While Spanish property remains an attractive investment prospect for foreign buyers, the country is struggling to sell off its distressed assets. According to real estate and finance professor Joe Luis Suarez, the success of the bad bank depends on its ability to encourage transactions on repossessed homes, but currently, this isn’t happening.

Consequently, the bank’s profitability is not being realised, as it struggles with the cost of maintaining distressed assets and the predicted continuation of property price drops, professor Suarez explained to Bloomberg Business Week. Experts predict that prices will continue to fall in Spain for at least another two years, which will no doubt attract more overseas buyers. However, investors are increasingly looking for new developments and are often unwilling to take a risk on distressed property.

This is bad news for the country, as it is relying on the bank, also known as Sareb, to purge toxic assets and turn a profit. What’s more, it is hoping for outside investors to take at least a 51 per cent stake in the institution, which will not occur until it can prove it is capable of increasing transactions.

“Sareb is going to be very different to every other bad bank in terms of assets, which are going to be mostly high risk residential,” professor Suarez told the news provider. “That will saddle the bank with maintenance expenses for the properties it owns along with the costs of debt backing the properties.”

Industry experts are already sceptical about the ability of the bank to succeed, with Fernando Rodrigues de Acuna Martinez, a partner at Madrid-based real estate consulting firm Acuna & Asociados, telling Business Week “we can’t see Sareb making a profit in any shape or form”.

“If you look at the foreclosed assets it’s going to take on, you’ll see around 40 per cent of that is land which is unsellable,” he continued. In Spain, there is somewhat of an excess of development land, which is expected to take approximately ten years to sell. This oversupply is believed to make it virtually worthless, which hinders the bank’s plans to turn a profit. Nevertheless, only time will tell if Sareb has what it takes to turn its fortunes around.

source: http://www.propertyshowrooms.com/spain/property/news/spain-scramble-sell-off-distressed-property_312562.html


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