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The Masked Tulip

Spain's Pain Goes Beyond The Busted Cajas

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The land around Sesena is dry. In fact the name La Mancha, the Spanish province it is part of, stems from the arabic for dry land. And in the 800 years since the Spanish reconquered this terrain, it's fair to say that nobody managed to conquered the thistles. They stand head high, big as your fist, in the dusty fields competing only with wire-sharp grass and discarded tyres.

For 800 years this area was one of the most sparsely populated in Europe. Then came the Spanish property boom. A speculative developer built 13,000 brand new flats in the middle of nowhere. Then the boom ran out, as did the developer's political influence and access to credit.

Nine whole blocks at Sesena stand empty; the rest stand partially occupied, their ground floor retail units bricked up. They're decent flats, with a swimming pool and basketball court in every quadrangle. But many of those who live here now can only afford to rent: migrant workers from Latin America or north Africa, scraping by on part-time jobs. Even at 100% finance - and it still exists here - buying is off the agenda.

It's not until you see Sesena that you realise the mess Spain is in. Because there are one million brand new unsold homes in Spain. And these homes don't just litter the landscape: they sit as bad debts on the books of Spanish banks. And the problem is nobody knows how bad the debts are - because prices are still falling (another 25% is the best guess of Barclays economists).

That's why the Spanish finance system has become the object of acute curiosity in the run up to the stress tests set to be announced by the Committee of European Banking Supervisors on Friday evening.

Full article...

http://www.bbc.co.uk/blogs/newsnight/paulmason/2010/07/spains_pain_goes_beyond_the_bu.html#comments

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BBC ran an article on Seseña a few years ago: http://news.bbc.co.uk/2/hi/business/7584097.stm

I've driven past it a couple of times and it is just a weird place - all these sandy coloured, newly built flats rising up out of nowhere.

The other problem is that there're no shops there, since there aren't enough customers. It'll probably end up full of gypsies. But you can still buy a house there for €600k if you really want to:

http://www.idealista.com/pagina/inmueble?codigoinmueble=VW0000003063492&numInm=3&edd=list

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There does seem to be a sudden wave of bearish media stories just now.

One of us should probably come up with a name for it.

Perhaps some others should ask why?

.

Edited by Timm

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BBC ran an article on Seseña a few years ago: http://news.bbc.co.uk/2/hi/business/7584097.stm

I've driven past it a couple of times and it is just a weird place - all these sandy coloured, newly built flats rising up out of nowhere.

The other problem is that there're no shops there, since there aren't enough customers. It'll probably end up full of gypsies. But you can still buy a house there for €600k if you really want to:

http://www.idealista.com/pagina/inmueble?codigoinmueble=VW0000003063492&numInm=3&edd=list

The growing water problems in Spain must make many of those places very short-term anyhow. Kind of like building in Nevada. I bet they will end up like a set from a spaghetti western sooner than later.

Looking at the unfinished blocks of flats in the Newsnight item was interesting - were they thinking that armis of Brits, Dutch and Germans would all be buying a second home in Spain?

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The growing water problems in Spain must make many of those places very short-term anyhow. Kind of like building in Nevada. I bet they will end up like a set from a spaghetti western sooner than later.

Looking at the unfinished blocks of flats in the Newsnight item was interesting - were they thinking that armis of Brits, Dutch and Germans would all be buying a second home in Spain?

I really can't figure who they thought would buy in Seseña, certainly not northern Europeans. There is absolutely nothing there. It has no public transport links to Madrid so any families living there would probably have to run 2 cars as well. The Spanish do like to live in new flats, in new towns, with new shopping malls, etc, and I know of a few who are happy to live in quite barren areas around Madrid just because everything is new. But Seseña was just taking the p1ss.

