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Grim reading for those who´d like to think the worst is over:
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brian_li
well well. It’s what we have suspected for some time now. I could never understand how Spain could carry on with what must be an incredible amount of money sat around in property not finished or wanted or paid for. The sh*t’s going to hit the fan soon that could make the UK’s problems look enviable I think?
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This is indeed a dubious source of information to say the least.
I find it unremarkable that goodstich, or anyone who enjoys talking down the Spanish economy, immediately, and without research into the source of this document leap on the information provided.
It rather reminds me of how many were duped by inacurate statistics regarding rental and equity projections.
I do wish those who have a willingness to beleive for their own gratification would just get a grip!
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Peter
yes, to be fair I did ask myself the same question about the source, but it can also be argued those like you who like to talk the Spanish market up will always rush to call negative information dubious, be it true or not?
That report makes a lot of sense to me.
If you can’t except what is happening in Spain, that’s your choice, but it’s a shame you have to jump on the ”blame the victims” bandwagon to make your point. As it happens, it would pay me to talk the market up at the moment, but I would rather face reality.
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Brian’s link makes interesting reading, and I thnk Goodstich’s comment..’it would pay me to talk the market up at the moment..’ is very relevant.
The health of the Spanish property market is pivotal to many of us trying to get justice. So many have won their cases, won the appeals but still don’t have a penny of their monies returned. All they have are embargoes on developers’ assets (mostly properties) which aren’t selling at the moment. So, I expect most want the market to improve, for various reasons.
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katy
indeed. It’s not a suprising report is it?. Just confirmes what looks like a fairly obvious situation that many have been trying to deny in a desperate hope of getting things moving again.
Suzanne
quite. Many of us owed money are not going to benifit from Spain’s property industry going any further down the pan!
Fuengi
not sure if books are up to speed with the situation as it stands. The books might well need re-writing after this?
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@Peter Good wrote:
This is indeed a dubious source of information to say the least.
Variant Perception actually have quite a good record. They are not mainstream. Indeed they have been very successful largely because they swim against the market. Agree with what they say or not, referring to it as a “dubious source” is unfair.
Their arguments are detailed with sources listed. I´d like to see some of those who currently claim ´the market has bottomed´ come up with such supporting evidence.
Only time will tell if they are right but their case seems credible to me.
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FT Blog take on the story together with a number of comments.
http://ftalphaville.ft.com/blog/2009/08/21/68016/are-spanish-banks-hiding-their-losses/
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@Peter Good wrote:
I do wish those who have a willingness to beleive for their own gratification would just get a grip!
Mmmm…..maybe those on the other side of the fence should also learn to get a grip?
@Peter Good wrote:
It rather reminds me of how many were duped by inacurate statistics regarding rental and equity projections.
And who were guilty of doing the majority of the duping Peter?
Estate Agents, as per your profession.
We all know you don’t ‘do’ duping – I’m just trying to strike a balance here.@you also wrote:
I find it unremarkable (!) that goodstich, or anyone who enjoys talking down the Spanish economy, immediately, and without research into the source of this document leap on the information provided”
Maybe all members need to research sources before commenting?
brianc_li – I think you have more than justified an interesting link to post here.
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@goodstich44 wrote:
Fuengi
not sure if books are up to speed with the situation as it stands. The books might well need re-writing after this?
A lot of this report refers to past events and how it could affect the future. Most of this information should have sources, and there should be alot of academic sources available.
not agreeing or disagreeing with the report, just wish it was sourced better. Especially when making comparison to other countries and past events.
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Sorry Fuengi, I don´t understand what your issue is. Everbody knows that it is pretty well impossible to get accurate figures in Spain. The official figures are laughable and even the better of the independent indexes, such as Tinsa, appear to be lagging the market by 6-12 months.
“In the case of Spanish banking´s subterfuge and hiding of bad loans, we have had to assemble a mosaic of news pieces, interviews with banking insiders and others to piece together what is in fact happening. This reminds us very much of the early days of subprime……..”
Where on earth are they supposed to source the information they need aside from how they say they have done? I certainly can´t think of any ´academic sources´. Can you suggest some?
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I tend to look at the Spanish economy as a whole.
True, unemployment is high in certain areas. True there is a huge glut of new property in coastal areas and true tourism one of Spains largest industries is suffering.
However, the Spanish banking sector never acted as wrecklessly as the UK and US banking sectors.
Spanish banks never used special purpose vehicles to offload toxic loans. Spanish banks were capitalised greater than even UK banks are required to do since new regulations were applied.
