Mixed signals from the Spanish
Posted on October 26, 2010 by Mark
Anyone keeping an eye on the Spanish
property market could be forgiven for feeling a little confused
right now. On the one hand official figures show prices
falling, though not by as much as you might expect given
Spain’s economic problems. On the other hand,
annualised sales surged by almost
30pc in August, after 8 consecutive months of
growth. These two bits of news are at odds with each
other. So what’s going on?
A recent article published by Fotocasa –
one of the biggest property portals in Spain – might help to
shed some light on this apparent contradiction.
They get data and opinions from various sources to see if a
recovery is genuinely under way or if it just an illusion.
Several sources report a recovery in sales starting at the
end of 2009 and lasting the first half of this year, driven by
the elimination of mortgage tax breaks in 2011, and the rise in
VAT this year, both of which brought sales forward, plus low
interest rates, and the effort banks are making to shift their
stock of property. Fotocasa themselves have seen listings rise
103% in a year, and property searches rise 55%. All of that
suggests the market has bottomed out.
Just an illusion
But then along comes Borja
Mateo, a self-proclaimed real estate expert, with
a plausible reason why the recovery in sales might just be
According to Mateo, who has worked with Spanish banks for
some years, and should know a thing or two about how they
operate, the rising sales figures are just a reflection of the
“enormous weakness of Spain’s banks and real estate
The problem is that the official sales figures include what
is known in Spain as ‘daciones en pago’, basically debt for
property swaps (bank takes the property and cancels the debt).
Mateo argues that banks are using swaps to avoid recognising
losses they would face in foreclosure and selling at public
The beauty of swaps for banks is they, not the market, get
to decide the value of their own property portfolios. “If they
were to recognise the real market value of their assets they
would be very close to bankruptcy as the market value of their
assets is far below the book value of their loans,” claims
Mateo, who sees plenty of reasons to suspect the Bank of Spain
is complicit in the cover up.
What is worse, banks are also keeping insolvent clients on
life support with new loans to avoid having to recognise bad
debts, claims Mateo. “The real level of the (banking) system’s
bad debts is above 11%, the official rate is 5.5%,” he says.
“Recognise real losses would put them (the banks) in a very,
very difficult situation.”
Mateo forecasts that sales will fall significantly in the
near future, thanks in part to end of mortgage interest tax
breaks in 2011. Vendors are starting to give ground on asking
prices again because “many people realise that if they don’t’
sell in 2010, sales will be much tougher in 2011.”
“House prices and rents will continue falling in the coming
years. It’s an unstoppable process,” he concludes.