The recent warning from the Bank of Spain (BOS) to Spanish Banks, calling for more transparency about their property stock in order to ease the sector during this crisis, is another sign of the tendency in 2011: prices may fall to the bottom to adjust themselves to the reality of the market.
Banks have €181 billion of “problematic property assets” – which obviously includes “toxic assets”. For this reason, it is better not to raise false expectations to buyers regarding further price drops, since a big fall would probably affect precisely these sort of assets.
On the other hand, the margin for negotiation would be reasonable for buyers of prime properties, depending on the finance capability and payment guarantees provided by the buyer.
The banks must accept responsibility for their losses and consequently, make decisions. According to an interview published in idealista.com, Carlos Ferrer-Bossom, Director of the residential market in Spain at Jones Lang Lasalle, states it could be better for Banks to start lowering the prices soon, even if they take a 5% loss, because in 2011 financial entities could lose around 15% on administration fees.
In the same interview, Ferrer-Bossom said that the fact that the banks are acting as real estate agents because of repossessions is a good sign for buyers. The reason is that the banks try to reduce losses by reselling repossessions whereas estate agents always try to generate a higher profit as possible since property is the nature of their business.
Regarding prices, the Jones Lang Lasalle director said that nobody knows exactly if prices will reach the lowest point in 2011, but it will be positive if it happens soon.
Once prices have descended, they will be stable for a period of years and the market will start reshaping itself for a new cycle.
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