There are a whole range of regulations that Spanish banks have always been required to adhere to compared to UK and US banks.
Even though many Spanish banks loaned to developers who have now passed into receivership, the banks still have those assets to dispose of. What did the UK banks have?
Also remeber there are many UK banks who invested in Spanish property development.
There are some significant differences between the way a UK person deals with repossession compared to the Spanish method.
There is far more help from within families in Spain when it comes to helping children out of a foreclosure.
The welfare state burden in Spain is very small compared to the UK.
Most incomers to the Spanish economy are retirees, unlikely to burden the economy, especially when compared to the UK immigration comitment.
But as I said earlier, there is little point in gloating even if this were true, as most of Britains high street banks are owned by Spanish ones!
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@brianc_li wrote:
Sorry Fuengi, I don´t understand what your issue is. Everbody knows that it is pretty well impossible to get accurate figures in Spain. The official figures are laughable and even the better of the independent indexes, such as Tinsa, appear to be lagging the market by 6-12 months.
First, why do you say TINSA stats are lagging? (just want clarification)
@brianc_li wrote:
“In the case of Spanish banking´s subterfuge and hiding of bad loans, we have had to assemble a mosaic of news pieces, interviews with banking insiders and others to piece together what is in fact happening. This reminds us very much of the early days of subprime……..”
Where on earth are they supposed to source the information they need aside from how they say they have done? I certainly can´t think of any ´academic sources´. Can you suggest some?
Hi Brianc_li
Well no. First I am not an academic, nor am I writing a report of the state of the Spanish banking sector, etc… but if i were writing a dissertation or such an economic report, I would hope for more.
But, an I hope you would agree.
when stating:
“So conservatively, Spain has over 1,000,000 unsold homes. Unfortunately, many of the homes are on the coast, and without a return of overleveraged British tourists, they are likely to remain unsold. Spain’s homes are all in the wrong places.”with the some sort of proof. They are probably right, but if they can make this statement can they not show the source
or
“Official housing statistics are not corroborated by anecdotal evidence, web searches and the real estate sales by the banks themselves. According to a study by El Mundo, housing prices in many areas of the coasts have already dropped 30-50%.”
but the article referes to the coast of almeria only.
“Spain, and the rest of the European periphery, can solve their problems either through massive productivity gains, which is highly unlikely, or through a reduction in wages and prices in the order of 20-30%, which is what will happen slowly and painfully.”
why is it highly unlikely? because of politics, unions, etc…
when making comparison between spanish and japanese banks, could they not back it up?
In their defence they did supply relevant info on exports, etc…
As reports go, at least sites like Spain Economy watch by Edward Hugh sources as much as possible.
P.S. i have to jump a bit back and forth while writing this (other task to do) so I hope its a bit clearer
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I have now read the article 3 times and it becomes more absurd each time.
This group is well known for predicting the opposite of what happens, seem to say so themselves.
It appears to be researched, drafted and written by a first year tourism student whose parents have had their holiday home repossessed.
I must say I have never seen such a dreadful paper and that includes some of my own!
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Peter
so it was rubbish then, ………phew that’s a relief, and I thought the Spanish banks might be in a bit of trouble and the property industry was in a bad shape. I guess all those cheated can rest easy now then in the safe knowledge that the banks can pay them back, honour the BG’s and sell of all their assets pulled in from developers bad debt to raise the required funds. Why is anyone concerned, the future is bright!!
Negative reports, pah!!
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Badly written or not the underlying issues are probably correct. There has been a lot of discussion in the spanish press recently as to why Spain will not come out of the recession as quickly as the rest of Europe. All speak of the unsold new properties, a million nationally and 20,000 in Málaga province, burden on the banks etc.
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@Peter Good wrote:
I have now read the article 3 times and it becomes more absurd each time.
This group is well known for predicting the opposite of what happens, seem to say so themselves.
It appears to be researched, drafted and written by a first year tourism student whose parents have had their holiday home repossessed.
I must say I have never seen such a dreadful paper and that includes some of my own!
This is like checking the grammar in an obituary… Or complaining about the grammar in a repossesion letter.
The (obvious) bad news is the same, whereas written by a first year tourism student or a Nobel price winner.
On the other hand I agree that potential buyers should not base their decision on reports written by potential vested interests. One should take advantage of the falling prices and the nowhere-in-sight price recovery to
make a thorough decision on where to possibly buy. I know that I have
eliminated hundreds of kilometers of coast after the 4 week visit. -
Been out of the picture for most of the past 24 hours. I´ll try to catch up with a few of the points raised.
