Spanish banks may be forced to lower price of repossessed properties

The Bank of Spain is issuing new regulations forcing Spanish banks to offload much of their real estate assets.

An impending rule change by the Spanish government could compel Spain’s banks to lower the prices of the repossessed properties they snapped up during the recent recessions.

On October 1, a new law will be introduced by the Bank of Spain designed to force banks to reduce their exposure to real estate in the country…

Between the tough recession years of 2008 and 2012, Spanish banks became the country’s largest landlords as a growing number of mortgage holders were forced to give up their homes as they were unable to keep up repayments.

A number of banks also began purchasing unfinished and incomplete properties at knock-down prices from developers facing the prospect of bankruptcy.

This led to price suppressions across the country as banks sought to offload these assets from their books. However, since prices have largely recovered throughout Spain, many banks have followed suit and priced their assets at market rates.

However, the Bank of Spain wants to see Spanish banking institutions distance themselves from the real estate market, and allow the sector to become more independent of the industry. This, believe many property experts, could trigger a rush of low-price offers as the Spanish banking regulator turns the screw – the surest way to increase property sales in the sector is to lower prices.

“If the banks are forced to increase their write-offs,” said Spanish Property Insight founder Mark Stucklin, “that gives them more room to lower prices.

“The troubled real estate exposure of Spanish banks has risen every year since the crisis started, despite huge write-offs each year, rising to a total of €84 billion at the end of 2015.”

Consumers are likely to be buoyed by the news. Property prices in Spain have generally stabilised and, in many of the more popular places, begun to rise, so a raft of cut-price homes hitting the market could deliver something of a boost for the industry, and plenty of one-off bargains for home hunters.