December, 2011
According to a recent report from a risk adviser to Banco Santander SA (SAN) and five other lenders, Spanish banks are currently holding 30 billion Euros worth of property that they can’t sell.
“I’m really worried about the small- and medium-sized banks whose business is 100 percent in Spain and based on real- estate growth, Pablo Cantos, managing partner of Madrid-based MaC Group, said in an interview. “I foresee Spain will be left with just four large banks.”
According to the bank of Spain, the beleaguered Spanish banks are also holding about 150 million Euros worth of bad loans, out of a total 300 million. This is after new rules last year forced banks to hold more reserves against any property taken onto its books, with the hope that this would incentivise their selling the properties rather than holding them until the market recovers.
The trouble being that there is no such incentive to buying the stuff. According to Cantos unfinished residential units, and land “in the middle of nowhere” will likely take as long as 40 years to sell.
Land in some parts of Spain is literally worthless, said Fernando Rodriguez de Acuna Martinez, a consultant at Madrid- based adviser R.R. de Acuna & Asociados.
“If there were to be a proper mark to market of real estate assets, every Spanish domestic bank would need additional capital,” said Daragh Quinn, an analyst at Nomura Holdings Inc. in Madrid, in a telephone interview.
However, according to Cantos this is largely down to the “enormous” gap between the prices banks are marketing properties at, and what investors feel they are worth/are willing to pay. This is an especially big problem in preventing the same of big portfolios said Cantos.
“Banks have already provisioned for a 30 percent loss, but if you are selling at 70 percent discount, you have to take another 40 percent loss. Which small and medium size banks can take such a hit?”
It is not only hard to see a path to recovery for the Spanish property market, it is hard to miss the fact that things are getting worse instead of better, and this looks set to continue. We all know that Italy has become the latest EU country to look like needing a bailout, but less common knowledge is the fact that Spain’s borrowing costs recently touched upon the 7% level that has marked the need for bailout money in all that have gone before it.
In terms of government debt, at 71% of GDP Spain has a much smaller problem than Italy with 120% of GDP, but when you bring in government debts, corporate debts, financial institution debts, and household debts it is Spain that looks like the burro about to keel.
When crisis struck Spanish businesses responded by taking on more debt, especially in the property and utility sectors. Household debt rose to 82% of GDP, financial debt rose to 76% of GDP, and as we know government debt rose to 71% of GDP.
Meanwhile the Italian private sector is in good shape with respect to its indebtedness. Italian business debt it at 81% of GDP, and household debt is at just 45% of GDP. So Italy’s total indebtedness at the end of last year was 313%, some 50 percentage points less than Spain’s. The fact that both their financial sectors are in debt to the tune of around the same 76% of GDP likely explains why both are in the same boiling pot where borrowing costs are concerned.
Back to Spain, 22% of the Spanish working population is unemployed, and the newly elected government must find a way to create jobs for them, while bringing down this massive debt burden. A report in the property press this week talked of hopes for a swift stimulus package for the property and tourism industries — fat chance.
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This Post is from: Overseas Property Mall, part of Fuzz One Media Group
Spanish Banks Stuck with €30bn in Unsellable Property
Category : General Property News
Unbelievable.That is the only word fit to describe the fact that the world’s tallest, most luxurious, lavish and downright most expensive single-family home has been left lying empty for what is now more than a year since its completion. People are understandably angry at the waste. But that is not the only unbelievable thing about this mammoth building built by Indian billionaire Mukesh Ambani.
The latest reason being given for the family’s failure to move into their home with its cinemas, helipads and crystal chandeliered ballroom is that it doesn’t have enough eastern facing windows. The reports say that the family fears living in the building would plunge them into a curse of bad luck, for not adhering to the principles of Vastu Shastra – a Hindu variant of Feng Shui. That is unbelievable.
No, really, it is. Ambani’s insistence on Feng Shui throughout the architectural consultations is no secret, so surely this would have been picked up then. And that is not the only reason to smell a rat either.
