18 May 2015 – Cinco Días
Moody’s believes that the entities are delaying their property sales to avoid selling at a loss.
Sales decreased by 4% compared with 2014, but the entities increased their revenues.
The large banks boost sales by 19%, by lowering prices.
The large Spanish banks seem to have reached cruising velocity in terms of the rate of property sales. During the first quarter of the year, the six largest entities in the country sold a total of 21,221 properties, which represents an average rate of sales of 236 per day, a slight decrease of 4% compared with the 246 properties that were sold per day during the same period last year.
Although the market is very susceptible to seasonality and traditionally the fourth quarter yields many more transactions that the first quarter each year, these results show a certain degree of stabilisation after the transfer of the bulk of the banks’ real estate assets to investment funds caused sales to soar by 57% at the beginning of 2014. However, this boost did not allow the sector to reduce the heavy weight of property on its balance sheet.
“With the exception of the partial transfer of assets to Sareb, the so called Spanish bad bank, the stock of foreclosed properties on the balance sheets of Spanish banks has increased steadily since the start of the financial crisis in 2008”, said the risk ratings agency Moody’s, in a report about the sector to be issued this week.
The latest data compiled by the Bank of Spain reveals that the banks’ real estate charge at the end of 2014 was still €83,409 million. Although that figure exceeded €100,000 million in 2012, it was primarily the transfer of toxic assets from the banks to Sareb that enabled it to decrease to €75,000 million, since when the figure has continued to rise because the rate of sales still does not exceed the rate of new foreclosures.
“The banks are avoiding selling assets at a loss and are instead waiting for the market conditions to improve significantly” before they increase their current rate of sales, conclude experts at Moody’s.
The high volume of provisions already recorded by the sector and the gradual stabilisation of prices in the market also threatens to moderate the sale of properties, as banks wait for higher returns. That was the view of Javier de Oro, the Director of Real Estate Assets at Aliseda, when he spoke to this newspaper a few days ago.
The real estate arm of Banco Popular is one of the platforms that has improved the most since the transfer of 51% (of its share capital) to the investment funds Kennedy Wilson and Värde Partners; it managed to double its rate of sales in 2014 and has been the only entity to increase its sales (volumes) during the start to 2015.
However, as De Oro says, its “goal is not to sell for the sake of it”. “I would not be surprised if the bank says “stop” at some point, “we are going to focus on returns””, commenting on a possible brake on sales over the medium term.
For the time being, the sector seems to be comfortable with the cruising speed it has obtained in terms of property sales, even though that is not reducing the (size of) its foreclosed portfolio. After all, despite a 4% decrease in the number of sales, the six largest Spanish financial institutions have maintained practically the same volume of revenues that they achieved during the first quarter last year, around €3,000 million (€2,496 million excluding Santander, which has not provided its data, but which recorded turnover of €700 million during the same period last year).
Banco Sabadell explains that this phenomenon is occurring because “discounts are being reduced” at the same time as “sales with a value of more than €100,000 are increasing”.
Moody’s warns that the banks’ total exposure to property, which includes not only foreclosed assets, but also loans to property developers and real estate companies (susceptible to becoming new foreclosures), amount to €300,000 million.
“Only if the tepid recovery of the real estate market in 2014 gains momentum will the banks be capable of substantially reducing the very high stock of problem real estate assets”, say the analysts.
Data by entity – Q1 2015
The Catalan entity, which sold 51% of its real estate arm to the fund TPG, leads the ranking of transactions in Q1 with the sale and rental of 5,029 of its own properties for €498 million (of which €216 million relates to rental) and 5,638 transactions (€962 million) including assets from property developers (down by 10% versus 2014).
The sale of 51% of Aliseda to Kennedy Wilson and Värde Partners enabled Popular to increase its sales by 48% to 2,780 own properties, for which it recorded turnover of €525 million.
BBVA’s real estate arm, Anida, sold 4,094 properties (2,105 own properties), i.e. 18% fewer, for €360 million.
Sabadell’s platform, Solvia, has sold and leased 3,123 properties (2,559 own properties), i.e. 4% fewer for €474 million. 10% of all of its transactions relate to rental properties. The entity has improved sales of properties worth more than €100,000.
Altamira, which is 85% owned by Apollo, has sold 3,500 properties during the first quarter, which represents a decrease of 16%. Santander was the entity that began with high sales before lowering them year after year.
The real estate arm of Bankia, which is controlled by Cerberus, has multiplied sales of its own properties: 2,086 for €197.7 million during the first quarter, compared with 822 sold (for €57 million) at the beginning of 2014.
Original story: Cinco Días (by Juande Portillo)
Translation: Carmel Drake