The Ecb Is The Only Thing Stopping Spain

[_w_]

http://www.businessi...xt-dubai-2010-9

Property Developer: The ECB Is The Only Thing Stopping Spain From Becoming The Next Dubai

from Clusterstock by Gregory White

The desperate state of Spain's property market is well known, but what isn't is perhaps the extent to which it has yet to fall, and how much it might impact banks holding property loans on their balance sheets.

An investor letter we received from Gregory Butcher, Chairman of Ocean Village in Gibraltar, points out just how much prices are being propped up right now.

Note: His letter was directed at Fairhomes Real Estate Limited, which is involved with his company Ocean Village.

From the letter (emphasis ours):

As even the most casual observer knows there is a large amount of real estate assets held by the Spanish banks and evidence suggests that the benchmark used for these Spanish bank held property valuations were over-stated by 25-40%, making the testing of a 10% correction largely meaningless.

We knew the stress tests were shoddy, but those over-stated valuations make them much worse. Real examples don't sound much better.

From the letter (emphasis ours):

Anecdotal examples show properties with a subsidised mortgage are between 25-40% above the open market price. On 26th July 2010 in La Corona, Alcaidesa, O&K Property Agents sold a 185m2, 3 bed 4 bath townhouse for 245,000 euros. The bank (Bankcaja) had an asking price on their website for the same townhouses of 342,000 euro - a difference of 28.4%. Another example in Puerto del Almendro, Benahavis was advertised by the bank at 285,000 euros but sold by Remax at 180,000 euros - a difference of 36.8%.

So, valuations are way off. And this means banks are hiding a great deal. And while Spain continues to get free funds from the ECB, according to Butcher, these inflated prices will be protected on balance sheets.

From the letter (emphasis ours):

Consequently, until accurate open market property values are published in Spain it is impossible to have confidence in the published stress test results and the enormous oversupply of property will continue to block the workings of the open market.

That supply number is something we've been curious about, as it is hard to nail down just how much is sitting around. The real number, if Butcher is correct, is rather staggering.

From the letter (emphasis ours):

The current stocks of unsold property were 687,000 at 31/12/2009 according to the Bank of Spain. Additionally there are approximately 1,100,000 homes for sale, many are empty having been bought by speculators with the intent of selling on for a profit (just as in Dubai). Additionally, over 300,000 homes have been stopped part of the way through construction. In addition banks are sitting on loans for development land often at boom-time prices, land not needed for perhaps a decade and unemployment has just risen above 20%, and ever worsening loan books for commercial properties. Compare this we the UK which in a good year builds 175,000 homes for a population 50% larger. The scale of overhang of empty Spanish properties is likely to overwhelm.

Now, the Spanish banks most under threat from this are unlikely to be the big ones, like Santander and BBVA, who claim to have limited exposure to their own domestic real estate sector.

But the broader Spanish banking sector may be in the sort of long term property debt overhang that could hamper lending for years and crush economic growth, particularly if the ECB ever withdrawals support.

Important to keep in mind that not much is actually fixed in Spain at all.

[aa3]

Great news for young Spanish as eventually that huge supply will drive down prices to next to nothing. Not so great news for all those who are using inflated house values as the collateral for unpayable loans.

No doubt now the only option for the EU for Greece, Spain and Ireland, is just extend unlimited credit without question to their banks. And in addition buy up all the national bonds they are issuing.

The EU has shown it is not willing to allow even a partial default.

[The Masked Tulip]

I think I will take my money out of Santander in the morning.

[Charlie The Tramp Returns]

The EU has shown it is not willing to allow even a partial default.

And that will finally bring this Dictatorship to its downfall and put it in the dustbin where it belongs.

I think I will take my money out of Santander in the morning.

I can`t understand why you put it there in the first place.

[_w_]

I think I will take my money out of Santander in the morning.

Those that seem to be the strongest are the worst.

[Game_Over]

And that will finally bring this Dictatorship to its downfall and put it in the dustbin where it belongs.

I can`t understand why you put it there in the first place.

It is covered by the deposit protection scheme?

And if that is not honoured then all bets are off and your money isn't safe anywhere.

[lulah]

I was just in Spain visiting, door bell rang one day at the house I was staying (a rental and I was the only adult home) it was 2 men from Barclays looking for the owner.

