’s hands is the same as a discounted current market price – making the lower figure the basis for the provision.
It must be remembered that if a bank has held the asset for more than 12 months they should have provisioned at 20% per year as previously permitted. This gives our €1.0m asset a current book value of say €600k (assuming 2 years at 20% pa) before the 50% provision (for the third year) is applied. This means that the bank should be able to sell at €300k without making a net book loss!
I get the sneaking feeling that the Bank Risk departments and their newly formed Real Estate arms are not conducting an exercise in joined up thinking and, regrettably, the FROB – the Spanish tax payer will be picking up the tab.
I suspect that Luis de Guindos’ goal of “forcing” sales, increasing liquidity and repairing tattered bank balance sheets will not become a reality until the pressure valve to sell is turned to full steam. He resisted creating a Bad Bank placing his faith in the actions of responsible bankers.
There is clear demonstrable demand at heavily discounted prices – where is the blockage…I don’t believe it’s the cork in the bottle of Cava!
Best
Mark