Lenders see real estate market turn full circle
April 13th 2009
A decade ago, Spain’s main real estate companies were owned by the banks. During the construction boom, banks sold them off to property developers or listed them on the stock exchange. But history can be circular, and the ongoing economic crisis has turned lending institutions into virtual real estate companies who now find themselves with thousands of properties on their hands due to home seizures and estates that were never completed for lack of funds. After years of vertiginous growth, the real estate bubble has burst. Spain has fallen into recession for the first time since 1993, and some experts expect GDP to shrink by up to 3 percent this year and the jobless rate to reach close to 20 percent. Credit flows have effectively dried up, and real estate companies and families now owe banks approximately €300 billion and €600 billion, respectively. The recession is preventing many of them from making their monthly payments, and property foreclosures are on the rise. So lenders are now finding themselves with more properties than they know what to do with. “They’re in a state of shock,” in the words of one industry analyst.
Faced with this growing glut of empty homes, many banks and savings banks are creating specialized companies whose chief goal it is to sell off these units. Often the lenders will offer them to their own clients and employees in advantageous conditions in an effort to get rid of their stock as soon as possible. Banco Santander was the first to take this step with the creation of Altamira Santander Real Estate, which is putting €2.7 billion worth of housing units on the market. At first the bank targeted its 20,000 employees in a kind of pilot program, but it is also planning to sell to the general public through the internet and at its branch offices, where there will be catalogues of available properties. Following Santander’s lead, Banesto has founded Promodomus, which is selling assets worth more than €1 billion following loan defaults by property developers. Banco Popular and a host of savings banks such as CAM, Banco Sabadell, Unicaja, Caixa Galicia, Caixa Catalunya, Caja Madrid, Caja España, Caja Navarra, Caja Canarias and Cajasur all have similar initiatives to sell off their stock.
This type of housing typically comes with a 20- to 30-percent discount on initial value, although in a few specific cases, savings banks have been known to offer a 50-percent price cut. Some, such as CAM or Caixa Catalunya, also offer mortgages on these properties. CAM, which already had a company called Mediterranean to sell 3,000 properties to foreigners looking to live on the coast, has now created Oportunidades Inmobiliarias CAM to put 475 homes on the market. “Besides a good price, with 20-percent discounts, we offer clients 100 percent financing,” says Charles de Ros, director of CAM’s real estate division. “And we want to not only offer homes through traditional channels, but are also preparing a permanent auction website, a kind of eBay, to commercialize them faster.” But there is an even more ambitious initiative: in early March, a group of Spanish savings banks set up a company to pool together and ultimately sell off their real estate assets. The company was established under the management of the financial services group Ahorro Corporación, which is owned by 42 of the country’s savings banks.
Twenty-three of those banks are behind the property vehicle Ahorro Corporación Soluciones Inmobiliarias (ASCI), which already has some €3 billion in assets, mostly in the form of real estate developments and land. The situation has triggered a race among property management firms, consultants, real estate experts and business schools, who are all trying to close deals with banks to help them manage this growing surplus.
Internet sites are also an option, and Idealista.com, the leading real estate portal, has already signed deals with several banks to commercialize their stock. But some lenders do not want to publicize this kind of initiative too much so as not to cast doubts about their own solvency. For this reason none of them will disclose exactly how much property they have accepted as repayment for bad loans. Defaults on loans granted by savings banks have shot up due to their exposure to the property market.
The non-performing ratio among the country’s savings banks almost quadrupled in a year to stand at over three percent at the end of 2008, and is forecast to increase to some seven percent this year, making savings banks especially vulnerable to the crisis. All lenders will have taken note of the case of Caja Castilla La Mancha (CCM), which last month became the first bank to be bailed out by the Spanish government. CCM has been criticized for focusing too much on the real estate market and extending thousands of loans that have now turned bad.
RAMÓN MUÑOZ / INMACULADA DE LA VEGA / A. S., Madrid From El Pais International Edition-
