The myth of below market value Spanish property
Thursday, March 18, 2010 @ 10:46 AM
The Spanish property market is in too much of a mess for a real BMV market to exist, according to agents specialising in distressed property in the country.
Struggling developers, desperate homeowners and banks stocked with repossessions are all setting their prices according to how badly they want to sell, meaning a benchmark price is virtually impossible in many of the tourist hotspots. And without a standard to measure against, agents are left to secure whatever price they can for each situation.
“Something is worth what someone else is prepared to pay for it and that’s that,” says Inez Rix, owner of Direct Auctions. “You have an open market price (not value), a bank valuation (upon which they base their lending), the offer price and the declared price at notary! No wonder there is no benchmarking for Spanish property.”
The problem is so severe that one unit might be on sale for 50% less than the identical unit next door, says Darren Carter, owner of distressed agent Goldberg & Partners. “It all depends on the seller, the buyer and even the weather or what week it is as to what price will be agreed. A developer or bank might have sold three units at one price last week and not want to sell at the same price this week.”
The ability to sell at a below market value is also hampered by the banks’ mortgage regulations. In Portugal, developers are offering units with 100% LTV mortgages by fixing prices at 80% of the lending bank’s valuation, effectively removing the need for a deposit.
“In Spain this isn’t legal as the Bank of Spain ensures their normal lending criteria is adhered to,” says Rix. “In order to achieve a percentage of borrowing against the higher bank valuation, one now has to obtain a doctored purchase contract.”
Carter says there are now better finance deals for buying bank product in Spain, “even 90 or 100% LTV on the price of the property but not including closing costs”, but the mortgage market has become too dynamic. “It feels like banks will offer one LTV one week and a different one next week once they’ve got their quota for the month.”
Story from OPP.