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Real estate crisis and banks’ crisis: restarting from properties

04 January, Wall Street Italia

2012 assisted to the creation of the negative conditions for the national economy. One of the causes was a crisis of the property market that impacted many other sectors in Italy.

Since then, despite a latent financial crisis with a spread increase, the economy looked pretty much in good shape. Internal consumptions were good, trades and production granted jobs, the insolvency rates and arrears were average: even if with some difficulties, the system was doing fine. Starting from the end of 2011, the Governments targets real estate: municipal taxes increase, as well as the income tax on properties, the taxes on historical buildings and monuments of architectural heritage, the Imu tax on agricultural land and, finally, the cadastral reform with penalising effects. The immediate consequences are the worry and mistrust of money savers and the drop of real estate transactions, along with the fall of prices on the market. People assist to a progressive impoverishment and the reduction of consumption and expenditures. Many companies close, unemployment grows. An actual downward spiral.

The economic system, whose balance has been kept with difficulty since then, crashes. It enters a period of crisis that impacts also the totality of the real estate turnover, from new constructions, infrastructures, maintenance works, to property requalification.  In this way, the financial crisis becomes an economic crisis.

The significant fall of the property prices impacts negatively the many real estate assets held by banks, both directly and as guarantee of credits. The NPL issue starts. Banks can’t collect credits, they cut loans to companies and families (mortgages): a deadly cycle. The property market struggles to restart. The credit system fears the measures from the ECB, who dictates that the unsecured bad loans must be 100% covered within two years. A trap for Italian banks: either they work on collecting credits, or they recapitalise or sell out NPLs at punishing rates.

Germany solved similar problems charging the National Budget with 240 billion. Then the rules changed, Italy can no longer do it.

Source: Wall Street Italia

Translator: Cristina Ambrosi