Saturday, 15 September 2012

A good time for writing-down Spanish property

I've remarked on here before on the phenomenon of the Open Market Value (OMV) of mortgaged Spanish property being somewhere around half the bank asset valuation. Some of those still seeking a home in the Sun are confused by the same thing; 
I am wondering if anyone here has any ideas on the current situation of spanish banks valuing property sales at pre-2007 levels for their accounts but - at the same time - permitting sales with vendors at a far lower price. I have been looking at two separate properties in N. Costa Blanca. I can settle either in cash but in both cases the vendors are underwater after the sale by around 50%. So the sale can occur - though not for cash, only via 100% mortgage - but then I am informed that the 'bank valuation' is nearly 50% higher. Is this a common practice in Spain?
Part of the reason is that Spanish banks are restricted by law to lending not more than 80% of the asset value (the 'valor tasacion') and that should the asset fall in value after the loan is made, at any time during the term of the mortgage, the bank can require the borrower to pay the difference. In the case above, it looks like the bank is trying to 'lock in' a wealthy buyer at an artificially high valuation that would allow it to re-value subsequently and require the buyer to pay the difference. Wholly immoral and akin to legalised thievery, but since when in recent years have the banks been otherwise? 

With Spanish 10-year bond yields down this week low enough to allow a breathing space, there is huge pressure to take advantage of this honeymoon with the markets to recapitalise Spanish banks; it's also the best opportunity they'll have to correct the banks' asset valuations. From 1st September all Spanish banks have been regulated and controlled with absolute authority by the government and the Bank of Spain. Part of the rescue plan being overseen by the FROB or Orderly Bank Restructuring Fund is to buy the negative assets of struggling banks and transfer ownership to a newly created 'bad bank'. But how to value them? Too low a valuation will still leave the banks struggling, too high will increase public debt. Spain has therefore agreed with the EU to use a set of valuations derived by US-owned consultancy Oliver Wyman. 

Oliver Wyman is due to present the valuation set on 24th September to the Economic Ministry, Bank of Spain, European Commission, ECB and IMF. If all goes well, the valuation basis will be made public by the end of the month. When adopted it is hoped it will help get the Spanish property market moving again.

Am I being unduly cynical in predicting that the result will be to value Spanish property asset transfer price at exactly 125% of outstanding debt? Hmmmm.

9 comments:

Anonymous said...

Buy property in Spain, you need your head examining.
Even if you did find a perfect spot, house, area, estate, villa, finca, - how long before the local council declares some extra mad scheme, to put up street lighting, decide they don't like your gaff?

They could; reappraise the land, give it to Catalunya, or give it up to desert, take street lights down "we're bankrupt" [again], raze the area, sell it to Morocco, Libya, Argentina, China, the unions, or invade Gibraltar, declare all Gringos personas que no se quieran.

Not yet Raedwald, let them first come out of the zero and then still leave your money in your pocket.

Restoring Britain said...

Excellent article. This looks in part like an attempt is on by everyone who holds any form of overpriced or toxic asset to find a bigger mug than them to take it off their hands.

A good frined of mine with lots of connections to Spain has commented on the decay of the infrastructure. Once smooth and shiny roads are now cracking. Much of the construction reputedly financed by loans from Brussels was run by companies hastily set up by politicians to pocket the lucre.

I would suggest similar to anonymous to be very cautious around property however sweetly priced if everything around it is going to hell in handcart.

farenheit211 said...

The Spanish property market sounds like the equivilant of selling a remould tyre as brand new one.

Anonymous said...

Spanish property values known to be heavily 'discounted'
for transfer of ownership -
balance being paid by the buyer in CASH!

Sue said...

Seriously, seek proper legal advice. Your best bet is to find someone in Spain who speaks English to answer what questions you have. I lived there for 6 years and the pitfalls outweighed buying the property. They have some strange laws on "inheriting debt" and if the paperwork is not perfect, you risk losing your home. It's a minefield.

Raedwald said...

Sue - I can assure you I have no intention of leaving these blessed Isles for Iberia. The Spanish property market is at the heart of the Euro crisis, and for that reason is worth understanding.

Spanish Property said...

Great research on Spanish Property market and Spanish Banks by Raedwald.
I am really surprised with the actual condition as you are stating in the pot, but according to my understandings, the situations are in control now and Spanish property market will regain it's position...
Thanks...

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