Turns out they haven't had a mortgage payment in more than 2 yrs, owners are Brits. The nice men from Barclays said they were driving around a lot of properties that day looking for the 'missing' owners. I think there are probably quite a lot of UK banks with 'non performing' loans on spanish properties. And the outstanding amount is probably more than double what the house would currently sell for !

[frankief]

The article is a bit misleading as the letter quoted is between two developers in Gibraltar. Gibraltar has high housing costs because there is no land left to build on apart from up the rock which is not practical. There is reasonably high employment with MOD, off shore banking and betting companies, tourism. Other industries are money laundering and smuggling.

It also has lenient tax laws for wealthy 'residents'.

I don't know the circumstances of how the the blogger got the letter, It probably was cut and pasted from some internal memo, crowing about Spanish property plight. Gibraltarians don't like Spanish and viice versa.

Could be true though!

[fluffy666]

Great news for young Spanish as eventually that huge supply will drive down prices to next to nothing. Not so great news for all those who are using inflated house values as the collateral for unpayable loans.

Unless, of course, the empty houses are in economically inactive areas and so not even worth the upkeep, or the banks refuse to market them at a realistic price for so long that the buildings become uninhabitable.

[John The Pessimist]

I think I will take my money out of Santander in the morning.

Allied Irish Banks are selling off their 70% stake in a Polish Bank (Band Sozwodny I think, apologies to all Polish bloggers for the spelling). The Polish government are holding up the sale because of concerns they have about the stability of the buyer.

(Cue drumroll)

And the identity of the buyer iiissssssss................ Banco Santander!!!!!!

Says a lot when the Poles would rather stay with a hopelessly insolvent Irish bank rather than this paragon of the Spanish & UK highstreet.

[Venger]

Says a lot when the Poles would rather stay with a hopelessly insolvent Irish bank rather than this paragon of the Spanish & UK highstreet.

That isn't how it reads here to me.

http://www.bloomberg.com/news/2010-09-14/polish-prime-minister-respects-aib-s-choice-of-santander-to-buy-zachodni.html

[TwoWolves]

I think I will take my money out of Santander in the morning.

This is precisely what I advised my brother-in-law who has all his business accounts there.

Sadly he is too greedy to do that as they offer very good interest rates, as I explained, they are offering those rates because they are desperate for capital and they are desperate for capital because they are insolvent.

When this farce unravels expect the German banks to keel over as well with the government only able to save a couple.

[interestrateripoff]

Allied Irish Banks are selling off their 70% stake in a Polish Bank (Band Sozwodny I think, apologies to all Polish bloggers for the spelling). The Polish government are holding up the sale because of concerns they have about the stability of the buyer.

(Cue drumroll)

And the identity of the buyer iiissssssss................ Banco Santander!!!!!!

Says a lot when the Poles would rather stay with a hopelessly insolvent Irish bank rather than this paragon of the Spanish & UK highstreet.

Santander appear to be rushing to become far too big to fail. You would have thought that after all the complaints about banks being too big to fail that those in govt would have moved to ensure that the banks don't get any bigger instead we allow the banks to become even bigger.

Still I'm sure it will all be contained...

[_w_]

The article is a bit misleading as the letter quoted is between two developers in Gibraltar. Gibraltar has high housing costs because there is no land left to build on apart from up the rock which is not practical. There is reasonably high employment with MOD, off shore banking and betting companies, tourism. Other industries are money laundering and smuggling.

It also has lenient tax laws for wealthy 'residents'.

I don't know the circumstances of how the the blogger got the letter, It probably was cut and pasted from some internal memo, crowing about Spanish property plight. Gibraltarians don't like Spanish and viice versa.

Could be true though!

I interpret it as the developers being based in Gibraltar (perhaps for tax or lifestyle reasons) but doing business in Spain.

[frankief]

I interpret it as the developers being based in Gibraltar (perhaps for tax or lifestyle reasons) but doing business in Spain

I just followed your links.

Ocean Village is a development in Gib.

Fairview have interests in UK, Germany, Gibraltar, Singapore and the Netherlands.

Perhaps they were just gossiping about the neighbours.

[_w_]

I just followed your links.

Ocean Village is a development in Gib.

Fairview have interests in UK, Germany, Gibraltar, Singapore and the Netherlands.

Perhaps they were just gossiping about the neighbours.

Oh?!

I didn't bother following the links. I don't know then.

