Comments on: Spain crumbles

By: Polaris World

Polaris World — Mon, 14 Sep 2009 18:55:20 +0000

Spain and Ireland differ considerably. In particular by about 10 degrees centigrade, 250 days sunshine and a few feet of rain. In Spain you have an overinflated property market built up by demand from northern Europeans in the good years. The economy turns and the last thing you need is a second home. (Most of Spain’s excess property availability is due to holiday homes.) The economy turns up (always has, always will) then guess what, people have excess cash, want a lifestyle, climate etc and… demand returns. Meanwhile it continues to rain in Ireland ! We had a lot of buyers from Ireland looking to buy at Polaris World in Spain 3 years ago but I fear the specific problems of the Irish market will hold demand back for some years.

By: Gunter

Gunter — Sun, 06 Sep 2009 23:17:40 +0000

The only pisos I see selling in Madrid are on the very low end of the market (below 200,000).

The rest have been on the market for years…I see the same old flats for sale in the windows of estate offices.

The magnitud of the collapse is stunning. But some how some way nobody is in a hurry to sell and God forbid lower their asking price…

People are still holding out for top dollar even though none one can afford 500,000 euros for a 2 bedroom flat with 100sq meters.

I get the feeling that Spanish banks will be able to hide their losses and millions of unsold pisos will still be on the market for years to come.

Pathetic isn’t it.

By: Cerri

Cerri — Fri, 04 Sep 2009 15:34:09 +0000

How many of those beach-home market properties are owned by foreigners who are less likely to have their residual bank mortgage claims follow them to their home countries seeking repayment? Strong institutional arguments about why the willingness to pay in pain is better than elsewhere may be suspect if investors use trusts to buy their beach homes or are foreigners and can toss the keys to the bank. Ultimately, capacity to pay trumps willingness, and if interest rates can’t go any other direction but up in the future — there’s the answer to future payment performance ¿no?

By: rufus

rufus — Thu, 03 Sep 2009 11:48:10 +0000

Most foreign analists talk about a great inventory of unsold new homes in Spain. But the sad truth is that there is also a great inventory of second-hand old and empty houses flowing into the market. They have been a traditional way of investing in Spain. Now the owners realize that the top of the market has been reached, and want to cash them, what is nearly impossible. Just have a walk in no-new areas of spanish cities to check it.

So, what is the real magnitude of the sotck of unsold houses? Pretty difficult to asses, buy anyway much higher than the official statistics.

By: montecristo

montecristo — Wed, 02 Sep 2009 18:12:16 +0000

javier

the critical moment for the spanish economy will be at the point where major euro economies (france, germany) grow with high inflation. at that moment, the BCE will increase interest rates

if at that point the spanish economy is not improving already… spain will become an economic desert… and might require to leave the euro union (i mean the currency not the political agreement) to lower interest rates and / or devalue its currency

as of today, i give around 50% chance to this happenning. and i am not pessimistic in nature

By: montecristo

montecristo — Wed, 02 Sep 2009 18:07:30 +0000

some of you question how it could spill over to the rest of Europe. the answer is:

1. (major one) banks have been financing the real estate sector. due to the crisis, unemployment, etc etc, lots of defaults. but guess where spanish banks got the money from… european investors!!! and if a spanish bank defaults… the european investor will not get the money back
2. (minor one) spanish gdp is above 10% of the european union. which means is not a critical but a major contributor to european’s economy by buying german, french, british… products. if the economy trembles… european production will suffer a bit. consider that spain is fundamentally an importer

hope this helps

By: Javier

Javier — Wed, 02 Sep 2009 10:05:58 +0000

I agree with the importance of the Spanish leverage and real state problems. However, there are two factors that help diminish the impact of the crisis significantly in Spain and which I never find in the analysis about this country:
1) Real interest rates are not soaring for consumers. More than 90% of mortages are floating rate, mostly referenced to EURIBOR 12M (which has dropped from more than 5% to 1.3% in the last months). This way, borrowers have been able to benefit from the drop in inflation expectations and the interest reduction pushed by the ECB. The percentage of floating consumer credits is lower but still high.
2) Although much of the property bubble is centered in the beach home market, consumers have similar incentive to repay these mortages that the mortgage of their primary home. In Spain when somebody does not pay its mortgage the house is repossesed, and if after the sale of the house there is still pending debt the bank will still have a claim on the rents or other goods of the borrower.

By: Ginger Yellow

Ginger Yellow — Wed, 26 Aug 2009 09:11:48 +0000

Given that the prices Santander are offering for the bonds go as low as 61 cents on the euro in some cases for senior tranches of ostensibly prime RMBS, it’s entirely consistent to say that they know the loans better than anyone and that things will get much worse in Spain.

By: chris

chris — Tue, 25 Aug 2009 18:57:12 +0000

quote-
Here’s a somewhat scary view on Spain that came this week from alternative economic research house Variant Perception.

The top line: that Spain is now the hole in Europe’s balance sheet, and that misunderstanding the severity of the crisis will prove costly to investors as it could have profound implications for the European banking system. As it explains:

Spain had the mother of all housing bubbles. To put things in perspective, Spain now has as many unsold homes as the US, even though the US is about six times bigger. Spain is roughly 10% of the EU GDP, yet it accounted for 30% of all new homes built since 2000 in the EU. Most of the new homes were financed with capital from abroad, so Spain’s housing crisis is closely tied in with a financing crisis.

http://ftalphaville.ft.com/blog/2009/08/ 25/68471/on-the-matter-of-spanish-proper ty-valuations/

8-)

By: dWj

dWj — Tue, 25 Aug 2009 18:37:02 +0000

A tender for one’s own securities means that one values them at the tender price, or that one wishes others to believe that one does. Either seems possible to me here, regardless of whether they’re actually worth 82.

By: Don the libertarian Democrat

Don the libertarian Democrat — Tue, 25 Aug 2009 15:33:22 +0000

To be honest, as I observed on Edward Hugh\’s blog some months ago, it would be better if Spain had its own currency and could devalue it. The alternative would seem to be cash from the rest of the EU.

By: chris

chris — Tue, 25 Aug 2009 13:14:52 +0000

Welcome to the real muchacha!
Don t forget, they praise themselves about this bank /financial cushion in Spain, but it is all politically connected.
Also Spain, although not being Italy to a certain point, still has a big black market.

Now to spill to other countries ? i don t think so. Not directly tough. Houses are not exported as far as i know.
let me the market rule , that is the price to pay when more or less 20% of an economy depends of construction/building and i am not counting the destruction of the land.

Santander and BBVA will be ok. The Cajs, it is what i would worry about. And to show you an example of the Spanish way of the market Economy, Bancaja has jut lent +/- 80 M euros to FC de Valencia just to pay its obligation….

And i live in Spain. 8-=)

By: BigBadBank

BigBadBank — Tue, 25 Aug 2009 12:12:53 +0000

Fair enough but why and how will the situation in Spain ‘spill over into the rest of Europe’?