Editor’s note: New rules from the European Banking Authority could set off a fresh spiral of Spanish house price declines and economic pain away from the best locations, making courageous reform more necessary than ever, argues Campbell Ferguson, a FRICS chartered surveyor and head of Survey Spain – a survey and valuations company. In this two-speed housing market the best locations are recovering, but there’s still a lot of distress in the rest of the market.
As of 1st October, Bank of Spain, under instruction from the European Banking Authority, is demanding that Spanish banks revalue more realistically their property related debtors. All predictions are that this will force the banks to be more aggressive in selling off these non-performing loans and heaps of slow to shift properties. The only realistic way the banks can do that is by reducing prices. Many of the properties that they’ve already sold at large discounts are to private funds, but these, though they are off the bank’s books, are still on the market. So, we can expect to see prices being affected yet again by bank forced sales. Which, of course, will make everybody’s portfolio of property worth even less. It’s not good news. New buildings are springing up in the best locations, but outside those, where the bulk of the bank held properties lie, we are likely to see a stagnation of prices as the market becomes even more over supplied with bank owners becoming even more desperate to sell so that they can survive the next ‘stress test’.
The banks have also been hit by the effectively negative interest rates, meaning that they can’t make a margin on many financial transactions, thus reducing their profits. As the banks have also been forced to increase their capital to survive the various ‘stress tests’ and there is little new money coming in, there can be little money going out into the active economy. In fact, the increasing of capital sucks money out of the economy and locks it within the financial system, not being available to fund the working economy.
So the working economy has less capital available to produce and create jobs and without production and jobs and the contributions and taxes that they pay, the country’s and indeed the whole EU’s economy is gradually stifled. The central economy has less to invest in capital projects and less working capital available, reducing business production and employment even more.
It’s a sad spiral that we are sliding around and something radical is going to have to happen; some deeply innovative and above all politically courageous thought and action that’s needed. Well, that’s not a very encouraging thought at the moment either! With internal in-fighting in the opposition parties and a current interim government not prepared to answer to parliament or the judiciary or people of Spain to apologise for its corruption, how are the people and businesses of Spain supposed to react to encourage the radical change that is required?
Spain has a huge untapped asset – it’s 20+% unemployed, including almost 50% of those under 25 years of age. The cost to the country is huge, but just think if they were all working, positively contributing to the economy, society and yes, themselves! They should be thought of as ‘self-employed’. The words ‘employed’ and ‘unemployed’ should be abandoned. Everyone should be ‘self-employed’, with work contracts with clients, being their current employers. If you don’t have a principal client, you go out and get a number of smaller ones and work for them. Psychologically, it shifts the responsibility and benefits onto the individual. Others more capable than I can work out a fair system of paying taxes, including Social Security payments as they are just tax in another name in that they provide a centralised fund to be allocated to works for the common good. But corruption will kill it all and, like a business where its character comes from the boss, the country has to remove corruption from the top if it wants to clean up its economy and society. Just think of the harm that has been done to probably millions of individuals and families by the siphoning off of huge amounts due to the ERE scandal in Andalucia alone. If that money had gone into society and not been locked up in a few individual’s bank accounts, probably offshore, it would have had a hugely encouraging effect. Spirals can go up and down, so that money should be used to create more business and thus create opportunities for more enterprise and so on upwards.
That’s the courageous action that Spain needs. But are the politicians, who set the character of the country, up to it? And if not, what’s the alternative?
Campbell Ferguson is a FRICS Chartered Surveyor in Spain, runs Survey Spain SL Chartered Surveyors created in 2003, and helped set up the Survey Spain Network in 2009, an association of 10 independent RICS chartered surveyors living and working in all the coastal areas of Spain, the Balearic and Canary Islands, the Portuguese Algarve and Gibraltar. Survey Spain is the administrative centre of the Network, providing a ‘one stop’ contact. Survey Spain forwards and ‘peer reviews’ work instructions to the members of the Network. The Survey Spain Network carries out valuations for many international banks and other worldwide finance houses and directly assists UK Government departments. www.surveyspain.com