>First, why do you say TINSA stats are lagging?
Nothing scientific. Only from experience of having followed them and others quite closely for the past year or so. They are currently showing property on the Med coast some 17% down from peak. Most of the anecdotal evidence indicates that the falls are greater than that.
>The unsold homes figure.
Truth is, nobody knows. People can ask for proof whatever figure is quoted. They simply won´t get it. There are no reliable stats. Given the boom in the middle of this decade, a million plus nationwide doesn´t sound unreasonable to me. It certainly sounds more accurate than the ´20k in the whole CDS´ that an association of developers was trying to suggest a few months ago.
>the article referes to the coast of almeria only
Indeed. However there are other areas of the coast, Mijas springs to mind, where similar large drops have been seen. That said, I´d agree that their statement ´in many areas of the coasts´ doesn´t appear to hld water.
>why is it (massive productivity gains) highly unlikely?
The needed kind of gains hasn´t been achieved in any major Western economy in the last century with the exception of West Germany in the 50s and 60s. Not saying it won´t happen in Spain but ´highly unlikely´strikes me as a fair hypothesis.
>when making comparison between spanish and japanese banks, could they not back it up?
Again we are back to the lack of reliable sources. They are not in a court of law, they are investment advisors. They are giving advice to their clients based on the information available to them. Imperfect I´ll admit but then nobody is forced to take their advice.
>As reports go, at least sites like Spain Economy watch by Edward Hugh sources as much as possible.
Indeed. They have in fact used him as one of their sources.
>True, unemployment is high in certain areas.
17% and rising. Its high everywhere and set to get worse.
>the Spanish banking sector never acted as wrecklessly as the UK and US banking sectors
In terms of the subprime/toxic assets issue, yes. The thrust of the argument in the article is however that they have been just as wreckless in their domestic property market, That the full extent of the trouble they are in has yet to be seen and that the longer they stall things the worse the fallout will be.
As I wrote earlier, only time will tell if they are correct but their argument seems plausible to me.
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@brianc_li wrote:
Truth is, nobody knows. People can ask for proof whatever figure is
In terms of the subprime/toxic assets issue, yes. The thrust of the argument in the article is however that they have been just as wreckless in their domestic property market,Perhaps the article could be more enlightening as to why Spanish banks loaned so much then!
I recall that Spanish property values were quite constant prior to 2000.
If the Spanish banks were loaning 125% to the domestic property market buyers, this would be as a result of foreign buyers forcing up property prices significantly faster than the average domestic wage earners could keep up with, forcing young Spanish families to take on far higher mortgages than they could afford.
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Peter Good said
”this would be as a result of foreign buyers forcing up property prices significantly faster than the average domestic wage earners could keep up with”
oh those greedy buyers!……. nothing to do with UK agents then spinning lies, advising huge bank loans, false rental promises, and falsly inflating prices to get their greedy mits on huge commisions while advising people to use crooks in the Spanish property industry!!!!!! I must have imagined all that?
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@goodstich44 wrote:
Peter Good said
oh those greedy buyers!……. nothing to do with UK agents then spinning lies, advising huge bank loans, false rental promises, and falsly inflating prices to get their greedy mits on huge commisions while advising people to use crooks in the Spanish property industry!!!!!! I must have imagined all that?Why do you assume the buyers were greedy goodstich? It was just a trend in the market facilitated by affordable credit and quite a lot of TV coverage.
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@Peter Good wrote:
Why do you assume the buyers were greedy goodstich? It was just a trend in the market facilitated by affordable credit and quite a lot of TV coverage.
Are you joking when you ask this question?
You know very well that buyers have been told that the property went up by 20%/year and the trend would continue as everybody from North Europe wants
to stay or vacation in Spain.Or that one should buy a house in Spain (or other Mediteranean country) and sell for a big profit and then use the return to pay a deposit in UK.
Spain (especially Costa del Sol, South Costa Blanca and Almeria) has been a big con for many naive purchasers who left their brains at the airport (or who did not even bother to travel there and took the word of UK based agents…). Combine naivity with greed and money is lost fast.
By the way Peter, I thought you are already in your way to France.
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@flosmichael wrote:
Are you joking when you ask this question?
You know very well that buyers have been told that the property went up by 20%/year and the trend would continue as everybody from North Europe wants
to stay or vacation in Spain.Or that one should buy a house in Spain (or other Mediteranean country) and sell for a big profit and then use the return to pay a deposit in UK.
Spain (especially Costa del Sol, South Costa Blanca and Almeria) has been a big con for many naive purchasers who left their brains at the airport (or who did not even bother to travel there and took the word of UK based agents…). Combine naivity with greed and money is lost fast.
I’m not sure if that’s a rant or a question flosmichael!
@flosmichael wrote:
By the way Peter, I thought you are already in your way to France.
You above all people flosmichael should be more than aware of how much research is required, let alone learning the language, before we commit ourselves to buying abroad!
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@Peter Good wrote:
I’m not sure if that’s a rant or a question flosmichael!
It was a question. You seemed a bit confused about the definition of “greed” but I thought that you were just joking… In any case, I just wrote a brief reminder of what happened before 2006.
Anyway, my research told me that I won’t buy in Spain in the next 5 years as I have not yet seen an acceptable place to go for more than 1 week per life (except the beaches in El Campello but they are surrounded by communist-style buildings).
I hope you French-property research is more succesful.À Tout À L’heure
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>First, why do you say TINSA stats are lagging?
Nothing scientific. Only from experience of having followed them and others quite closely for the past year or so. They are currently showing property on the Med coast some 17% down from peak. Most of the anecdotal evidence indicates that the falls are greater than that.
>> Ahh, I see where you coming from. I think though there are 2 things worth noting here. First the obvious, Covering the whole med coast is a huge area. So an average of 17% will mean some areas are seeing 50% and other 5% (for example).
You are right, according to TINSA valuations are down 17% from the peak. But also during the peak, the average 100m2 property was selling for more than 250,000€, which is higher than the 2542€/m2 that TINSA gave.
The needed kind of gains hasn´t been achieved in any major Western economy in the last century with the exception of West Germany in the 50s and 60s. Not saying it won´t happen in Spain but ´highly unlikely´strikes me as a fair hypothesis.
>> agreed. But spain has by ‘western’ standards, low productivity. There should be room to make improvement via changes in labour laws, contract, hours, etc… Which is unlikely. But they don’t say this, just say its unlikely. not good enough for such a report.
Again we are back to the lack of reliable sources. They are not in a court of law, they are investment advisors. They are giving advice to their clients based on the information available to them. Imperfect I´ll admit but then nobody is forced to take their advice.
>>But if comparing with japanese banks and the last recession. they could show comparison on what japan did right and wrong. also maybe point out the (dis)similarities between the the national japanese banks and international spanish banks. shows the differences between the banks and the cajas, etc…
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@flosmichael wrote:
It was a question. You seemed a bit confused about the definition of “greed” but I thought that you were just joking… In any case, I just wrote a brief reminder of what happened before 2006.
There were approximately 80,000 estate agents in Spain in 2006/7.
Around 50-100 of them were large major players such as Parador, Atlas Viva, Ocean etc. Some of those were unscrupulous but many were not.
The vast majority of the others were smaller agents. They were operated by average people like you and me and goodstich, doing an average job. Some making a good living, others just making a living.
But if anyone were to read yours, and goodstichs posts, they could be forgiven for thinking Estate Agents were cultivated in some kind of Alien Vs Preditor underground cavern. Ready to be unleashed on the British public in Spain!
I was present many times when visiting a developers showhouse and hardly ever witnessed a pushy or lying agent. Yes I know Murcia & Almeria is not the CDS, however, I never witnessed a blatant attempt at misselling a property, though I did see some poor sales people with little to say and lacking any training.
Around 200,000-300,000 properties were being sold per year in the boom, the vast majority of those were delivered sucessfully to satisfied buyers.
Several thousands were not, those statistics translated across a much smaller new-build market in the UK would be quite comparable I should think.
Comment like;
oh those greedy buyers!……. nothing to do with UK agents then spinning lies, advising huge bank loans, false rental promises, and falsly inflating prices to get their greedy mits on huge commisions while advising people to use crooks in the Spanish property industry!!!!!! I must have imagined all that?
Or
Spain (especially Costa del Sol, South Costa Blanca and Almeria) has been a big con for many naive purchasers who left their brains at the airport (or who did not even bother to travel there and took the word of UK based agents…). Combine naivity with greed and money is lost fast
Do not reflect the reality of the masses of end results even in the CDS.
There were never hordes of preying crooked agents anywhere in Spain, most were new to the job and had little or no training, but that’s about all the majority were guilty of.