I guess you have to bear in mind that at the time everyone in Spain was convinced that property prices only ever went up, and Madrid had got ridiculously expensive, so younger people thought that buying in places like Seseña was the only option. But why anyone would buy in Seseña when you've got Toledo next door is beyond me. It stinks of corruption. I think the Spanish banks own Seseña now (I think the developer ran off to Cape Verde) and they'll probably get bailed out by the EU, so in a round about way I guess they were targeting northern European buyers after all :blink:

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Looking at the unfinished blocks of flats in the Newsnight item was interesting - were they thinking that armis of Brits, Dutch and Germans would all be buying a second home in Spain?

To be fair, when they started building, the idiots were buying anything they could lay their hands on in a spectacular buying frenzy.

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To be fair, when they started building, the idiots were buying anything they could lay their hands on in a spectacular buying frenzy.

You are partially correct. A lot of these "developments" were just bank fraud. You buy some land, anywhere, preferably as cheap and as uninhabitable as possible, and you approach the bank. You tell the bank that you are to build a new village, full of commercial and residential buildings, sports facilities etc. The bank or caja get excited because they have been told to help in "urbanisation" of rural areas and they also believe that there is a never ending line of speculators looking to buy off plan and sell for profit 2 years down the line. The Developer may also have a few of these "initial investors", property investors who are told they can "buy in" now before plans go "online". If they buy more than 10 they get them half the proposed "list price".

So the Developer invests 2 million of his own money, he adds to the pot 4 million from initial investors and then approaches the bank for 20 million. The work goes ahead and the whole thing is built as proposed for £30 million, except it actually only cost £15 million to build and the other £15 million has been siphoned offshore. The Developer goes AWOL, the initial investors get there bargain flats which now look like they are 20% overpriced and the banks are left with £10million worth of flats to cover a £20million debt.

The Developer never intended to build flats to sell, it is possible that they knew from the start that they would hardly sell 10% of what they built. The whole thing was an elaborate ploy to drain cash out of banks/cajas that were being politically encouraged to support as much building work as possible. In the quoted incident the Developer was politically connected which would have made it nigh on impossible for a bank to turn down investing in his proposed development.

The amazing thing about this is the scale of the whole thing. If you are going to pull a scam like this why do it on a small block of flats for a few million when you can do it on a large scale development and walk away with tens of millions. There are a number of even bigger examples in Dubai of this kind of fraud.

These 1 million empty homes (roughly the same number as in the UK by the way) are almost without exception on developments such as this that have been built in previously uninhabited areas with the sole intention of just fleecing cash from the banks. They are empty because they were never really intended for occupation.

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The Developer never intended to build flats to sell, it is possible that they knew from the start that they would hardly sell 10% of what they built. The whole thing was an elaborate ploy to drain cash out of banks/cajas that were being politically encouraged to support as much building work as possible. In the quoted incident the Developer was politically connected which would have made it nigh on impossible for a bank to turn down investing in his proposed development.

The amazing thing about this is the scale of the whole thing. If you are going to pull a scam like this why do it on a small block of flats for a few million when you can do it on a large scale development and walk away with tens of millions. There are a number of even bigger examples in Dubai of this kind of fraud.

These 1 million empty homes (roughly the same number as in the UK by the way) are almost without exception on developments such as this that have been built in previously uninhabited areas with the sole intention of just fleecing cash from the banks. They are empty because they were never really intended for occupation.

+1

Edited by Live Peasant

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The growing water problems in Spain must make many of those places very short-term anyhow. Kind of like building in Nevada. I bet they will end up like a set from a spaghetti western sooner than later.

Looking at the unfinished blocks of flats in the Newsnight item was interesting - were they thinking that armis of Brits, Dutch and Germans would all be buying a second home in Spain?

You'd actually be pretty surprised. The spanish water system is extremely efficient, in many ways more than the UK. They have a number of systems including desalination but also a vast number of newly built reservoirs in areas with high level run off. These new reservoirs and water collection/extraction systems (paid for by EU money in most cases) are 10 times more efficient than the older UK museum pieces. So even though they receive half the rainfall they still retain and are able to distribute more water.

This is why we have the crazy situation were in the UK we have hosepipe bans and in Spain the sprinklers on their 1000+ golf courses run freely day and night.

