- This topic has 16 replies, 6 voices, and was last updated 15 years, 6 months ago by
.
-
Posts
-
-
Developers have hefty losses, they are losing their shirts and going towards bankrupcy.
Why don’t they start the firesale? Do they prefer to give banks the privilege to sell their assets, after bankrupcy?
Are they all greedy? NOn-realistic? Both?
I just looked at the site of one loser from Marks’s article. They sell apartments in Barcelona for 5000 Euros/m^2 (330K for 2 bedroom). They are multi-billions in red…
Even 50% reduction won’t bring these prices to affordable levels…http://www.spanishpropertyinsight.com/buff/2009/03/big-developers-clock-up-heft-losses-in-2008/
-
I think the problem lies with the fact that unsold units are mortgaged and the developers can’t sell below a certain limit without making up the shortfall and developers say they don’t have the money and in the meantime they are not paying community fees on unsold units.
Something has to give and deals will have to be done to shift these unsold units and banks will have to write off vast sums of money.
Many of the developers have already stripped the profits out of their development companies and what’s left is a worthless shell with assets worth far less than outstanding loans and creditors.
Sometimes the relationship between promoter – developer – builder etc is hard to understand with all the companies involved – fees and commissions paid etc. The courts should lift the veil of incorporation and go after the directors or shareholders etc for fraudulent or reckless trading etc. Whilst these developers may claim to be broke they are still enjoying a high life style living in their big houses and driving their fancy cars and flashing their money around – so personally they seem to be quite OK!
-
@JJB-Mijas wrote:
I think the problem lies with the fact that unsold units are mortgaged and the developers can’t sell below a certain limit without making up the shortfall and developers say they don’t have the money and in the meantime they are not paying community fees on unsold units.
Something has to give and deals will have to be done to shift these unsold units and banks will have to write off vast sums of money.
Many of the developers have already stripped the profits out of their development companies and what’s left is a worthless shell with assets worth far less than outstanding loans and creditors.
!I agree that banks will have to write off vast sums of money. But how long are they going to play the ostrich game and pretend everything is rosy?
Does everybody (banks, developers) expect house prices to be booming soon?
If yes, they should wake up before it is too late and the cancer becomes terminal… -
@flosmichael wrote:
I agree that banks will have to write off vast sums of money. But how long are they going to play the ostrich game and pretend everything is rosy?
Does everybody (banks, developers) expect house prices to be booming soon?
If yes, they should wake up before it is too late and the cancer becomes terminal…I was chatting with a few bank managers and a couple of regional managers over the weekend. They are not having to write-off huge losses at present.
Nothing is written off when it comes to property. Unlike shares and stocks, property is tangible, it has land value and construction value per m2.
In the mid 90’s, spanish banks just sat on their borrowers assets (so to speak) – they didn’t cash in the loans and mortgages, they let them run on, re scheduling the repayments. The Hacienda were instructed to hold-off tax defaults until better times arrived.
To me, that all makes sense. Bank balance sheets look better showing assets than write-offs. Spain understands these things whilst the UK just asks the tax payer to write a blank cheque for a hasty clearing out of outstanding toxic debt.
There is no such thing as toxic debt in property, given that over time, historicaly prices have always risen.
I’m happy to say Spain takes a more pragmatic view of these things and does not destroy its own economy like the UK and Sky news seems to revel in.
Spain hides it’s problems in the in the closet, no question, whilst the UK sends everything to the car boot.
The thing is, in 5 years from now, spain will reveal it’s cash in the attic and reap the rewards of patience, sadly, the UK will have given away their valuables at a silly price and commited the tax payer to years, even generations of debt.
Written in haste, I shall repent my spelling at leisure 😳
-
@Peter Good wrote:
I was chatting with a few bank managers and a couple of regional managers over the weekend. They are not having to write-off huge losses at present.
Nothing is written off when it comes to property. Unlike shares and stocks, property is tangible, it has land value and construction value per m2.
In the mid 90’s, spanish banks just sat on their borrowers assets (so to speak) – they didn’t cash in the loans and mortgages, they let them run on, re scheduling the repayments. The Hacienda were instructed to hold-off tax defaults until better times arrived.
To me, that all makes sense. Bank balance sheets look better showing assets than write-offs. Spain understands these things whilst the UK just asks the tax payer to write a blank cheque for a hasty clearing out of outstanding toxic debt.
