Across the Spanish banking sector the cost in repossessions and bad loans has been estimated to lie at around 184 billion. An audit is to assess, if this figure is accurate or if worse is yet to come.
Even Spain’s most careful lender Bank Popular, the country’s 6th largest lender, may have to go to EU finance ministers and ask for a cash-hand out from the EUR 100 billion bail-out fund the government in Madrid negotiated with the EU.
The collapse of the country’s real estate sector after nearly a decade of housing boom has hit hard - not just banks, but the construction industry, once on of the country’s largest employers. The audit was supposed to be finalized last Friday - and the country will finally learn how much each bank will require to balance the books.
While some outside sources believe, Popular will require in the region of EUR 3 billion to straighten out its financial affairs, the bank’s Chairman Angel Ron believes his bank doesn’t need a cash injection from the EU at all. However, expert sources reveal the bank may require up to EUR 2 billion to fill the hole in their balance sheet.
On the whole it is estimated the 14 banks that make up 90% of the banking sector will need a cash injection in the region of EUR 60 billion. Analysts believe the audit will reveal that the country’s three largest lenders, Santander, BBVA and Caixabank, won’t be requiring any money to help them.
As banks battle it out with auditors and EU finance ministers, property buyers from northern Europe and other parts of the world are flocking to Spain to snap up property bargains in Marbella, Estepona, Torremolinos, Malaga, Mijas and Fuengirola at the Costa del Sol and other Mediterranean destinations so favoured by holidaymakers.
The Spanish government is actively encouraging buy-to-let investors to consider buying properties away from the coastal hotspots. Up to now, would-be foreign landlords have largely shied away from entering the long-term rental market, as Spanish tenancy legislation is mainly in favour of tenants. Investors have favoured coastal locations where holidaymakers provide reasonably good returns and far less risk.
New legislation is being introduced that will make it easier for landlords to regain legal possession of their properties after just two months’ notice and for tenants to be forced to pay arrears within a maximum term of 10 days or landlords can start eviction proceedings. The length of the tenancy may also be changed from five years with a three-year agreed extension to three years with a one-year agreed extension.
This latest initiative could spell good news for buy-to-let investors looking for a steadier source of income than just high yield holiday rentals. Especially Spanish home owners currently struggling to sell their country properties in a market where lenders have run out of cash to provide mortgages to potential buyers could benefit from this new legislation.
Instead of selling their homes, they could rent them out. Cash-buyers will be able to stretch their investment further when purchasing inland properties instead of properties at the coast.
For those who love the sea, sand and Marbella glitz, however, there will never be an alternative to Puerto Banus apartments overlooking the Marina or sea view penthouses at the famous Golden Mile.
Tourist numbers to Spain reached record numbers this summer - as rain-soaked countries like Sweden, Denmark, Britain and Norway visited the Spanish shores in their millions. Such increases in tourism are good for the Spanish property market, since self-catering holidays are a hit with many families.
For anyone entering the arena of buy-to-let there are many considerations, not least of all, if the price is right or if it will fall even further. Economic predictions say that Spain will undergo at least another year of recession; however, the EU’s bail-out fund of EUR 100 billion will inject enough cash into the country’s banks to allow them less generous discounting on their repossessions.
Now may well be the best time to purchase property in and around Marbella or the other prime locations at the Costa del Sol.