You must remember, when people come to Spain looking, sounding and acticng helpless, then it is no different from floundering in the Ocean, there could be thousands of dolphins around you, but the one solitary shark is likely to get to you first.
There is no excuse for lacking research and adult instincts, no matter what people say, those who are desperate to beleive will fall foul.
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Peter, I never said that all the agents were unscrupulous!!! And I did not even blame only the agents for the buyers mistakes.
I just wanted to present my opinion on the isuue of “buyer greed”. Many buyers were naive and got parted from their money.
@Peter Good wrote:
Around 200,000-300,000 properties were being sold per year in the boom, the vast majority of those were delivered sucessfully to satisfied buyers.
Several thousands were not, those statistics translated across a much smaller new-build market in the UK would be quite comparable I should think.
Let me tell you about some of the “satisfied buyers”. Where I stayed in Riviera del Sol, there was a list with people with debts of community fees. Out of 75 apartments in the complex, 59 had debts. Out of these 59 , 50 were British or Irish. Out of the 50 British or Irish, 40 had debts more than £2000 and about 20 more than £4000.
Many hadn’t paid the community fees since about beggining of 2008 and I have been told than almost half of the community had’n been there since Summer 2008 as they do not have money to travel to Spain. The building was finished in Fall 2007 so most of them probably visited their so-called property once…Are these 50 out of 77 considered satisfied buyers?
Riviera del Sol was a deserted place in the first part of August so I am sure most of the properties had the same “statistics”…
It was the same in Roda Golf in July 2008 and in La Torre 7 months before.
So the definition of “satisfied buyer” is very relative. I consider that the con in Spain was much more general than presenting picture of buildings which were never meant to be built.
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@flosmichael wrote:
So the definition of “satisfied buyer” is very relative. I consider that the con in Spain was much more general than presenting picture of buildings which were never meant to be built.
true. there was a lot of buy it, rent while your not here and that will pay the mortgage/community fees/etc…
There was a lot of buy 2, sell 1 before completion, fund the other unit.
and so on and so for.
buy this and when the golf course/race course/them park is built sell and make a profit.these all seem to be things that have been mentioned on this forum.
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@Fuengi wrote:
@flosmichael wrote:
So the definition of “satisfied buyer” is very relative. I consider that the con in Spain was much more general than presenting picture of buildings which were never meant to be built.
true. there was a lot of buy it, rent while your not here and that will pay the mortgage/community fees/etc…
There was a lot of buy 2, sell 1 before completion, fund the other unit.
and so on and so for.
buy this and when the golf course/race course/them park is built sell and make a profit.these all seem to be things that have been mentioned on this forum.
I know these things have been mentioned but I have never experienced them!
I am am very worried that sometime in the future I shall rent an apartment who is under community embargo and they won’t let me in… I guess I should rent only places which already have a good booking so that I am sure that the owner has money to pay the community fees…
Anyway, people who fell for the statements written by Fuengi are definitely “greedy”!
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@katy wrote:
It is a fact of life that average debt in most communities is about 40% of owners. Main culprits are the spanish. Even naming and shaming does not work. It is not always that the people can’t pay they just won’t
I lived in many countries but nowhere more than 10% of communities did not pay.
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Oh GOD! Another estate agent blaming the victim!
Yes, some people were greedy & some (possibly alot) were naive, neither of which is a crime.
The ‘estate agents’ who showed the properties were, in the main, just taxi drivers. Most of them didn’t even know there way around, I remember giving one guy directions to the development. It was the people behind them & in the Uk who were (are?) the problem.
It is the people running the Uk exhibitions who did most of the lying along with the sales team back at the hotel. They are the ones who suggested certain lawyers, & also suggested buying several units & flipping them, telling buyers what a great rental place they were buying.
No matter how greedy or foolish some buyers were, it is the lawyer who really screwed people however. Not getting a bg, not checking the legality of a development, NOT DOING THEIR JOB!
It happens in the UK, alot of BTL buyers are in serious trouble, they bought several units & can’t rent or sell. At least they do have a property (properties), their development has been built & it is legal.
In Spain, in a great many cases nothing has been or is likely to be built.
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@flosmichael wrote:
Anyway, people who fell for the statements written by Fuengi are definitely “greedy”!
Not necessarily. Of course greed played its part. But the idea of a holiday in the Sun was/is still an important dream to many. The examples I used, helped convince many by making them feel surer/safer about their purchase.
Whether the agent backed up his/her claims is a different story. -
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@Fuengi wrote:
But the idea of a holiday in the Sun was/is still an important dream to many.
