The following article shows why its so hard to convince those looking to buy property for sale in Spain. Because on first reading it is hard to argue with the economic facts however when your on the ground in prime locations the reality is completly different. I think the main point being is banks have lots of property that no one wants to buy and the property people want to buy is now owned by people who arent distressed
While Spain's financial problems have shaken up Europe, some investors are looking at them as an opportunity. Their hope: Some savings banks could begin to dispose of property faster than expected as part of their sudden and furious efforts to restructure.
Driving the restructuring is the recognition by the government and the Bank of Spain that potential default on billions in bad loans to Spanish construction and property companies is among the greatest risks to Europe's fifth-largest economy.
The savings banks had long resisted pressure to merge. But now the government is forcing them to do so as a condition for receiving cash from its bank-bailout fund, the Fund for Orderly Bank Restructuring, known by its Spanish acronym FROB.
About a dozen of the country's 45 savings banks are racing to restructure before the end of the month, when a deadline on bank bailouts set by the European Commission is due to expire. Although FROB has existed for a year, it is only now making its first injection of cash into two regional savings banks, Caixa Catalunya and Caixa Sabadell.
Pressure is also being applied by the Bank of Spain. The Spanish central bank is proposing new rules that aim to force lenders to work out nonperforming loans with greater speed. Until now, banks could in some cases take as long as six years to raise provisions to cover a 100% loan loss on unsecured loans. Under the new rules, banks would have to have provisions to cover the losses within a year.
The central bank is also proposing making changes to provisioning for loans secured by property or land. Previously, the central bank didn't allow banks to recognize the value of the property or land securing a loan as a part of the provision against loan loss. It is proposing to do so now.
"The impact of these changes will be that banks are going to be forced to liquidate their stocks," says Adolfo Ramirez-Escudero, managing director of property-services firm CB Richard Ellis in Spain. "We should be seeing more opportunity sales in the market."
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The Bank of Spain also recently fired a shot across the bow of any savings banks that are still reluctant to merge. When CajaSur, a struggling regional savings bank, refused to merge with Unicaja, another savings bank, the Bank of Spain stepped in and took over CajaSur.
Such actions may not appear drastic considering the size of the problem. The Bank of Spain estimates that at the end of 2009 there were €445 billion ($530.3 billion) in loans to construction and property companies. As much as €165.5 billion of those loans are considered "troubled," according to the Bank of Spain.
The loans are only for residential property. Borrowers of some €42.8 billion in loans have missed at least one payment in the past 90 days. By the end of last year, Spanish banks had repossessed property representing loans valued at €59.7 billion on their books.
"This is Spain's subprime crisis," says Andres Escarpenter, chief executive of property-services firm Jones Lang LaSalle in Spain.
Banks have been reluctant to dump problem real-estate loans and property because haven't wanted to take losses. But even if banks increase their loss provisions, they may still decide to hold assets rather than selling them, in hopes the assets will appreciate in value.
Values are clearly hurting. Late last month, Banco Santander's Banif property fund postponed plans to sell €2.6 billion of property it owns, citing poor market conditions.
Overall, Spain's banking industry has fared well during the financial crisis and recession. Over the past decade, Santander and Banco Bilbao Vizcaya Argentaria expanded internationally, limiting their exposure to the whims of the Spanish economy.
It was the regional savings banks that primed the pump of the exaggerated construction boom. At one point, more new homes were built in Spain than in the U.K., which has a much larger population. Now, the savings banks are scrambling.
The two biggest savings banks, La Caixa and Caja Madrid, are each exploring mergers with a number of weaker savings banks.
La Caixa is Spain's third-largest bank in terms of assets, after Santander and BBVA. La Caixa is in talks about acquiring a smaller regional bank, Caixa Girona, which has nearly 40% of loan book in the construction and property sector. Fitch recently downgraded Girona's debt to just above junk.
Caja Madrid, Spain's fourth-largest financial institution, is planning to merge with five regional banks: Caja de Ávila, Caja Insular de Canarias, Caixa Laietana, Caja Segovia and Caja Rioja.
And Caja de Ahorros del Mediterráneo, the fourth-largest savings bank, has announced plans to merge with CajaSur, Caja Extremadura and Caja Cantabria.
"The main idea behind the restructuring of the Spanish savings banks is to reduce the number of entities in the market and make these stronger," says Maria Cabanyes, a senior banking analyst with Moody's in Spain. "The result could be that there is greater stability in the sector."
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