Thursday, January 10, 2013
Last year's average price fall of around 10% will be followed by five more years of declines and further falls of 30% according to the reports.
The course of the Eurozone crisis took in 2012, with Spain firmly in the spotlight for much of the year, is behind the latest volley of depressing statistics for Spanish homeowners. It is not just that austerity measures were ramped up, joblessness jumped and capital flight accelerated during the year.
Specific developments in the Spanish banking sector have driven the property market at least as much as these general negative factors. Although Spain's outrageously oversized property bubble burst in 2008 the banks had not been forced to take the full hit until last year.
For several years the banks were allowed to either forebear from repossessing properties or, when they did take possession, were able to hold the foreclosed assets on their balance sheets at inflated values (e.g. cost or amount of mortgage). This way they didn't crystalise their losses and have to raise more capital or, in the worst cases, go out of business.
From the point of view of the property market this meant that headline prices only declined gently for the first few years of the market. Things became frozen - no one moved, no one slashed their prices and the market was not allowed to find its bottom. Similarly the government did everything it could to sustain the unsustainable in the wider economy though it shouldn't have (Stimulus doesn't work - just look at Spain).
The bank stress tests and subsequent recapitalisation changed all that forcing the major lenders to recognise their potential losses and sell off assets.
So at least now the grand clear out can begin. Bargain hunters and overseas investment funds will appear and some activity will return albeit at much lower price levels. After a couple of years of pain we may at least be able to say we are nearer the end than the beginning.
The UK is still stuck in denial.
From our website: Spain tax form 210