Bad assets weighing on bank
Spanish banks are stuck with as much as 40 billion euros of repossessed real estate are under increasing pressure to sell as prices fall and investors return to the market. High maintenance costs and complicated squatting rules form an important incentive to get rid of 180,000 units of foreclosed properties, more than 50,000 parking spaces, 10,500 retail outlets and more than 6,000 storage units.(acc. to a report of Aura Ree) Property sales simply have to increase.
According to Acuna the amount of bad assets so far disclosed by lenders could easily be multiplied by 2 or 2,5. The whisper number for residential homes alone is about 400,000 .
Further incentice to offload the bad assets is the constant drag on the results of the banks caused the provisions. (in 2012:82.4 billion euros of provisions and 16.3 billion euros made in the first nine months of 2013).
Light at the end of the tunnel?
“The gap between asking prices and bids is narrowing,” Acuna said. “Given the sheer amount of product available, we foresee a huge amount of bank-owned real estate and non-performing loan portfolios being sold in coming months.”
Not only Chinese investers (see our blog) are showing interest in Spanish real estate, also firms loke the Blackstone Group LP and Goldman Sachs Group Inc. have been buying real estate in Spain. Apparently they consider a price drop of more than 45% from the 2007 peak sufficient to justify their investments.
Another well known investor, Paulson & Co., said recently that they will invest in property company Hispania Activos Inmobiliarios and Pacific Investment Management Co. is the main investor in the initial public offering of Lar Espana Real Estate Socimi SA.
Still a long way to go
In 2013 foreign investors scouped up real estate for a total sum of roughly 6 billion euros. That is about twice the amount invested in 2012. With prices still falling and the pressure on banks to offload still rising, the expectation that foreign investment will increase even more this year, seems justified.
Hopefully this will offset the amount of property that is still being taken over by lenders. As an indication: in 2013 repossessed homes in Spain were sold for an average discount of 72 percent, compared with 48.3 percent for all properties sold since 2009.( according to the January report by Sanja Paic, an analyst at Fitch Ratings in London)
If not, expect even heftier pricecuts by banks.