It is funny that we would be hearing this rumour about why the family hasn’t moved in yet, just shortly after reports emerged that the land the building sits on was sold illegally, and is therefore actually still owned by a minority group who had earmarked the land for construction of a school for the underprivileged. Speaking of smelling rats, and the underprivileged, this isn’t the first time anger has been voiced about this development.
The site is surrounded by shanty towns, street beggars, open sewers and ultimately poverty killing people while the lavish building sits empty. Looking at the comments on the latest stories, like those that went before, such a lavish display of wealth in a country that is still receiving billions of dollars in international aid (including £600 million per year from the UK) has been making people angry since construction began. This of course made worse by the waste we now see. Whatever the reason for the family not moving in yet, let us hope that Ambani sees sense soon, knocks down the building and builds a school for the underprivileged. Heck, let’s hope he throws in a hospital as well.
Photos of the Interior
Photo credits: Christopher Macsurak Kalpita Alejandro Arce and Jay Hariani
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This Post is from: Overseas Property Mall, part of Fuzz One Media Group
World’s Most Expensive Family House – Antilia (Mumbai) Lays Empty! Now the World’s Biggest Waste
Category : General Property News
The global property markets are imploding, and fast. The strain that first found its footing in the U.S has now truly gone viral. From Dubai to Denmark, developers have been left reeling, while national exchequers struggle to hold ground. So, how did the housing market bring the greater world economy to its knees? What could have possibly happened that real estate the world over saw $5.4 trillion in losses over the course of one single year alone (2008-2009)? We here present a simple, 8-point lowdown on what really got that demolition ball rolling.
1. There’s a reason why it’s called a debt-fueled crisis
When credit flows run deep and wide, even the U.S. subprime are fair game. As interest rates were contrived to be at unreasonably low levels, the most coveted of properties now seemed to be within the average mans checking account. With more buyers thronging the market, prices soared, and real estate seemed like the cheapest way to make a quick buck (or many!). The home flipping soon ensued, and as bidding wars got heated, speculation ran rife, causing the so-called housing bubble to finally take shape.
2. Hysteria takes over
According to Robert Schiller; one of the telltale signs of an emerging bubble is the great enthusiasm with which the public receives news of compounding prices. The same held true here; the markets unfaltering ascent almost blinded people into thinking that a reversal of fortunes was only something that happened in movies. Even smart buyers were lured into the mix believing that soon prices shall become too restrictive for them to realize their dream of homeownership.
3. Bad assets packaged as safe bets
High on financial innovation and confident that non-stop gains in property values would not even deter the unemployed from servicing mortgage payments, banks practically handed out wads of cash to visibly distressed borrowers. With no down payments or spotty credit histories to worry about, buyers rushed to cash in on their ever-growing equities, sometimes taking out two-three loans on the same property.
4. Listings are big money
U.S. realtors make bank every time a home is sold, the higher the price, the larger their profits. So, as prices began to peak, real estate agents saw to negotiate the biggest bids, whereby driving offers even further. Prospective buyers were made to raise their bottom line several times with promises of investments being foolproof and immune to any decline.
5. Buy goes the telly
The real estate sector is a huge buyer of ad-space, and during the boom leading industry professionals such as developers and mortgage companies, regularly funneled in millions in advertising to keep the buying frenzy going.
6. Big profits attract big fraud
As lending practices became more questionable, a number of fraudulent mortgage vendors set up shop, and practically flooded the market with non-existent buyers. Forged signatures, and illegally acquired personal information were used to close deals to rake in additional profits at the expense of unsuspecting homeowners.
7. Prime equity does not mean prime income
Those investors looking to rent out newly bought homes were soon disappointed upon finding that rental incomes fell far short of their monthly mortgage payment. As more and more buyers woke up to this realization, demand cooled off (and then dried out completely) as the bubble was dealt with hefty blows.
8. Foreclosures spell death
With homeowners defaulting at record rates, foreclosed houses flooded the market, deeply upsetting the prevalent pricing structure. Buyers took heed and began to head out in droves. The bubble was now set to rupture.
Photo Credits: zzub nik via Flickr
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This Post is from: Overseas Property Mall, part of Fuzz One Media Group
Why Did America’s Property Bubble Burst? Here Are 8 Reasons…
Category : General Property News