[Clueless_Academic]

According to SANTANDER PLC website:

"Important information about compensation arrangements

We are covered by the Financial Services Compensation Scheme (FSCS). The FSCS can pay compensation to depositors if a bank is unable to meet its financial obligations. Most depositors - including most individuals and small businesses - are covered by the scheme.

In respect of deposits, an eligible depositor is entitled to claim up to £50,000. For joint accounts each account holder is treated as having a claim in respect of their share so, for a joint account held by two eligible depositors, the maximum amount that could be claimed would be £50,000 each (making a total of £100,000). The £50,000 limit relates to the combined amount in all the eligible depositor’s accounts with the bank.

For further information about the scheme (including the amounts covered and eligibility to claim) please ask at your local branch, refer to the FSCS website www.FSCS.org.uk or call the FSCS helpline on 020 7892 7300 or 0800 678 1100

Santander UK plc and cahoot

Santander UK plc is an authorised deposit taker and accepts deposits under the Santander and cahoot trading names. In the unlikely event of a claim, the maximum compensation levels above would apply to the combined total of all deposits held with Santander UK plc (including cahoot)"

see link My link

[Panda]

Any thoughts on the Post Office.......................My father just dropped £50k in there, most of his life savings, wondering if the Bank of Ireland are safe, apparently they go to the high court in October to see if they can become a UK subsidury PLC so gain FSA protection, currently i think the Irish Government protect all savings, i know what a joke the country is bankcrupt? But they offer a good savings rate which maybe like Santander are in the poo...................

[geezer466]

Any thoughts on the Post Office.......................My father just dropped £50k in there, most of his life savings, wondering if the Bank of Ireland are safe, apparently they go to the high court in October to see if they can become a UK subsidury PLC so gain FSA protection, currently i think the Irish Government protect all savings, i know what a joke the country is bankcrupt? But they offer a good savings rate which maybe like Santander are in the poo...................

Everyone jumped onto Icesave as they were offering a great rate too......

That should answer your question..

[Panda]

Everyone jumped onto Icesave as they were offering a great rate too......

That should answer your question..

Bank of Ireland, a tad different to Icesave...................Cannot see the Bank of Ireland falling over, if it does it is game over...

[leicestersq]

Bank of Ireland, a tad different to Icesave...................Cannot see the Bank of Ireland falling over, if it does it is game over...

I see CDS rates on Ireland were up again today. Game Over is getting very close.

[TheUsualSuspect]

I was just in Spain visiting, door bell rang one day at the house I was staying (a rental and I was the only adult home) it was 2 men from Barclays looking for the owner.

Turns out they haven't had a mortgage payment in more than 2 yrs, owners are Brits. The nice men from Barclays said they were driving around a lot of properties that day looking for the 'missing' owners. I think there are probably quite a lot of UK banks with 'non performing' loans on spanish properties. And the outstanding amount is probably more than double what the house would currently sell for !

Isn't that the interesting point ? 2 years of non-payment yet still no attempt at repossession ?

Why would that be one wonders ?

A cynic would perhaps ask why they don't want to write off some of the loss and get some of their money back. Mind you, that would mean writing down their asset values, according to the example by 50%. You can't pay bonuses if your assets all turn to shit.

[daedalus]

Isn't that the interesting point ? 2 years of non-payment yet still no attempt at repossession ?

Why would that be one wonders ?

A cynic would perhaps ask why they don't want to write off some of the loss and get some of their money back. Mind you, that would mean writing down their asset values, according to the example by 50%. You can't pay bonuses if your assets all turn to shit.

Repossession in Spain (and most of Southern Europe) is a nightmare. 3-4y of bureaucratic awfulness, with 4+ court appearances; and the judicial system is probably now saturated so it is almost impossible to get time in court; and if you can't get hold of the borrower then the administration and enforcement of the judicial foreclosure process becomes almost impossible.

So the utter uselessness of trying to repossess is probably why.

A more interesting question is why the hell would anyone make mortgage loans in a country when repossession is almost impossible.

[Custard Insurance]

I closed my Santander account today, I was expecting to have a casino royale style interrogation but it was surprisingly easy.

I then went into HSBC to open a savings account and they didnt want my money, how bizarre!

[winkie]

I closed my Santander account today, I was expecting to have a casino royale style interrogation but it was surprisingly easy.

I then went into HSBC to open a savings account and they didnt want my money, how bizarre!

Same thing happened to me.....some strange things are happening at the moment....all is not what it seems.