There is “no market” for a big part of the glut of never-sold homes in Spain, claims one of the few developers still operating.
In its latest annual report, the Spanish developer Espacio, part of the Villar Mir Group, makes the gloomy claim, shared by many others, that a large part of the excess new homes inventory in Spain will never be sold.
“A good part of this stock has no market, fundamentally thanks to its age, deterioration, and bad location,” explains the report, talking of the glut of homes for sale in Spain. “Part of the new housing inventory is in urban developments built in the heat of the real estate boom far from town centres and tourist attractions, which have been abandoned with the crisis, and now lack the services and infrastructure necessary for living there.”
What is to be done with this stock? Demolition is still a dirty word, so Espacio don’t explore that option. They do say, however, that even bigger discounts may be on the cards, if the banks are so inclined. The banks have written down their property portfolios, so can afford to offer bigger discounts to incentivise buyers. But in the case of homes that have “no market” for the reasons given, it’s difficult to see what good further discounting will do.
Anyway, banks are no longer under pressure to offer greater discounts, explain Espacio. “As many of these homes are in the hands of banks who have cleaned up their balance sheets, the banks no longer need to offer steep discounts to sell them, and therefore could keep them in their portfolios.” In that scenario, however, banks just hang onto homes that get less saleable with every passing year.
Six factors that determine how fast the glut is absorbed
Notwithstanding the inventory that has no market, Espacio say there are six factors that determine how quickly the Spanish property glut will be absorbed:
1. The economy and employment growth
2. The rate of new household formation
3. The rate at which banks put their land banks on the market
4. The number of viable developers still in business
5. The rate at which banks start lending to developers again
6. The extent to which foreign investors stay interested in the Spanish property market.