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Are Spanish Banks’ Property Portfolio Junk Boxes of Repossessions?

The aftermath of the credit crunch for banks in Spain is that the banks have become major players in the property business because of repossessions.

At the peak of the crisis, in mid-2009, the banks had a portfolio of 100,000 units in Spain. According to Idealista.com, 40 different banks currently offer more than 17,000 properties on their corporate websites. Also, banks are organizing their own corporate property shows in an attempt to get rid of property assets.

This is a bad moment to have a large property portfolio if you are a bank.  From October 2010 on, banks must have a provision of 30% of the value of the property assets, which currently are already valued at €60 billion. This is why they have been focusing on selling the properties that they had to repossess.

Is it a good thing for property investors in Spain that banks are holding a large portfolio of properties and are willing to sell them as soon as possible? I would say not really!

Given that there is an oversupply of around 800,000 units in the Spanish market, it is likely that there are plenty of low quality properties in bank portfolios that have already been put on the market. The portfolio has been generated by repossessions and if the property price is 40% to 70% off it is because they are extremely difficult to sell.

During the expansion of the property bubble, unprofessional developers were building in remote places, enlarging the amount of properties that are poor products and that nowadays are unsellable. These products are today what are repossessed by banks.

I say unprofessional developers because, out of the blue, hundreds of new developers wanted to take a slice of the property pie and develop for speculative purposes. They built up developments without any market guidelines such as location, quality or cost efficiency. There are many professionals in Spain, but during the bubble, the market became a significant mess.

Unfortunately, there is not a proper inventory of these “junk properties”. That may be a good task to do: a list of junk property developments !!!!

The major cities never fail
Properties in major cities are still the best investments in Spain. Forget the coast and second residences if you are an investor. Prices have dropped in cities by 12% since the crisis started and the demand has slowed down. Banks and professionals shared the viewpoint that the property price in cities will not drop further at a recent property forum held in Madrid three weeks ago.

CONCLUSION: It is potentially a good time to invest in Spain but do not get caught by attractive banks offers. It will probably take awhile to find the right bargain, but it is there. Get advice and the service of an agent with a good history. Do not trust the bank… they are not agents and cannot lead your investment.

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3 thoughts on “Are Spanish Banks’ Property Portfolio Junk Boxes of Repossessions?

  1. daniel

    I strongly believe that Spanish Banks have a portfolio of good properties coming from repossessions. The problem is that the rental market is quite inmature and may owners that could not afford the mortgage had to go through a repossession process with the Bank instead of renting the property

    Reply
  2. will Needham

    You don’t really define what property is junk.

    If you mean over priced, and over valued then sure.

    I doubt there is any property thet won’t sell at any price.

    Reply
  3. tony foley

    living in Cantabria northern Spain for the past two years, keeping an eye on prices and have not noticed any significant drop in asking prices. It appears the vendor sets the price regardless of market conditions hence the unrealistic values. I gather from local agents that there is complete stagnation in the market but that doesnt appear to have any impact on the mindset.Maybe 2011 will bring sanity to the market.I am not hopeful however.
    I agree with the content of your various articles on the Spanish property bubble. Keep up the good work its refreshing to get some clarity on the situation here

    Reply

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