The Hope Of The Spanish Property Market

The recovery of the Spanish property market is still nothing more than a notion, especially now that yet another fall is to be expected in the prices of properties. A recent forecast from one of Spain's leading consultancies, RR de Acuna & Asociados, revealed that a further 30% fall in property prices is possible; particularly for homes in Barcelona, Madrid and other major cities in the country. They forecast that the relentless depreciation in prices and values should be expected until 2018, or even up to ten years, where the decline may reach 50%.

The real estate market is hitting bottom, according to the consultancy's vice president (Fernando Rodriguez de Acuna). There has been no progress in clearing the stock of approximately two million unsold Spanish properties over the years. The number of repossessed properties is increasing, and domestic buyers are hardly to be found despite the availability of cheap properties for sale.

At present, there are almost 300,000 properties which the banks have foreclosed. Over a million newly-built houses are for sale while roughly 150,000 properties are under foreclosure proceedings. The properties on the books of the banks continually increase as the property values fall. Prices have already declined by 35% compared to when the market was at its peak in 2007. Another 15 to 20 percent fall has been predicted by Fitch, one of Spain's property rating agencies.

The Spanish Banks' Predicament

The continuous decline in property prices is putting a lot of Spanish banks in a serious dilemma. Many bankers in the country are having trouble dealing with the crisis in the real estate market. Most of them say that they could not take any more property-related problems. Otherwise, they will have to make their portfolios available to investors hoping they could gradually dispose of their oversupply of property assets. The banks and the real estate sector are apparently dragging each other down.

The unbelievably reduced prices of most Spanish homes for sale as well as the increase in decline of asset values along with the unemployment rate which is currently 26% will make it really difficult for banks to generate decent sales in 2013. Although funds have set their sights on some of the finest properties in prominent cities, the banks ignore their offers because of their demand for large discounts. Moreover, huge property debts from unpaid mortgages have downgraded the credit ratings of almost 15 banks. The decline in mortgage deals is one of the reasons why local buyers have disappeared.

Spain's multinational banks such as the Santander and BBVA seem to the only ones that can manage to survive the continuous flow of property depreciation. BBVA will go for the sale of foreclosed properties, rather than merely transfer their portfolios, regardless of how slow it is to make decent sales from individual investors. This is mainly because the costs involved is considerably lower and the discounts only amount to almost 40%, unlike with funds that demand up to 80% discounts.

On the other hand, Santander, aims to make aggressive sales in 2013 by setting aside a one billion euro budget that will cover the potential portfolio sales which they can generate at large discounts. Santander's Chief Executive, Alfredo Saenz, stated that it would be disastrous for them if they cannot get into the sales mix while the 'bad banks' are actually being swift and efficient in getting many purchasers to clean up the mess left by the bursting of the property bubble. A lot more Spanish banks will suffer greater losses than expected due to the mounting debts from a glut of repossessed properties.

The Hope Of The Spanish Property Market

Despite the increase in the number of foreclosures in 2013 and the constant decline in the prices of properties, there is still hope for the Spanish property market. According to Carlos Massip and Juan David Garcia of Fitch, the recovery of the real estate market in Spain lies in the hands of foreign investors and property buyers. Fortunately, there is a growing interest from foreigners all over the world. The Britons are still the largest buying group of Spanish properties while the Russians follow their lead.

Indeed, more and more foreign property buyers are now taking interests in various types of Spanish properties. In fact, the recent number of foreign investors is comparable to the figures from pre-recession levels. 38,312 international buyers and non-residents have made a purchase in 2012. The 28.4% increase revealed by the General Council of Notaries is almost equivalent with 2007 levels. But the number of properties which have been actually sold could be more than the figure in this data.

Moreover, many expatriates are taking the risks despite the uncertainty in the Spanish real estate market. According to Lucas Fox International Properties, prices have leveled off in the second half of 2012 along with the quick purchase of best-value properties from many foreign buyers. Although different factors influence the demand for properties from different areas, the number of expat buyers seeking luxury properties contributes to the slight but steady improvement in property prices.

Numerous efforts from various real estate organizations and from the regional tourism as well as from the Spanish government itself have made it possible for the country to establish a better reputation abroad in the hopes of increasing foreign property buyers. Some significant changes to Spanish residency laws that may take effect in April will potentially encourage more investors from China, South America, and India. Hopefully, this will begin the journey of the Spanish property market towards recovery.