Spanish Property Crash

[markinspain]

Should really be in the overseas forum but it made me laugh when I saw this.

http://www.spanishpropertyinsight.com/buff/?p=124

Also found this for those interested in the economic situation.

http://www.rgemonitor.com/euro-monitor/252...o_cruz_syndrome

It´s getting hot and not just the temperature outside!

Edit :- To add this conclusion, to save you reading all of the economic stuff.

In Brief Conclusion

In this post I have focused on two aspects of Spain's current economic crisis, the growing current account funding problem and the structural financing problem in the banking sector. Of course, at the end of the day these problems both boil down to one: Spaniards need to start saving more and borrowing less for consumption. This is very easy to say, but will mean an enormous wrench and change in previous behavioural patterns. What I want to stress is that these factors are structural and not cyclical, and it would be fools gold to be playing around at this point in time with the idea that some sort of cyclical uptick will miraculously put things right. Since domestic demand is no longer going to drive the Spanish economy the undelying issue now is basically Spain's lack of competitiveness in exports, and its very strong external energy dependence at a time when oil prices are rising substantially, and when the high price effect looks like it could be long term.

For some time the existence of this problem was hidden by the impact of the housing boom, and by the fact that this boom was increasingly financed by the issue of asset backed securities (ABS, cedulas hipotecarias). Thus during the boom Spain had no difficulty financing its deficit. But times have changed.

My general impression is that even the funding that the Spanish banks are currently getting from the ECB is far from being sufficient since it covers only a small part of their needs and hence bank lending is rising at around 5% per annum instead of the 20% year on year rises we were seeing a year ago. So the Spanish banks are really getting starved of cash (or cash at a price which is interesting to them for mortgage lending), and hence all the frantic tooing and frowing we are seeing on the financial account.

Nowhere is this situation more clearly illustrated than in the case of the portfolio investment flows into Spain from foreign investors (basically bonds and equities), and as can be seen in the chart below these underwent a sea change following August last year. This is what explains all the frantic moving around looking for funds we are seeing, since without the under other concepts Spain could soon become seriously short of money. At the end of the day, if you are sending money out every month to pay for your oil, where are you going to get the funds from for new lending? Desperate situations require desparate acts.

In my opinion the most serious property related issues here in Europe are to be found in Spain, Ireland and the UK. And Spain may well be in the worst state of the three of them due to the dependence on cedulas, and due to the fact that the term-mismatch issue means these need to be rolled-over in an none too distant future - starting with maybe 40 billion euros as early as this autumn. So the Spanish banks have to both refinance old lending and find the new money for future mortgages at one and the same time. Not funny.

But, as we have seen here, on top of the credit-crunch property issues Spain also has a huge CA deficit one, and the problem is only likely to get bigger if oil prices keep rising. Spain shares this CA problem with Greece (deficit 2007 13.9% GDP) and Portugal (deficit 2007 9.4% GDP) within the eurozone and these deficits have largely been masked by serving up "all eurozone" data where the large German surplus (surplus 2007 7.6% GDP) covers a multitude of sins. But German citizens are obviously NOT going to pay for Spanish oil (they may lend the money, but how long can this can continue to go up and up is anyones guess, it looks like an extermely exaggerated version of the US funding depence on Japan and China in some strange sort of way).

So the bottom line is that Spain is headed straight towards a crash on the two biggest global issues of the moment, the credit crunch and oil. The proverbial double whammy. Not pretty, which perhaps explains why the average Spanish citizen, just like Artemio Cruz, prefers to keep his or her eyes closed rather than gaze on what might be there to behold with the eyes wide open and a mirror held up to their face.

Edited July 7, 2008 by markinspain