Negative equity of these levels is a tipping point. It will cause property values to fall off a cliff because people in that position are far better served just walking away and handing the property back to the bank. The debt is none recoverable.
I know that’s not such an easy thing to do in Spain but in fact it would in the long term serve the market well. Values could return to a more realistic pre boom level of the mid nineties and give the market chance to stablise.
Banks in this scenario would lose but they will eventually have to be recapitalized anyway if the government is serious about restarting the housing market.