Anything read elsewhere is usually propaganda that has led to the EU pumping in Billions of Euros. This is mainly because of the huge agricultural significance of Spain and the neccessity of water to keep this running.

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These 1 million empty homes (roughly the same number as in the UK by the way) are almost without exception on developments such as this that have been built in previously uninhabited areas with the sole intention of just fleecing cash from the banks. They are empty because they were never really intended for occupation.

There is such a sad insanity about the building of millions of basically useless homes that will end up being knocked down, for fraudulent reasons, on the same planet where something like a billion people live in shanty towns.

Of course, the fact that on that same planet we cannot possibly afford to fix global warming, provide clean water, food security, basic education and healthcare for all and start expanding into space... but we can afford far more cash to bail out the banks when they fail to perform their basic duties, could turn a person a bit bolshy..

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There is such a sad insanity about the building of millions of basically useless homes that will end up being knocked down, for fraudulent reasons, on the same planet where something like a billion people live in shanty towns.

Of course, the fact that on that same planet we cannot possibly afford to fix global warming, provide clean water, food security, basic education and healthcare for all and start expanding into space... but we can afford far more cash to bail out the banks when they fail to perform their basic duties, could turn a person a bit bolshy..

You are so right. I wonder though if these empty developments could attract squatters and "arty types" who then set up their own communities and breath life back into them before City Yuppie Bankers return 20 years later to buy everything back up because they are in search of "culture". Kind of like a really f**ked up cycle where the banks/bankers are made to pay twice for the same development.

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You are so right. I wonder though if these empty developments could attract squatters and "arty types" who then set up their own communities and breath life back into them before City Yuppie Bankers return 20 years later to buy everything back up because they are in search of "culture". Kind of like a really f**ked up cycle where the banks/bankers are made to pay twice for the same development.

I actually doubt that this process will occur simply because the quality of building for the vast majority of these properties has been diabolical. Certainly in more recent years they have been using moulds into which they pour concrete, and hey presto you have a line of terraced house, and the occasional semi, or detached houses. They have used the cheapest, and poorest quality, materials for just about every aspect of the buildings. Then factor in the fact that empty building deteriorate very quickly - then factor in the climate/weather conditions and these houses/flats are going to deteriorate to a state where either it will cost a fortune to make them habitable or are condemmed. I pity the people who have bought these houses/flats built in the last 15 odd years - even the ones that are being lived in are deteriorating rapidly.

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You are so right. I wonder though if these empty developments could attract squatters and "arty types" who then set up their own communities and breath life back into them before City Yuppie Bankers return 20 years later to buy everything back up because they are in search of "culture". Kind of like a really f**ked up cycle where the banks/bankers are made to pay twice for the same development.

Could happen in city center blocks.. but if you need a car to survive it puts a premium on living there.

And the sad thing is, as long as some bank has these things on the balance sheet at 600k euros, the accountants will probably think that paying 10k euros a year to secure the property and evict squatters is a good return.

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I am a bit confused.

I thought that Cajas were limited purpose, semi co-operative / local government owned savings banks who did not engage in complex businesses.

If that is the case, how is it possible that they are in such a mess with forced mergers happening because of massive bad property related debts?

I know that it is popular here to blame derivatives and complexity for the problems in the banking world. I stick to my thesis is that the real problem is just poor lending decisions on property which seems to have been a problem for banking systems for a very long time.

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[deleted]

The amazing thing about this is the scale of the whole thing. If you are going to pull a scam like this why do it on a small block of flats for a few million when you can do it on a large scale development and walk away with tens of millions. There are a number of even bigger examples in Dubai of this kind of fraud.

excellent post. I would add "Ireland" to Dubai; hence the Ghost Estates?

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I am a bit confused.

I thought that Cajas were limited purpose, semi co-operative / local government owned savings banks who did not engage in complex businesses.

If that is the case, how is it possible that they are in such a mess with forced mergers happening because of massive bad property related debts?

I know that it is popular here to blame derivatives and complexity for the problems in the banking world. I stick to my thesis is that the real problem is just poor lending decisions on property which seems to have been a problem for banking systems for a very long time.

