BARGAIN VILLA COSTA BLANCA
I was struck recently by an article in the New York Times entitled ‘Newly Built Ghost Towns Haunt Banks in Spain’ which, I think, nicely encapsulated, in an extreme, the problems that beset the economy in Spain. Certainly, the Spanish economy faces massive problems that revolve almost entirely around property – or at least the vast debts that accumulated during the unrestrained madness of the Spanish property boom
One of the interesting things about the NYT article is that it shows one of the ‘disaster’ developments that abound and for which there is, frankly, no hope. By the latter, I mean that the Spanish banks invested in a good number of property projects that are likely to be almost totally valueless. The one shown in the article is an example – but anyone living in Spain will be able to provide numerous others and these developments are nothing if not ‘toxic’.
Close to me, for example, is a half built complex comprising of some 200 or more apartments that, again, represent an investment that will never recoup its money. Indeed, I suspect that the project is almost valueless, despite the fortune that has already been spent. In the case of this particular development, it is located in a lunatic location and was clearly doomed from the start – with the only real question being why anyone (the financing bank, for one) could have possibly imagined otherwise.
But that is not the worst of the problems that exist.
The Spanish banks also invested in Rustico land, on the basis that it would be redesignated into Urbano (building) land. This land was bought at hugely inflated prices, far in excess of the land value – unless the land was redesignated. Of course, in many cases, the redesignation did not occur.
Needless to say, even when redesignation did happen the all too predictable Spanish property crash meant that it was too late to even consider building upon the land bought. So, the land, for the forseeable future, is now worth no more than the uncared for citrus trees (or whatever) remaining there. The absolute loss on these potential ‘developments’ is mind boggling…
And that, of course, is the real danger in Spain and to the Spanish banks and the economy in Spain – namely that there are significant property investments that may amount, effectively, to an almost unrecoverable total loss.
You may think that I am exaggerating but drive around Mediterranean Spain and you will see what I mean.
Look on the outskirts of many towns and villages and what you will see are extensive, newly urbanised stretches of land with roads and electric boxes standing forlonely, waiting for some development to occur. The land, only a short time ago, was arable but was bought on the basis that there really was a market for yet another huge industrial estate or housing development – despite the town or village concerned being miles from anywhere and having no inherent, fundamental development value.
Indeed, in many, many cases there never was any market for yet another industrial estate (to produce what?) – let alone a vast housing estate (for whom?). And yet, vast sums of money (backed by the Spanish banks) has been expended on buying almost worthless arable land and then placing onto that land the basic infrastructure of roads and services.
In the 1990’s, the Spanish banks profitably held onto property that they obtained during that recession. However, doubtless, for the most part, it was reasonably viable property. This time, unfortunately, they are holding onto considerable property ‘investments’ that may be virtually worthless – perhaps, forever.
Thus, the NYT article mentions the figure of some 240 billion Euros of exposure by the Spanish banks to Spanish property related debt. The trouble is that, as the NYT article states, this sum of 240 billion Euros may not be accurate. Indeed, it may be way out – as few people believe that the Spanish banks have fully declared their real position. Certainly, the Eurozone bank ‘stress test’ earlier in the year was treated as risable by most commentators when it came to what was said about Spanish banks. I, for one, was left laughing for days…
So, where does all this leave us?
Well, in terms of the Spanish economy, I fear ‘meltdown’ and that, as a consequence, there will be real Eurozone problems to come. The sheer size of the Spanish property problem is unnerving and, in some cases, so terminal that I can only envisage some major and unrecoverable property related losses for the Spanish banks.
Meanwhile, the Spanish housing market continues to be battered. October sales of homes in Spain were the lowest on record and 20% down from 2009. That said, total sales of homes in Spain were up by 7% (if the records can be believed) from 2009. This could be taken a possible sign of a resurgent housing market but you would have to be very brave to state this.
In fact, property assessors Acuña & Asociades in Madrid reckon that there are some 1.5 million houses for sale in Spain (683,000 new, 720,000 resale and 200,000 owned by the banks). More worryingly, Acuña & Asociades think that the prices for houses in Spain will drop by an average of 20% over the next five years.
Frankly, I think that any assertion about prices on a ‘global’ basis in Spain is absurd and simplistic.
As I wrote some time ago, as a Spanish property buyer (or seller) everything is about segmentation. Everything depends upon where a given property is located and the characteristics of that particular property.
Indeed, some really excellent Spanish properties will remain good investments, others will rise in price and others will offer truly outstanding bargains. Meanwhile, other Spanish properties will be effectively worthless and others will depreciate – all within a very complicated marketplace and a crumbling, debt ridden overall economy…
RELEVANT INFO:
Newly Built Ghost Towns Haunt Banks in Spain
what do the Spanish think about the property market in Spain
HOW TO BUY SPANISH PROPERTY AND MOVE TO SPAIN – SAFELY
(80,000 words, 327 pages, 26 sections and 9 expert contributors – e-book 14.96 euros)
