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Repossessed properties in Spain are selling for about half their original value and are likely to continue to fall in value, according to a new report, underlining the parlous state of the real estate market in Europe’s fourth-largest economy.
Valuations on properties that were bundled up in securitisation deals and later repossessed are also significantly lower than data from the official housing price index suggest, according to a report from rating agency Fitch due to be published on Thursday.
The report comes as official data from the Bank of Spain on Wednesday cast further doubt on whether Madrid’s recently announced austerity measures would be enough to sort out public finances and soothe investors. The central bank said that non-performing loans as a proportion of total lending jumped to 8.16 per cent in February – the worst level since 1994.
The Spanish housing ministry this week reported that house prices had fallen 3 per cent in the first three months of this year, suggesting that overall housing prices had fallen 22 per cent from the peak observed in the first quarter of 2008.
Spain’s housing bubble burst in 2008 and the collapse of the real estate sector has been a significant factor in the country’s current economic woes.
In its report Fitch found that repossessed properties were on average being valued at 25 per cent below their original valuations. But once sold they were on average selling for 48 per cent below their value when the mortgage was first taken out.
While the report focuses exclusively on repossessions of property loans that were bundled up in securitisation deals at the peak of Spain’s housing boom, the data indicated more broadly that “using the official housing index as a proxy for the losses on mortgage loans is misleading”, said Andrew Currie, head of European surveillance at Fitch.
“It is clear to us that if you use the index of housing valuations as an indicator of the level of recoveries for loans that have defaulted, you would severely underestimate the decline in values of repossessed properties,” he said.
Fitch estimates that there is an overhang of unsold homes in Spain of more than 1m. These include unsold newly built homes, properties repossessed by banks or properties where owners have taken out bridge loans but were unable to sell the first property.
At the peak of the housing boom in 2006 there were more than 100,000 purchase agreements of new properties at notary a month. By September last year, there were just 25,000.
Carlos Masip, Madrid-based director at Fitch, said: “If we view the market today we believe that there will continue to be a downward pressure on property prices. Home prices are still unaffordable for many when compared to income levels, there is a short supply of credit and a huge overhang of unsold properties.”
“We believe the sooner that house prices correct the better. The construction sector can’t gain momentum until empty properties are sold. A recovery in the construction sector will be better for the overall Spanish economy,” he said.