As is well-known, the banks have a substantial stock of property that they have taken in place of a debt owed to them or as part payment. However, due to the much reduced market, the banks are likely to have to hold this property for a number of years, with their portfolio gradually being reduced as natural demand takes it away and/or they reduce the prices so substantially that they create a secondary ‘cheapy’ market. In addition, they are likely to sell large sections of the portfolio to private investors or even place them as assets in funds for individuals and financial institutions to invest in.
In the meantime these properties, be they individual villas or apartments or blocks or indeed whole urbanisations are all lying there with their regular liabilities.
Will the banks pay the community fees; the IBI property tax and the basura rubbish tax; the water and electricity connection; the satellite television cost and all the other regular property owners charges and costs?
There are many urbanisations that are finding that now that Banks are owners of a substantial number if not the majority of the properties. The Urbanisation community continues to incur costs, but are the banks fulfilling their obligations?
If the bank has the majority vote, they can effectively appoint the administrator, who has probably in the first instance be appointed by the initial developer from whom they have had to recover the property. One bright spot is that if they have not paid their dues, they do not have the right to vote. However, if they just ignore their liabilities this distinction will largely be academic.
The Ayuntamientos (Town Halls), already struggling with reduced building licence income, but which have to provide the regular services, may be finding that the banks are not paying their share of the municipal costs, which will leave all the Town Halls much the poorer. The projection of this problem is not attractive.
Swiftly, maintenance and caretaking investment in the communities will slow down and eventually cease as it cannot be paid for, causing more redundancies and lack of work for trades people. Valuations will reduce as properties deteriorate, further exacerbating the financial difficulties of the individual owners and perhaps leading to more bank ‘acquisitions’.
Similarly, the town halls will become more impoverished with all the spin-offs that lack of funding will have on them. Debt to all the banks will increase, which in the short-term will provide a notional paper increase in their income, but as those debts eventually become ‘Bad’, they will further exacerbate the bank’s cash flow problems. It’s a depressing downward spiral.
Even if the banks manage to sell the properties at very low prices, the buyers will then find that they have to pay their purchase taxes on an artificial figure created by the taxman rather than the actual price at which they bought the property, thus increasing the overall cost.
This ‘taxman’s price’ is a multiplier on the Catastral value and is increasingly being found to be above the actual price paid for the property. Originally put in place to catch under declaration of prices, it is now becoming increasingly worrying for genuine 100% declarations. It is unlikely that it will affect the banks directly as a capital gain, as presumably their purchase will be shown to be the value of the loan plus costs that have been taken over. Its effect will principally be on the 7%purchase tax paid by the buyer, which will be levied on the higher of the actual purchase price or the ‘taxman’s price’.