There is no such thing as toxic debt in property, given that over time, historicaly prices have always risen.
I’m happy to say Spain takes a more pragmatic view of these things and does not destroy its own economy like the UK and Sky news seems to revel in.
Spain hides it’s problems in the in the closet, no question, whilst the UK sends everything to the car boot.
The thing is, in 5 years from now, spain will reveal it’s cash in the attic and reap the rewards of patience, sadly, the UK will have given away their valuables at a silly price and commited the tax payer to years, even generations of debt.
Written in haste, I shall repent my spelling at leisure 😳
What about the developer who had a 3.9 billion loss in 2008? What is he going to do in 2009? Have another 4 billion loss?
I think US companies have the best approach. They know they made a misatke and overbuilt so now offer all the discounts in the world, get rid of properties and prepare for future development.
With 4 biilion loss/year/company there is no future. A company has to sell in order to exist. They cannot stay another 5 years and lose another 20 billion Euros…
I do not know what happened in 1990’s but I guess the land and contruction costs were dirt cheap then and debts did not accumulate. In the recent years netither land not building cost was cheap.
Now, the value of land is falling like a rock everywhere and the construction costs are lower too (lower salaries, lower cost of buidling materials) so to build a house in 2009 is
much lower than in 2006… But nobody cares, the value of 2006 built house is lower than the 2009 build house.Who is going to swallow the difference? Banks and, indirectly, tax payers.
-
Like I said above, the banks will sit on the assets. It paid them to do so in the past.
The Spanish realise that the value of land does not drop. The market for it just falls away. That is not the same. Keep anything long enough and the market returns.
I know there are many people on this forum who talk the market down, just as there are agents who talk the market up.
The former are hopeful buyers, the latter are hopeful sellers.
In the meantime, there will be no firesales, Spain doesn’t do that sort of thing. The Spanish market is not as quick-fire as the US and the UK – the watchword here is Tranquillo!!
-
@Peter Good wrote:
The Spanish realise that the value of land does not drop. The market for it just falls away. That is not the same. Keep anything long enough and the market returns.
The increase of house prices is always related to the cost of land. This is why the houses in UK are so much more expensive than the ones in say USA.
The price of some good parcels of land in Florida, Arizona and California is 1/4 now of what
was in 2005. In Romania prices of buildable land decreased by 30% in 6 months.
Even in the Chamonix area the price of land decreased by 20% in 1 year.
Why would price of land hold in Spain?I am not all talking down the property in Spain. But Mark posted an interesting (for me at least) article in Property Buff and I was shocked by the losses of some companies…
Having a discussion does not mean talking up or down property (at least from my point of view)… 😀Anyway, our entire world seem to be crumbling so the house price can become our least worry… I gained at least 5.33% today (by not having money in FTSE index…). 😀
-
@flosmichael wrote:
The increase of house prices is always related to the cost of land. This is why the houses in UK are so much more expensive than the ones in say USA.
Why would price of land hold in Spain?
Having a discussion does not mean talking up or down property (at least from my point of view)… 😀
flosmichael, if land is withdrawn from the market, then the value is irrelevent. If a bank sits on that land.
Eg. 100,000m2 land value in 2008 for sale at €15,000,000 with a mortgage of €9,000,000 is withdrawn in 2009 valued at €8,000,000. Then re-offered and sold in 2014 at €17,000,000 equates to a profit of €2,000,000 if the developer still owns it, or a profit of €8,000,000 if the bank sells it. Minus some costs of course.
What I am trying to say is, that is how the Spanish think, especially the banks holding the mortgage for that land.
In the UK, the banks would foreclose and sell the land at €5,000,000 creating a loss of €4,000,000 on their balance sheets.
Why should they be so hasty?? The Spanish banks think more for the future, they have already bought some silly bargain UK banks as we all know.
-
@Peter Good wrote:
flosmichael, if land is withdrawn from the market, then the value is irrelevent. If a bank sits on that land.
Eg. 100,000m2 land value in 2008 for sale at €15,000,000 with a mortgage of €9,000,000 is withdrawn in 2009 valued at €8,000,000. Then re-offered and sold in 2014 at €17,000,000 equates to a profit of €2,000,000 if the developer still owns it, or a profit of €8,000,000 if the bank sells it. Minus some costs of course.