If the dream was holiday in Spain, then the price increase does not matter. When somebody achieves a dream, the dream becomes a long time investment not a 20%+ yearly price increase.
Besides, it was clear that by 2009 the cost of week rental would be less than the costs of maintenance and utilities due to the huge supply.
I think agents/developers were very happy to see the “dreamers…
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@flosmichael wrote:
It was the same in Roda Golf in July 2008 and in La Torre 7 months before.
So the definition of “satisfied buyer” is very relative. I consider that the con in Spain was much more general than presenting picture of buildings which were never meant to be built.
I think you will find both Roda Golf and La Torre are completed with excellent facilities and happy property owners.
I don’t see how you can blame the agents for British property owners not paying their community fees flosmichael!
I can’t imagine anyone in the UK going into an Audi dealer for an A3 with cash and coming out with 2 on finance. No matter how silver tongued the salesman.
The 1st rule when buying in Spain according to A Place in the Sun and other property programmes was “only spend what you can afford”!
So those that bought 2 instead of one were, and I make no apologies, rather stupid!
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peter good: My comments were not aimed at goodstich but at yourself.
Let’s move on from the speculators/investors who have caught a major cold; that’s business, they gambled & lost. They may have been foolish or greedy & they have paid the price.
My point is about buyers who have done their research, employed a lawyer, done everything they could short of building the property themselves, & then finding out 2-4 years after the due date that the development won’t be built because the licenses won’t be granted. Or possibly they have a finished property that is now declared illegal & it is going to be demolished.
These were not naive, foolish or greedy people. These are people who have been let down by the lawyers, who failed in their primary duty to look after the interests of their client. The banks, because IF they have a bg the bank won’t pay it, & the Spanish Government that allows it’s own laws to be ignored.
Until these problems are sorted out Spain is going to continue to have major problems.
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@Peter Good wrote:
I think you will find both Roda Golf and La Torre are completed with excellent facilities and happy property owners.
I don’t see how you can blame the agents for British property owners not paying their community fees flosmichael!
The one about agents and community fees is a joke, right? 😀 I never ever implied that.
About Roda Golf, around mid July 2007 about 20% of properties were occupied (and we paid about £200 for one week there). Looking at the
holydaylettings site I see that the occupancy is better but rental is still cheap.By the way, how much would be the total cost per week for
electricity+water+community fee for a 2 bedroom apt.? Is £200 enough
to cover all these (probably I need to subtract tax too). -
More Comedy From The Spanish Banking System
Going through the Variant Perception report on the parlous state of Spain’s banking system, I couldn’t help stopping and thinking hard about this point from the Spanish newspaper Expansion.
The valuation of the guarantees of the mortgage book of the cajas and banks and of its real estate gains importance. The thirteen companies tied to financial entities represented 47% of all real estate appraisals in 2007. The valuation of these real estate assets has taken on new importance for banks in the context of the current economic recession. The valuation of the mortgage guarantees and of the real estate assets they are taking on through the courts and debt for equity swaps is key to calibrate the solvency of the financial system. This situation has placed the focus once again on the links between banks and the real estate appraisers that goes beyond in many cases a mere commercial relationship.
And then scratching my head, and scratching my head.
Now to put all this in plain English, we are talking here about the valuation of properties that are repossesed by the banks, and that the banks then have as part of their asset side, as goods awaiting sale. Now, Expansion raises the question: “how can we know that these assets are being fairly valued (that is how can we assess the quality of part of the asset side in the bank balance sheet) when the banks themselves own (directly or indirectly) nearly half of the companies doing the valuing.
Well, this is an issue, but in fact the problem is much worse than the Expansion writer seems to realise, since there is a technical (matter of fact detail) that they seem to miss here, and that is how the valuation of property which is repossed by the bank actually takes place.
The issue is fairly complicated, but please bear with me, since if you follow me through to the end you will see why all the rigmorole is important. Basically Spanish “escrituras de hipoteca” (or mortgage agreements) require that the “valor de tasacion” as well as the amount secured is specified in the deed. The “valor de tasacion” is in effect the valuation of the property and it is put in the deed so that the amount of the debt can never actually exceed the value of the assets being mortgaged.
However since the bank don’t know when they might need to “exercise” (or recover) the mortgage, they don’t really want to compromise themselves in advance, and the typical way of handling the problem legally is to state in the “escritura” (or title deed) that it is agreed that the “valor de tasacion” for purposes of “exercising” the mortgage will be equal to the total amount of the debt outstanding plus the rolled-up interest.
