Property For Sale In Spain in the Right Locations
Spanish property crash
Spanish property crash and the Spanish banks
Jan 26th
APARTMENTS IN SPAIN
I found a recent article by El Pais interesting. This relates to the Spanish savings banks called ‘Cajas’. These are usually quite small, local institutions with only a few branches, a bit like the UK’s old building societies. That said, not all Cajas comprise only a branch or two. la Caixa (the biggest Caja) is enormous and has about 4,700 branches throughout Spain and some 20,000+ employees.
The problem is that the Cajas are in trouble, so much so that ‘a flurry of forced mergers’ has seen their numbers drop from 45 to 17. This has been largely due to their exposure to the Spanish property crash and their part in the lunatic lending that was conducted during the Spanish property boom.
Without doubt, the Cajas have been ‘notorious’ for their localism and ‘political’ nature and their troubled situation now has come as no surprise to anyone. Indeed, I am surprised that they have lasted so long, before the truth behind their debt exposure was revealed.
Certainly, last year’s banking stress test was laughable to anyone with any knowledge of the effect that the Spanish property crash was going to have on the banks. It revealed that only a handful of Spanish banks were endangered – when the reality to anyone here, with just a few brain cells working, was so obviously very different.
Of course, the toxic bit for the banks is the amount of new development that they funded. Some of this is set to go well beyond any sane description of ‘toxic’ and relates to the funding of purchases of rustico (arable) land on the basis that it would be urbanised (redesignated as building land). Needless to say, this land (sometimes bought at ‘building land’ prices) has sometimes not been redesignated or, if it has, will not be built upon, possibly, for generations. In effect, therefore, it is virtually worthless…
In the meantime, Spanish property has dropped in value since 2007 by somewhere between 25% – 40% depending upon the segment, the area and the type of property. This is a huge loss for anyone to sustain and gives some idea of the exposure that the Spanish banks face on any building project that they have funded.
Sadly, the downward vortex with regard to the overall Spanish property market is set to continue, not least because of the (understandable) reluctance of the Spanish banks to lend. Mortgages are hard to obtain and, until this is reversed, it is difficult to envisage any major reduction in the excessive numbers of properties that were built during the boom – let alone a revitalisation of the market.
Incidentally, I write this not to put you off buying in Spain. Far from it. Buy carefully and there is no reason why any purchase should not be sound financially. However, I very much doubt that you will see much growth in value on any property that you buy – but there are enough bargain priced Spanish property around to make sure that you can easily absorb any further downturn in the Spanish property market.
In this regard, I still see a further drop in overall values this year but nothing like that posited in the El Pais article when it quotes: ‘the hypothetical downturn…’. The figures there are, I am sure, still based around the Spanish government’s ludicrous claim that Spanish property prices have only dropped, since the boom, by about 12%! This is an asinine fallacy and one that the Spanish government needs to clear up as soon as possible. The biggest drops in Spanish property values have long since occurred, the Spanish government needs to acknowledge this fact openly and allow the international community to then base their analysis and future predictions on this data – rather than the ridiculously defensive 12%.
RELEVANT INFO: The prospects for the Spanish economy look grim and mortgages in Spain, Spanish banks and the Spanish property crash and buy carefully and bargain Spanish property and bank fund lures investors with caja reform plan.
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Mortgages in Spain, Spanish banks and the Spanish property crash
Dec 29th
PROPERTY IN SPAIN
Well, I thought I had seen it all when it came to the Spanish property crash, Spanish banks and their lending – most particularly with regard to mortgages in Spain. That was until I read an excellent article in El Pais (one of Spain’s leading national newspapers).
As you will see from this article, which is well worth reading throughout, (and is in English), sub prime mortgages in Spain were as bad as those sold in the US. Deliberately baffling to the people they were aimed at, they were no more than a sophisticated, institutional con and were partly responsible for the Spanish property crash.
In a way, the worst part about sub prime mortgages in Spain was that they were a con that everyone within the industry knew about. Indeed, it is impossible not to come to the obvious conclusion that their very presence in the marketplace indicated that the regulators and Bank of Spain knew about them as well and were colluding with the lenders. If they did not – then the inevitable accusation must be that the regulators and Bank of Spain were deeply negligent in not knowing.
Needless to say, the question in Spain, just as in the UK and the US, must be to ask what has become of the senior executives of the lending institutions behind sub prime mortgages? What has happened, dare I ask, to the chiefs of the Spanish banks who were involved in sub prime lending?
I suspect, like elsewhere in the world, the answer is: nothing.
I am struck by several comments made in the El Pais article, one of which is made by Mario Barguño of Equilibrio Financiero, an insolvency expert, who says: “The banks were caught up in a race: whoever wasn’t lending money was losing.”
Yes, indeed.
No control, no long term strategy, no regulation – just crazy lending that anyone, with an iota of sense, knew was madness. However, despite the obvious risks, the rush for ever greater sales commissions and bonuses mesmerised everyone, even those under a duty to act…
Of course, markets are driven by the old cliche of ‘greed and fear’. That is only human. But then for what exactly are democratic populations paying economists, national banks and regulators?
To ensure that neither excessive ‘greed’ nor ‘fear’ gain the upper hand and that scams are not perpertrated upon their populations. That, surely, is the underlying ‘definition’ of regulation in economic matters.
The odd thing about the El Pais article is that it mentions UCI (linked to one of the major Spanish banks, Santander) – which brought back memories for me. Some years ago UCI contacted me to see if I wanted to recommend clients to them for mortgages in Spain, for which I would receive a handsome commission.
I duly had a meeting with UCI in their swanky offices in Valencia. There, I spent half a day being briefed about what most of us would describe as self-certification mortgages. In effect (but not fully appreciating it at the time), I was being asked to become involved in selling sub prime mortages in Spain.
The trouble is that I never really understood what they were on about.
‘It does not matter what they (the borrowers) can really afford to pay’, I was told repeatedly. ‘Put anything down!’
‘Even if,’ I remember asking, ‘they say they are earning half a million euros a year – when I know they are not and they have no supporting paperwork?’
‘Don’t worry,’ was the answer, ‘we will lend depending upon the property valuation.’
None of this made much sense to me – but then I only have a humble law degree and have never claimed to be an economist, despite having worked as an equity trader in the UK City.
Of course, valuations on properties were conducted by the Spanish banks and no doubt by UCI too. However, the valuations were notorious, for years, for being consistently incredibly distorted (upwards) – which ‘justified’ the amounts lent. Everyone in the Spanish property industry knew about this. Clearly, a ´blind eye’ was turned, equally consistently, by the Spanish banks to the actual capacity of a borrower to make sustained mortgage payments on the amounts lent
An absolute, utter lunacy – which made the Spanish property crash completely inevitable and yet so totally unnecessary! The crazy lending was like squirting aviation fuel onto a roaring blaze.
Frankly, it is the unnecessary nature of the Spanish property crash that so angers me. I am still bemused about how it was ever allowed to happen. Furthermore, I am staggered that the negligence of the lenders and the regulators has ended up without the responsible higher executives being heavily sanctioned…
RELEVANT INFO. How the subprime mortgage found a home in the Spanish market and the Spanish economy – meltdown or all okay?
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