It has been reported in the newspapers, on the radio and on television: Due to the crisis Spanish banks are repossessing thousands of properties from developers and private individuals. Even that know-all cousin or brother-in law that every family has is telling us the same thing:
— Spanish banks have become genuine real estate companies and have the best offers, wait and see. —They tell us with undying conviction during a family lunch.
But some have already started to discover that this is not entirely true.
If prices had not fallen as they have, it would be true that the banks’ offer would be excellent, as they are generally awarded properties for an amount similar to the sum owed (which ranges from between 70% and 80% of the appraisal value). That is, they could offer properties at prices 20% or 30% cheaper than the market value. It is a pity that in any case this market value has fallen by 30%. The people who have lost their homes or have not been able to sell them are those who owed large amounts to the bank, as otherwise they would have sold at any price before losing the property instead of getting nothing. This means that the banks have to recover the loan, late payment interests, legal expenses, etc. when they sell. In short, the prices at which they offer their properties are no bargain.
— Bah!, the banks are bound to sell at a loss. That is where the opportunities will be. —That’s what our clever brother-in-law tells us, in an attempt to settle the matter.
Sure, but the bank’s main concern is not to sell the property quickly, but rather not to allow their profit and loss account to deteriorate, not to show losses to their shareholders. That means that banks prefer to keep the property as part of their assets, without showing an immediate loss due to its sale. Each year they will make a provision for part of the value of the property, and so distribute the potential loss over time, and then yes, in the 4th or 5th year they may sell the property at a large discount without showing great losses in that financial year. This is a logical strategy for diluting the fierce impact of the crisis over a number of years, and it is also possible that the real estate market may recover meaning they could sell at a better price.
That is why we can sit back and wait for the banks’ fabulous offers, because they are not going to come. Generally speaking, the best offers will be those available before the bank is awarded the property as the high expenses involved in a legal repossession process will not yet have been incurred. I suggest that you check for yourselves on their webpages.
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