Visit a Spanish bank, or regional caja, to discuss your home loan prospects and they may well tempt you with a selection of properties. And if you opt to buy from them – rather than a private individual or builder – they'll be far more generous with the finance terms they offer you.
Such is the situation across Spain following the meltdown of the country's construction industry in 2008. When the credit crunch really bit, scores of developers began defaulting on loans, leaving their financial backers no choice but to swap loans for assets, ie to repossess thousands of new, often incomplete properties.
The extent of the situation is unprecedented. Last month, a former adviser to Spain's housing ministry, Ricardo Verges, calculated that since 2004, 2.3 million homes have been started but not purchased in Spain. At the height of the boom in 2005, 800,000 new homes were started, about four times the level for the UK.
Most banks now have their own real estate arms, such as Santander's Altamira, but while they're fine selling to Spaniards, most don't have the resources to market effectively to foreign buyers. That's a job for agents, such as Propertyrepossessions spain.com, one of a number that have formed alliances with banks to focus on selling their repossessions.
"The banks in Spain are now the country's largest real estate owners, a situation they don't want to be in," said Peter Birkett, who runs Propertyrepossessionsspain.com and works closely with bank Cajamurcia. "And [the banks] are trying hard to remedy this by offering substantial incentives to buyers, including discounts of up to 60 per cent, 100 per cent interest-only mortgages with low fixed rates and excellent rental packages.
"We're selling two- and three-bed apartments in southern Spain, 500m from the beach. Last week these were ¤198,422 (£170,642) and ¤258,797. We are now selling them at a discount of circa 60 per cent for ¤80,120 and ¤100,540." Dependent on buyers meeting the bank's conditions, these are available with 100 per cent interest-only mortgages, fixed at 3 per cent for three years, making the monthly mortgage payments ¤202 on a two-bed apartment and ¤252 on a three-bed."
Paul and Emma Whiteman from Leeds recently bought a bank-owned flat in Murcia for ¤161,000 through Propertyrepossessions spain.com. The couple are financing their purchase through an interest-only mortgage from the bank, with a rate of 2.5 per cent fixed for three years.
"We chose a two-bedroom penthouse at Mojon Hills, a new development in the resort of Isla Plana, 30 minutes west of Cartagena," said Mrs Whiteman. "We viewed the property last October, returned in November and then completed on 14 January. We've bought as a long-term investment and for holidays with our six-year-old son, Jack. We may rent it out too and we're thinking about buying a second property in the future." Mojon Hills has communal pools, 180-degree views of the Med and is a 10-minute walk from amenities in Isla Plana.
Murcia is a region that, with the southern end of the Costa Blanca, around Orihuela and Torrevieja, has a particularly high concentration of bank-owned property. One reason to buy there could be the recent announcement that Paramount Pictures has given the green light to build what will be Europe's largest theme park. The boost to the region's economy and long-term investors is obvious, but owners at one particular resort, Condado de Alhama golf resort built by Polaris World, would benefit more than most as it's next door to the likely site of the Paramount Park.
"We have brand new bank-owned apartments at Condado de Alhama from ¤82,958," said Rupert Gehmacher from agent Quality Homes Costa Calida Manga (qualityhomescostacalida.com), which works with Banco Popular and sells across most of Polaris World's six resorts. "We only sell new bank-owned property, not properties repossessed from individuals, which could come with all sorts of outstanding debts against them and aren't always left in the best condition. The banks do full legal checks and due diligence on their repossessed properties before marketing them, and they're responsible for communal running costs, meaning they're not keen to hang on to properties."
In the UK, two further avenues for tapping into the Spanish repo market have just opened up. Firstly, estate agency Connells (connells.co.uk) has formed a partnership with Spanish bank Caja Mediterraneo (CAM) to promote its stock of 15,000 repossessions via the UK chain's high street branches and website. In preparation, CAM has equipped its own estate agency arm with 150 English-speaking staff. To encourage interest, it has also introduced a "try before you buy scheme", which allows prospective buyers to rent a repossessed property at the local market rate for up to seven years, and if they decide to buy within two years, rent paid to that date can be put towards a deposit.
Elsewhere, Spanish agency Basico, which sold repossessions to the domestic market by the hundreds last year, has set up a UK arm (basicohomes.co.uk). The company is well qualified in this sector: it was formed when a group of sales staff were laid off by two of Spain's largest developers, Ferrovial Inmobiliaria and Metrovacesa, and set up to help banks offload the developers’ repossessed projects.
Inevitably, with a market flooded with bank-owned property, not everything is going to be a bargain. Banks' commissions aren't known for being large, so agents might be subsidising this further. And many properties were overpriced before the crash, so even being "discounted" now might not make them especially cheap.
If you're tempted by the financing offered by banks, beware that it's not always the gift it first appears to be. Warning about 100 per cent mortgages, Peter Esders, a solicitor working for the Spanish arm of UK law firm Chebsey & Co, said: "In some instances, what is actually happening is that the bank has overvalued the property and is then offering, say, 70 or 80 per cent of that valuation as a mortgage, which equates to 100 per cent of the [new] purchase price. This makes it look like a 100 per cent mortgage."
The key to finding the best deals could be in understanding how banks price their stock. The Bank of Spain's obligatory annual write-down on the value of bank-owned housing stock, known as provisiones, is currently 10 per cent but an imminent hike is causing some banks to drop their prices in advance. Robert Evans, who runs Basico in the UK, said: "The bank normally evaluates property for a price by adding the loan to the developer to VAT and legal expenses. This price they then write down by the obligatory 10 per cent but this may still be on the high side, so the bank makes a decision to write more off in a single year. In November, the central bank raised its provisioning requirement from 10 per cent of the property's value to 20 per cent for real estate held more than a year, and is now expected to raise it to 30 per cent. However, it has yet to notify lenders formally."
Perhaps the big question is how much further prices can fall in Spain – or whether the banks will be forced to drop their prices further still. One thing is certain, though: British buyers have never been so much in demand in Spain. Don't just take it from the banks, take it from the Spanish housing secretary, Beatriz Corredor, who only last month labelled British buyers "our highest priority" and "those about whom we are most concerned".
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