In a world where property prices are rising at 10% a year and interest rates are 5%, computer models in central offices will show absolutely no risk in lending - even if the borrower never makes a payment the rise in property will cover the interest and costs with a profit as well.

One of the themes of recent decades has been a relentless attack on professional expertise, the removal of risk judgment and assessment from local bank managers to a remote back office computer model being just another example. Strangely enough, it often ends badly.

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I actually doubt that this process will occur simply because the quality of building for the vast majority of these properties has been diabolical. Certainly in more recent years they have been using moulds into which they pour concrete, and hey presto you have a line of terraced house, and the occasional semi, or detached houses. They have used the cheapest, and poorest quality, materials for just about every aspect of the buildings. Then factor in the fact that empty building deteriorate very quickly - then factor in the climate/weather conditions and these houses/flats are going to deteriorate to a state where either it will cost a fortune to make them habitable or are condemmed. I pity the people who have bought these houses/flats built in the last 15 odd years - even the ones that are being lived in are deteriorating rapidly.

yes very similar picture everywhere in the World for the cheaper developments. A good friend of mine had a contract out in Spain to fit a special type of shower to about 30 apartments. He was extremely impressed by the build quality in comparison to the UK (he works with Crest Nicholson alot), he was over there for a few months. I don't claim to be a building expert but he was originally a chartered surveyor so I trust his judgement. Apparently the insulation is pretty poor but they are as solid as a rock.

I have to say also that I have a personal interest in this because I bought a house in Spain (over 10 years ago) and "touch wood" so far their are no signs of deterioration, very solid construction and nothing even slightly peeling or falling down. It is right by the beach so you'd think we'd have some kind of corrosion but apart from having to give it a lick of paint a few years ago it is fairly easy to maintain. It is fair to say though that it was built with good materials so may be one of the better builds, we have seen some cheap apartments in Spain that beggar belief and we have seen even worse in the UK (If you ever get a chance go and visit the Barratt apartments opposite the station in Brighton - £300k !!!! )

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yes very similar picture everywhere in the World for the cheaper developments. A good friend of mine had a contract out in Spain to fit a special type of shower to about 30 apartments. He was extremely impressed by the build quality in comparison to the UK (he works with Crest Nicholson alot), he was over there for a few months. I don't claim to be a building expert but he was originally a chartered surveyor so I trust his judgement. Apparently the insulation is pretty poor but they are as solid as a rock.

I have to say also that I have a personal interest in this because I bought a house in Spain (over 10 years ago) and "touch wood" so far their are no signs of deterioration, very solid construction and nothing even slightly peeling or falling down. It is right by the beach so you'd think we'd have some kind of corrosion but apart from having to give it a lick of paint a few years ago it is fairly easy to maintain. It is fair to say though that it was built with good materials so may be one of the better builds, we have seen some cheap apartments in Spain that beggar belief and we have seen even worse in the UK (If you ever get a chance go and visit the Barratt apartments opposite the station in Brighton - £300k !!!! )

Glad to hear that your place is of good quality. I too have a place out in Spain - large mountain village house where I grew up. Old school friends of mine have worked in the building trade (and given me some insight to the quality of building that's being going on ) who made good money during the boom years but are suffering badly now - back to working the orange groves and almond tree terraces, if they didn't sell up the family land after going into the building business (some really regret having sold out!). The evironmental vandalism that has been done is truly heart breaking.

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In a world where property prices are rising at 10% a year and interest rates are 5%, computer models in central offices will show absolutely no risk in lending - even if the borrower never makes a payment the rise in property will cover the interest and costs with a profit as well.

One of the themes of recent decades has been a relentless attack on professional expertise, the removal of risk judgment and assessment from local bank managers to a remote back office computer model being just another example. Strangely enough, it often ends badly.

Add in riding the curve (funding short and lending long) and you have described the causes of every banking problem since banks began that certainly pre-dates derivatives.

The solutions being proposed and implemented do nothing to address the root problems and look to me to be doing something just for the sake of it.

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  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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