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Fitch: Banks Selling Foreclosed Homes With Discounts Of 67%

14 October 2015 – Expansión

Banks are now selling homes with an average discount of 67% of the value they had before they were foreclosed. This data, which relates to the first half of the year, represents a historical record, according to a report that Fitch will publish today, to which Expansión has had access.

“The depreciation of properties sold after they have been foreclosed is high, at around 67% of the initial valuation”, says the credit ratings agency.

Given this reality, Fitch believes that the recovery of the residential sector has not yet affected the market for houses sold by banks, and that “it is unlikely that it will benefit” from this improvement in the real estate market “in the short or medium term”, according to the report, prepared by its analysts Juan David García, Christian Gómez and Beatriz Gómez.

“Unsellable” homes

Fitch emphasises that there is still an enormous stock of “empty and unsellable” homes, above all “in areas that are expected to suffer from the structural imbalances in the Spanish economy for longer”.

“Given their poor locations and conditions, a considerable number of new homes have little hope of securing a buyer”, says the agency, which increases its estimate of the number of unsellable new homes to around “150,000”. That figure represents a quarter of the 600,000 unsold new residential properties in Spain.

Not surprisingly, the agency notes that the recovery in the housing market is happening “at two speeds”, in such a way that the trend will vary. “Whilst the properties in prime locations in city centres will enjoy a gradual recovery – influenced by the improvement in the economic environment and the recovery in credit –, those “problem” properties linked to mortgage foreclosure procedures and those located in peripheral areas with low levels of economic activity, will continue to see price adjustments and high losses” on their valuations.

Political risks

Fitch’s report also warns about the possible negative effect that the new legislation (against vacant homes owned by banks) may have on the value of those properties. Moreover, the associated (political) risk is on the increase”. The analysts cite the case of Cataluña by way of example, where the Generalitat has introduced a new annual fee for homes that have been unoccupied for more than two years without adequate justification.

On the other hand, the agency believes that this will result in “aggressive mortgage foreclosure strategies by creditors looking to get rid of problematic real estate assets from their balance sheets”. And that will also affect the banks, of course.

Finally, Fitch addresses the rising trend in mortgage lending, something that “is driving prices up”. “Mortgage lending is growing at an annualised rate of 20%”, says Fitch, whose analysts think that this increase will continue over the coming months.

The agency expects competition to intensify between lenders, but under no circumstances does it foresee a return to the figures recorded during the real estate boom.

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake