Tag: negative equity

Proinsa: The Final Piece of Reyal Urbis’ Empire Files for Bankruptcy

12 February 2018 – El Confidencial

Proinsa, Promotora Inmobiliaria del Este, has filed for creditor bankruptcy. The company is chaired by Rafael Santamaria, who, together with Joaquín Rivero, Enrique Bañuelos, Luis Portillo and Manuel Jove, were the property “lords” of the last real estate boom. Santamaría was also the President of Reyal Urbis, which starred in the second-largest dissolution ever of a real estate company in 2016, after that of Martinsa Fadesa.

Specifically, Reyal Urbis, which filed for its own creditor bankruptcy last summer, controls 70% of the company Proinsa, which is also dedicated to real estate development. Moreover, the two firms share a registered address on the Madrilenian street of Calle Ayala, just 50m from Paseo de la Castellana, where Rafael Santamaría Trigo, who also used to serve as the President of the Property Developers of Madrid (Asprima), used to have his office.

Last week, Mercantile Court number 1 of Madrid declared that Proinsa had filed for bankruptcy with a debt of almost €62 million and assets worth around €57 million, after it had withdrawn from a refinancing agreement in the middle of December 2016. In fact, that company’s short-term debt amounts to €34 million, of which €10 million corresponds to debt with various financial institutions and €21.5 million to Sareb. On the other hand, it has short-term debt amounting to €21.6 million with group companies. Moreover, at the end of 2016, the firm’s losses amounted to €1.1 million, and it held negative equity of almost €5 million.

In addition to Reyal Urbis, the firm’s minority shareholders include several companies from Burgos that form part of the same group: Inmobiliaria Espolón, Promotora Fuente Redonda, Grupo Río Vena Gestión de Obras and Alqlunia 2.

Proinsa held onto just one asset: a plot of land under development in Los Berrocales, one of the developments in the southeast of Madrid that was blocked by the Town Hall of Madrid fifteen days ago. Specifically, it owned 75% of an estate (La Fortuna) with a fair value of €57.1 million at the end of 2016, according to a valuation performed by Knight Frank. A single syndicated mortgage loan was secured over that estate from Sareb, Banco CEISS, Banco Mare Nostrum, Ibercaja and Unicaja, and with EBN Banco de Negocios acting as the agent bank. That loan was constituted in December 2006 and was subsequently novated on three occasions until the end of 2014. Moreover, in terms of unforeseen costs, Proinsa owed €6.5 million to the Compensation Board of Los Berrocales.

Almost half a century dedicated to real estate

The real estate businesses of the Santamaría family date back to 1970. As Nacho Cardero recounts in his novel “The Property Lords”, Reyal Urbis was constituted in March of that year by the current Chairman’s father, Rafael Santamaría Moreno, owner of the Layer Farm in Pinto, dedicated to the wholesale of eggs. “The laying hens were exchanged for cranes and the company turned the company on its head, changing its name to Reyal, which is Layer written backwards”.

The small construction firm would become one of the largest property developers in the country, after it purchased Urbis from Banesto in July 2006 for €3.3 billion, at the height of the real estate boom (…).

Until last week, Proinsa was the final piece at the base of that real estate emporium. And that final piece in the house of cards left many cards along the way, such as the ghost city of Valdeluz, just 67km from Puerta del Sol, in the province of Guadalajara and another symbol, alongside Seseña (Toledo) (…) of the excesses of the real estate party (…).

Original story: El Confidencial (by Elena Sanz)

Translation: Carmel Drake

‘High Risk’ Mortgages Account For 15% Of New Loans

4 January 2016 – Cinco Días

For the first time since 2008, all of the major indicators in the real estate market, including house prices, ended last year on a positive note. The improvement in employment was, undoubtedly, the factor that contributed the most to the increase in the sales volume and prices of homes. The second was credit. Not only did the number of operations continue to increase, also the Bank of Spain even highlighted in one of its reports that there had been a certain “relaxation” in the criteria for granting some kinds of loans.

One of the statistics that the supervisor publishes analyses the characteristics of new mortgages. According to this data, during the third quarter of 2015, the percentage of mortgages granted with an LTV of more than 80% increased to account for 15% of all new home loans granted. These mortgages are classified as high risk, since if the property decreases in value, the mortgage holder runs the risk of entering into negative equity, which is when the debt or liability (the mortgage) exceeds the value of the asset (the home).