What I am trying to say is, that is how the Spanish think, especially the banks holding the mortgage for that land.
In the UK, the banks would foreclose and sell the land at €5,000,000 creating a loss of €4,000,000 on their balance sheets.
Why should they be so hasty?? The Spanish banks think more for the future, they have already bought some silly bargain UK banks as we all know.
Peter, if they can afford to moth-ball the land and hold till the market booms, then I perfectly agree that they will never lose.
But then the question would be what happens to the developer’s losses? Who is keeping these losses in the books till (say) 2014? Banks?
If banks hold the losses till market recovers, why do some developer go bankrupt and others not? Why did Fadesa go into administration? Were they on the wrong side of the political spectrum?
-
@flosmichael wrote:
If banks hold the losses till market recovers, why do some developer go bankrupt and others not? Why did Fadesa go into administration? Were they on the wrong side of the political spectrum?
Now that is what I call enlightened thinking flosmichael.
Those developers who, let’s say, are speculators or rather not of the old school of established and well connected families will file for protection and get out, maybe with their property and a few Porche Ceyennes’.
They don’t have the right connections. Their assets will be passed on to the developers with connections via the judges and the banks as well as the heads of the Hacienda. All to be later sold on and the profits distributed between them.
Armero obtained for PW land in Murcia at 14 pesetas per m2 in 1996 in just such a way. The mayor of Torre Pacheco trousered the planning bribes and Facundo sold out for millions just before the whole case was exposed. He is ready to go again in the not to distant future.
It works the same
-
It is not true that urban land prices in Spain do not fall as such. This is how it works.
Developers use their land as bank collateral for development finance. In a downturn when the developer cannot service the debt the bank ‘on paper’ forecloses on the land security.
However as there is usually a corrupt relationship between bank manager and developer the bank will sit on said land and not usually offer it for auction in any market place. Hence all the moribund developments.
Eventually the bank rights down their balance sheet land value and cuts their loss. When markets return, developer buys it back at reduced value with most or some of the debts written off saving himself millions. Bank receives the asset right down valuation and everyone is happy.
In Spanish property law anything that is built on land belongs to the land owner, bank or developer. Therefore bank right downs have greater value significance. -
-
@Peter Good wrote:
@flosmichael wrote:
If banks hold the losses till market recovers, why do some developer go bankrupt and others not? Why did Fadesa go into administration? Were they on the wrong side of the political spectrum?
Now that is what I call enlightened thinking flosmichael.
Those developers who, let’s say, are speculators or rather not of the old school of established and well connected families will file for protection and get out, maybe with their property and a few Porche Ceyennes’.
They don’t have the right connections. Their assets will be passed on to the developers with connections via the judges and the banks as well as the heads of the Hacienda. All to be later sold on and the profits distributed between them.
Armero obtained for PW land in Murcia at 14 pesetas per m2 in 1996 in just such a way. The mayor of Torre Pacheco trousered the planning bribes and Facundo sold out for millions just before the whole case was exposed. He is ready to go again in the not to distant future.
It works the same
I understand now. A spider-web…
How can a foreigner expect to win any case against such interconnected world?
-
@flosmichael wrote:
I understand now. A spider-web…
How can a foreigner expect to win any case against such interconnected world?
The system is not set up for foreigners to benefit, just a small circle of old boys.
But then again, when did the UK old boy network make openings for Spanish investors in Bristol, Manchester, Leeds etc.?
-
@Peter Good wrote:
@flosmichael wrote:
I understand now. A spider-web…
How can a foreigner expect to win any case against such interconnected world?
The system is not set up for foreigners to benefit, just a small circle of old boys.
But then again, when did the UK old boy network make openings for Spanish investors in Bristol, Manchester, Leeds etc.?
Well, I do not think many Spaniards are interested at all in property in UK.
-
Peter Good wrote:flosmichael wrote:I understand now. A spider-web…
How can a foreigner expect to win any case against such interconnected world?
The system is not set up for foreigners to benefit, just a small circle of old boys.
But then again, when did the UK old boy network make openings for Spanish investors in Bristol, Manchester, Leeds etc.?
I read somewhere that a Spanish company owns most of the large airports in the UK even though they may be forced to sell some.
-
-
- The forum ‘Spanish Real Estate Chatter’ is closed to new topics and replies.
