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Record drop in Spanish house prices due to bank pressure

Spanish apartmentsRegarding property in Spain, it has recently been announced that the Spanish banks are being forced to put all their property on the market at realistic prices to get their liquidity in order.

This is perhaps the start of the good news. At last we can see an end to the downward spiral, though it’s some time away and we are not at the foot yet. Everyone has known, but it’s never been formally acknowledged, that the Spanish banks have not valued the property to actual market level. Now they will be forced to do so, either by sale of the property or by having such a quantity of property marketed and sold at low prices that higher valuations cannot be maintained. If they had honestly declared the collapse of assets as it was, in the same way as those banks in Ireland and the UK, then the short-term loss of face would have been substantial, but the long drawn out damage that is currently being felt might not have occurred.

For private sellers, without the ability to offer mortgages to buyers, the prices will have to fall even more to be competitive. This, plus the costs of purchase and sale, will mean that any buyer of bank property will immediately be in negative equity of 20+ per cent. Only the best properties with top location and facilities, will be bought by purchasers who are not looking for an instant capital gain, but are seeking an ideal home for their own use. The other buyers will be speculators who will negotiate with the banks to sell at even lower than their discount prices and be prepared to hold the property for a few years until the world economy drags Europe and Spain upwards and out of its present malaise. Keeping these properties in condition to occupy and paying off the community and local taxes, will be a cost that speculators may not be prepared to cover until the property is sold, with the result of starving local communities and town halls of current income from these ‘assets’.

This blog was written by Campbell D. Ferguson, FRICS, of Survey Spain Network, in response to a recent article that appeared in Businessweek.