Spanish property valuations
News Article Date: Monday 06th of July 2009
This week, the Spanish government approved almost €100B in funding to prop up their banking system - should it be necessary.
The reason for this provision is due to the sharp increase in bad debt that Spanish banks and building societies are now exposed to.
Strict legislation prevented Spanish financial institutions from making risky investments in what turned in to the global sub-prime mess. Instead, however, Spanish banks invested heavily in the Spanish property market via residential and developer loans.
Now, with a higher proportion of those loans in default, the entire Spanish banking system, even heavyweights like Santander, are massively exposed - hence the new provision of €100B.
My guess is that the Spanish government will use this financial carrot as a way of exercising greater influence over the banking system, and push through some much-needed reforms - something most financial commentators agree is desperately needed.
One other article caught my eye this week. In S&P: House Price Forecasts we read how Standard & Poor's chief economist for Europe believes that the UK property market is stabilising while that of Spain will take longer to recover.
What I found most interesting were the reader comments posted about this article on the Citywire web site. Here are the highlights:
Err.. excuse me for asking, but would this be the same Standard & Poor, the same bunch of geniuses who failed to downgrade the ratings of Iceland's banks even as they collapsed like a house of cards?
You can't average house prices. There are over 100, 2 bed apartments to each buyer in city centres. Good family homes sell in weeks. Supply and demand is alive and kicking. The average figures tell us nothing.
What interests me most is that there is very little consensus about house prices in the UK - despite there being a wealth of reasonably accurate data available.
Clearly this isn't an easy task in the UK, but in Spain, where the integrity of the data itself is questionable, it's that much more difficult.
Almost all economists agree that the UK economy will recover more quickly than that of Spain. This, and the growing strength of Sterling, will put Brits buying property in Spain at the front of the queue.
Even so, because the official Spanish house price data is unreliable, and market values have changed so quickly in Spain, how do you know how much to pay for any particular Spanish property? Here's my advice:
Keep an eye on our Spanish house prices section. We regularly evaluate all the major sources of data and comment on their accuracy and reliability. Right now, the best data is produced by TINSA.
Keep an eye on bank repossessions - but remember that a cheap property doesn't necessarily mean it is also good value.
Perform your own property valuations. Arriving at a fair market value is important, but it is more important to decide what a property is worth to you.
Watch the Sterling/Euro exchange rate closely. Buying Euros now instead of 6 months ago would get you 15% more house - and you can agree an exchange rate up to 12 months in advance.
When the UK economy revives ahead of the Spanish economy, that will be the time to hunt out those Spanish property bargains. Now is a great time to be practising and honing your property valuation skills