The figure of 15% does not represent a series maximum, but it does fall at the top end of the range. The statistic was first published in 2004, when of this type of (high risk) mortgage accounted for 15.40% of the total volume of mortgages granted. By 2006, at the peak of the previous reale estate bubble, such mortgages reached their maximum, representing 18% of all new operations. It was not until the end of 2008, when the approaching crisis began to give its first clear warning signs, that these high risk mortgages decreased to their minimum level, of 10.30%.

The experts agree that this figure of 15% does not represent a concern yet, but they are certain that the Bank of Spain will be more vigilant this time around regarding entities that may be tempted to abuse such loans. The same sources explain that banks tend to end up granting high LTV mortgages, representing almost 100% of the appraisal value, when they relate to homes that have been held in their portfolios for a long time. Furthermore, they use these more favourable terms to speed up sales “although that does not mean that they do not perform the relevant solvency studies of the clients to which they are granting the loans” say sources at one appraisal company

Moreover, the fact that property prices are now on the rise once again dispels this higher risk, to a certain extent. On average, new mortgages now represent 62.4% of the appraisal value of properties, with an initial term of 22.8 years and an average interest rate of 2.5%.

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake

Repossessions Still ‘Haunt’ Mortgages Granted At End Of The Boom

6 March 2015 – Cinco Días

So far, the economic recovery has not been sufficient to slow the increase in the number of mortgage foreclosure processes. In fact, 2014 closed with a total of 119,442 mortgage foreclosures in the property register, of which 70,078 related to homes (5.9% more than a year earlier), according to figures released by INE on Wednesday. The statistics also revealed that six out of every 10 of these processes (61.6%) related to loans granted between 2005 and 2008, i.e. at the end of the real estate boom.

Those are the most vulnerable loans; the ones that have the highest probability of ending up in foreclosure, as a result of what happened in the market. For the individuals who purchased their home between 2005 and 2008 paid the highest prices ever seen. If we add to the mix the fact that they were also more likely to be granted so-called high-risk mortgages, i.e. those with a loan-to-value ratio of more than 80%, then when prices began to decrease in 2008, their own particular terrible ordeal began.

Although no official statistics are compiled about how many mortgages with high loan-to-value ratios were granted during that period, during the bubble, they (are estimated to have) accounted for up to 18% of new loans (today they account for more than 13% of new mortgages, according to the Bank of Spain). This means that as soon as property prices decreased, the holders of those mortgages were trapped in a situation whereby they were technically bankrupt (with negative equity), since their liabilities (the debt pending payment on their mortgages) was greater than the value of the assets (the price they would obtain for their homes even if they managed to sell them).

Naturally, “when you are facing financial difficulties and you know that even if you sell your house you won’t be able to pay off your mortgage due to the loss in value of your property, then thaat acts as a kind of incentive to not continue making your mortgage repayments”, admits one financial institution.

In addition to the situation being faced by the holders of these mortgages, INE’s statistics also show that more mortgage foreclosure processes were recorded in 2014 than during the previous year. Of the more than 70,000 processes relating to homes, 44,682 related to homes that were owned by individual people and of those, 77.6% or 34,680, were processes in which the house that formed the subject of the process was the primary residence of the family unit, up 7.4% from 2013.

Foreclosure versus eviction

This is a pressing situation for the families and a tragedy in every single case, but as INE explained yesterday in its press release, not all of the mortgage foreclosures that are initiated and recorded in the property register end with the eviction of the owners. This is because the legal process that is launched at that stage (and counted for statistical purposes) may give rise to a number of alternative outcomes, such as an agreement to restructure the debt, which would prevent the owners from losing their property.

Moreover, if we compare this figure of 34,680 primary residences affected by a mortgage foreclosure process over the total number of family homes that exist in Spain (18,362,000), the percentage of those affected by a possible eviction amounts to just 0.18%. Another way of looking at the significance of these figures is to take the number of mortgages constituted during the period 2003-2013 over the total number of homes, as a benchmark. In this case, only 0.9% of the mortgages constituted resulted in a mortgage foreclosure process in 2014.

Another interesting fact from INE is that 16.3% of the mortgage foreclosures over homes last year were initiated over new homes, whilst the remaining 83.7% related to second-hand homes. In the case of new build properties, that figure represented a decrease of 4.3%, due to the ever decreasing weight of those properties in the market; whereas in the case of second-hand homes, there was a notable increase of 8.2%.

Original story: Cinco Días (by Raquel Díaz Guijarro)

Translation: Carmel Drake