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Banks Return to the Real Estate Market of Spain

11/12/2014 – Expansion

From being avoided like the plague, Spanish real estate started to invoke apetitte again. Spanish banks still want to offload the property they have repossessed after the real estate bubble burst, which made them lose millions and haunts them with default hitting more than 55 percent (56.27 percent in case of CaixaBank). However, now, confident about the economic reactivation and better outlook for the property market, they support developers which survived the recession. Slowly and for only some projects, they lend and buy assets which before they could sell to vulture funds only.

‘If you are a professional developer with a financially stable company, you will carry on. Spain will continue to be a country abundant in real estate deals and the market will revive. Banks will start lending again, more rationally though’, explained Joan Carles Amaro, Financial Management and Control professor at Esade business school.

The Exposure

So think the entities. Banco Sabadell has already announced return of loans to developers. The first half of the year data compiled by the Bank of Spain shows that banks lent 161 billion euros to developers during that time. Still, the number posts far away from the 2009 volume (€32o billion). The entity’s CEO Joan Bertran calculates that from now on, the sector may destine for new housing construction 5.5 billion euros each year.

Currently, Sabadell finances around 1.000 new dwelling units of real estate developers, a figure that went up after the summer. Of these, 400 have been financed in the last quarter of the year.

Not only do the banks lend more but also propose their own development projects. Santander, BBVA and Sabadell have ongoing plans including building of 8.000 homes on the real-estate-owned land in their balances, in areas of Madrid, Catalonia, the Valencian Community, the Basque Country and Andalusia. Specifically, Sabadell has 1.500 houses under construction now inside its own property developments managed by Solvia. Of these, 640 are already finished and almost all sold-out, located in Alcala de Henares, Barcelona, Cordoba, Seville and Alicante (Playa de San Juan beach).

Apart from approving more loan applications, the entities keep assets which they were unable to sell before, neither to the vulture funds, nor at scandalously low prices. Now they believe the assets will gain on value and they will sell them with profits.

Thanks to this increased trust and favorable look at the industry, highly indebted developers like Grupo Sanjose could restructure their debt in exchange for real estate assets.

Similarly, Santander raised its exposure to the sector by buying a 19.07% stake in Metrovacesa from Bankia for 100 million  euros. The company is specialized in tertiary asset lease.

Property Sales

In their struggle to sell the REO units off and reduce as much as possible the number of new repossessed properties, the banks managed to transfer 40.000 properties in the first half of the year, up 10 percent from H1 2013. They sold more homes, at lower discounts and at more considerable prices, earning around 4.5 billion euros, 20 percent more than in 2013.

Divestments

The odds are high that in short-term the sales will increase due to the decisions of the banks to shift management of their REO, as well as the risk, onto opportunistic funds specialized in this field.

 

Original story: Expansión (by G. Martínez & S. Saborit)

Translation: AURA REE