This is a very convenient solution for the banks, since it gives outsiders the impression that there is what one might call a valuation in the UK or US sense, when what is really involved is simply a formula applied in order to structure legal documentation.
CONTINUED:
http://spaineconomy.blogspot.com/2009/08/more-comedy-from-spanish-banking-system.html
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@rob6578 wrote:
My point is about buyers who have done their research, employed a lawyer, done everything they could short of building the property themselves, & then finding out 2-4 years after the due date that the development won’t be built because the licenses won’t be granted. Or possibly they have a finished property that is now declared illegal & it is going to be demolished.
These were not naive, foolish or greedy people. These are people who have been let down by the lawyers, who failed in their primary duty to look after the interests of their client. The banks, because IF they have a bg the bank won’t pay it, & the Spanish Government that allows it’s own laws to be ignored.
Until these problems are sorted out Spain is going to continue to have major problems.
A brilliant & accurate post Rob. Absolutely spot on!
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Peterhun, thanks for posting that. The conclusion to his piece makes some interesting reading……
The fact that the Bank of Spain’s foreign exchange reserves are merely academic means that many professional bank analysts lack the early warning signs of an imminent balance of payments type crisis, and the mechanical and artificial system for valuing the growing number of homes accumulating in the banks’ real estate portfolio means there may well be no small amber flashing light to watch for before all the dials suddenly lurch over to red.
In other words there will be/are no warnings. The crisis, if and when it does come, will be swift and brutal.
Another dubious source?
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rob6578
as usual your posts stand out as common sense and exactly what has happened, and who is to blame.
Crooks from the UK colluding with crooks at all levels in the Spanish property industry. Corruption, hopeless lack of regulation, laws not implemented and slow and poor justice leading to what we see today as the mess that is Spains property industry and many good people left cheated.
yes people took advantage of rising prices, some were naive etc, but that is not a crime. The way they were cheated and conned most certainly was and still is!!
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…….getting back to the report
however good or bad it’s written, much of the content looks feasable as a result of what we can see now. I guess we will know just how accurate it is in the next year or two? How much longer can developers or banks hang on, hoping for a recovery to get them out of the shite?
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from Spain economy watch:
what he is arguing is that the situation in Spain now has certain structural similarities with the situation in the US before the sub-prime crisis broke out. The similarity is partly becuase there is little in the way of an early warning system available. The fact that the Bank of Spain’s foreign exchange reserves are merely academic means that many professional bank analysts lack the early warning signs of an imminent balance of payments type crisis, and the mechanical and artificial system for valuing the growing number of homes accumulating in the banks’ real estate portfolio means there may well be no small amber flashing light to watch for before all the dials suddenly luch over to red.
end quote
Can someone explain how this is different from other EU banks/systems?
Thanks
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@Fuengi wrote:
Can someone explain how this is different from other EU banks/systems?
Thanks
I think it means the Spanish don’t have Vince Cable 😆
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This is from February, it’s the slow drip of information that causes the problems. Unlike in the uk/us where it was all at once.
http://www.surveyspain.com/articles/hidden-problems-spanish-banks.htm
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I don’t think anyone will disagree that many Spanish banks have liquidity problems.
That was the case in the UK and US. The difference is, the UK and US taxpayers have had to give billions in prop-up loans to avert a financial disaster.
Spain has not had to do such a thing yet. Though it has the option if needed.
Spanish banks in the last recession were able to hold on to their property assets and release them as and when liquidity was required. It was a good model and sadly one that other European banking systems seem to have forgotten about.
In recent months I have been witness to a large amount of property disposals from several banks here in Spain.
Where a developer is about to go into receivership the bank has brought together several independant investment property marketing organisations who have used special purpose vehicle companies, generally from Finland or other north European countries, even some UK pension funds, and held off the bankrupcy until the marketing companies have sold-off the stock for around the value of the mortgage on the development.
These marketing companies have little problem selling to individual or group buyers by packaging the offer with good finance and other inducements.
The buyers are often east European, Asian or north Europeans.
Many of the banks are allowing these large developers mortgages to be subrogated to the new owners who are more credit worthy and capitalised.
Over a period of a few years this is how I see the Spanish banks disposing of their property assets and improving liquidity.
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@Peter Good wrote:
In recent months I have been witness to a large amount of property disposals from several banks here in Spain.
could you give any concrete examples?
Thanks
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@Fuengi wrote:
@Peter Good wrote:
In recent months I have been witness to a large amount of property disposals from several banks here in Spain.
could you give any concrete examples?
Thanks
Unfortunately no Fuengi, but only because these developments are high profile and we are tied by non-disclosure contracts.
Many are in your area though there are 2 British banks having the financial commitments.
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@DITTER wrote:
This might have been a profitable way out of the problem in the last recession, but this time around the scale is much greater. The banks might end up owning a large proportion of the output of the developers or supporting those developers with zombie loans.
This is something else that seems quite interesting, zombie loans.
In the original links supplied by brianc_li the report made mention of japanese banks and zombie loans during the last recession.
But as far as I understand are not japanese banks in a strong position during this recession, to the point of buying up quite a few foreign assets?
I this is correct (please correct me if not) then it does not necessarily seem to mean the downfall of the spanish banks. -
I don’t think anyone will disagree that many Spanish banks have liquidity problems.
Now Peter you do surprise me. When you wrote…..
However, the Spanish banking sector never acted as wrecklessly as the UK and US banking sectors.
Spanish banks never used special purpose vehicles to offload toxic loans. Spanish banks were capitalised greater than even UK banks are required to do since new regulations were applied.
There are a whole range of regulations that Spanish banks have always been required to adhere to compared to UK and US banks.
…. I foolishly came to the conclusion that you actually believed all was well within the Spanish banking system. 😀
I don’t know enough about the US market to draw a comparison there but, being Irish and having sold a property there just as the market was comming off its peak, I have followed that market with interest. The similarities in the property bubbles are striking. Since the markets have come off their peak the two countries have diverged somewhat.
In Ireland the banks have had to have government (and EU) support. Property prices have pretty well universally fallen 50% in two years and are still heading South.
In Spain the banks are apparently healthy. Property prices have fallen between 10% and 30% in two years and, according to some, have bottomed.
In the case of Ireland, whilst it has many failings, it can at least be said that the market and the published figures are transparent and reasonably reliable. For a variety of reasons, the reverse is true in Spain.
Given the similarities between the two countries property bubbles the disparity in the aftermath is, to me, all the more striking. Either the Irish have startlingly mismanaged the situation compared to the Spanish or the real pain has yet to come in Spain. Only time will tell.
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Peter
if you are right and despite a million or more unsold properties, and little sign of increased demand or confidence, the banks can come out of this ok, then great. If those zombie loans will keep flooding out, so the developers can pay back some interest (and those they’ve cheated), start shifting property, the banks honour their BG’s, sell off all aquired bad debt assets, and get back in good shape.
hard to swallow I think?
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@Suzanne wrote:
This is worth a read:
http://www.moneyweek.com/investments/property/uk-house-prices-a-warning-from-spain-about-the-property-market-14969.aspxBut,but,but,but. Moneyweek is just an obscure piece of paper, isn’t it? 😀 😀
Nothing to see, move along… 🙄
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well the money week article seems quite poor reading to me.
here is another link about the bad state of banks
http://www.economist.com/displayStory.cfm?story_id=14133692 -
@Fuengi wrote:
well the money week article seems quite poor reading to me.
here is another link about the bad state of banks
http://www.economist.com/displayStory.cfm?story_id=14133692The Economist article is much more optimistic (I would say almost cloud-nine) article.
Moneyweek has always been spot on during the crisis. The Economist changed from doomy to bullish many times during the last 2 years.
I suggest reading MOneyweek and then find their sources by using Google. They cannot put all the figures in a 1 page article.
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@flosmichael wrote:
@Fuengi wrote:
well the money week article seems quite poor reading to me.
here is another link about the bad state of banks
http://www.economist.com/displayStory.cfm?story_id=14133692The Economist article is much more optimistic (I would say almost cloud-nine) article.
Moneyweek has always been spot on during the crisis. The Economist changed from doomy to bullish many times during the last 2 years.
I suggest reading MOneyweek and then find their sources by using Google. They cannot put all the figures in a 1 page article.
Funny I found the economist article quite negative really. In the best situation, spanish banks are only postponing their problems. Or that is how I read it.
Whereas the moneyweek article compares property valuation to sales stats to quotes from agencies. I don’t think this information is helpful in regards to investment.
And they can put all their figure in one article, as the article on a website can be as long short as the authors desire. -
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Kyero´s take on the VP article.
http://news.kyero.com/2009/8/31/the-hidden-truth-behind-spanish-banking-strength
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