52.2%, 47.5% and a whacking 85% are the discounts on original book value that are being demanded by the Spanish ‘bad bank’* for the transfer of new build housing, second-hand housing and undeveloped land respectively, according to a recent Reuters report. These will bring the property prices down to the values that everyone knows are realistic, though perhaps are still not at true market level, as property prices have continued to fall largely due to the actions of the banks themselves as they desperately unload property and provide astonishing finance offers. With banks offering loans at 100+% of their property valuation, what can go wrong? If you’re intending to hold the property and know that you can afford the payments, it makes sense. However, if you’re wanting to sell again anytime soon, you’ll be competing against the banks without being able to offer such generous finance and therefore have to offer at a lower price. In addition, you’ll have the buying and selling costs, which can be up to 20%.
For the next two months the Spanish government is providing incentives that may not continue into the next year. The principals of these are –
1. Holding of IVA (VAT) on new build acquisitions (which appear to include unoccupied properties possessed by the banks) to 4%, instead of 10% to which it should rise in 2013.
2. Granting a 50% reduction in Capital Gains Tax (CGT) whenever the property is sold in the future as long as it is acquired in 2012. With eligible buying, selling and inflation costs this may not be such a bargain unless there is a substantial increase in value. Unfortunately, there is no reason to think that will occur in the near future for the general property market, though exceptional individual buys may show significant gains.
*The FROB (Fund for Orderly Bank Restructuring) has been obliged to set up the “Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria, S.A.”, which for some reason it’s called the AMC. The AMC is the ‘Bad Bank’ (or should that be ESpecially Bad Bank?) that will receive all the assets linked to non-performing loans of the least stable Spanish banks.
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