The bad bank (Sareb) has had to admit that the market was not ready to pay the prices it was asking for its properties. In view of the worrying pace of sales since its creation and the possibility of having to carry out a capital extension, its president, Belén Romana, has decided to eliminate the surcharge of 25% on the transfer price that it was currently asking from the institutions that commercialize them, according to sources aware of the situation. It will therefore allow the prices to fall down to market levels, as long as these stay over the transfer price; that is, it will not sell at loss, which can invigorate the Spanish real estate market once and for all.
Initially, Romana´s team stressed their intention of getting the best possible price for the properties in order to attain the objective of generating a profitability of an annual 15% for its shareholders (the FROB and the main banks, except BBVA). That is the reason for this surcharge of 25% and for offering incentives to the transferring institutions for selling at even higher prices, as these are the ones commercializing them (Bankia, CatalunyaBanc, NovaGalicia, Banco Valencia, BMN, Liberbank, Ceiss and Caja3). Romana assumed that the big discounts applied to the transfer of properties (an average 65%, 54% of finished properties) would allow the market to absorb this surcharge. This policy made properties in the hands of Sareb more expensive than when they belonged to the corresponding savings bank.
Nevertheless, this policy has been a failure, with sales of only 550 properties since February, very far from the objective for 2013, established at 7528. The crisis is too deep and those prices were still too high for any person willing to buy. In fact, one of the sources assures that most sales are for properties between 50.000-60.000 Euros, that is, the cheapest ones. “You can apply very high margins, but if you do not sell anything, the margin is zero. It is better to lower the margins and sell, even though the profitability per unit might be low. At least you obtain a profit”, another source explains. That is the philosophy that will be applied by the bad bank from now on.
This surcharge of 25% also had the intention of “providing the managers at Sareb the tranquility that no one was going to accuse them of selling their assets at a loss if they obtained that margin”, according to a third source. The disappearance of the 25% eliminates that safety net and therefore Romana has taken two measures: to establish the transfer price as the limit for the descent of prices, that is, to ban the sale at a loss, and to ask for two market studies for each sale, one from the commercializing institution and another one from an independent company, in order to have the highest assurance possible that the price is the right one.
Real estate experts consulted by El Confidencial consider that this decision could provide the final drive to end the adjustment of the Spanish real estate market with a descent of prices to realistic levels, which banks have tried to avoid until now.(…)
The financing agreements signed by Sareb with some financial institutions so that these will award mortgages to those families that wish to buy homes from the bad bank will also contribute to this. The first of these agreements will be signed today with Banco Santander that launched last week the “Supermortgage Sareb-Santander” for first residences, up to 30 years, with a financing percentage of up to 80% of the valuation amount and at Euribor+2,25%.
(…) Precisely the shareholding banks – and competitors – of Sareb were the ones to oppose the collapse of the market and the fact that this would oblige them to lower the prices of their own properties. In fact, they tried to reduce as much as possible the discount applied in the transfer of from the nationalized institutions, and as it finally was rather high, they tried to counteract this with a higher minimum price. Also, the paralysis of the bad bank was allowing them to get rid of their own properties, which is their priority. Now they will have to assume that reduction of prices and that properties within Sareb start being sold.
(…) This turn of 180 degrees in the comercial policy of Sareb and the impact it will have on its margins might force it to revise its business plan in order to reduce its profitability targets to more realistic levels, although for the moment this matter has not been brought up. The waiver to its initial approach takes place just when the first institutional operation is at its peak, the so called project bull, valued at 220 million Euros. This operation has been criticized because Romana had nearly closed it and decided to pull out in order to set out an auction and try to increase the price, which might turn the whole operation into a failure.
Source: El Confidencial