Below is an article from The Irish Times.
Banco Popular is preparing to sell €451 million euros of real estate assets in Spain as international investors return to the country’s property market.
The bank’s portfolio includes 1,753 homes in Madrid, Barcelona, Toledo and the Costa del Sol valued at $300 million , zoned land in 10 regions across Spain valued at €103.4 million and 13 hotels valued at €47.2 million, according to a document sent to investors by N+1, the Madrid-based investment bank advising the seller.
Investment in Spanish property jumped to €17.8 billion last year from €4.9 billion euros in 2013, according to data compiled by Irea.
Home prices in the country last year posted their first annual increase since 2007 as the property market recovers from the worst recession in the country’s democratic history.
Banco Popular intends to sell the portfolio, known as “Project Elcano” in the first half and the sellers may provide financing to the potential buyer, according to the document.
So how will this be recorded in all the statistics provided officially and from private parties? Will it mark a significant increase in the sales of property showing a well Spain is doing? Perhaps the commercial property and some of the land can be looked upon as investment, but the 1,753 individual homes have not gone to occupiers and therefore, unless they are to be let out, they have not been removed from the market.
With such a large portfolio, the vast majority will have been bought at a much reduced price even from the market as it stands now. The investors will be wanting to sell as much as they can quickly in order to get their money back and so these properties are likely to be offered at below the current market value thereby reducing prices further and making it more difficult for individuals trying to sell their homes nearby.
And is this really a sale if it says that they will provide financing to the potential buyer? Okay, it won’t be 100%, it will just be that effectively they’ve sold the properties and mortgaged them back to the buyer, presumably with the properties being the security for the mortgage. The investors will have introduced some funds, but presumably will be planning to recover those by selling a few of the high value properties quickly, thereafter leaving all the rest at no cost to themselves except of course to pay the mortgage to the bank that sold them the property in the first place.
Each individual buyer of any of the homes will probably be offered a mortgage by the banks that sold them originally. So say the property has a current market value of 200,000. The bank sold it to investors at a discount of 50% 100,000, but supplied say 70% of that as a mortgage to the investor. The investor then managed to sell the property ‘as a bargain’ at 150,000, with the bank providing a ‘special’ 95% mortgage to the individual purchaser. So, the original investor paid 30% of 100,000 (30,000) and got back 50,000, a 60% profit. The Bank still has the 200,000€ euro property as security for 142,500€ euro mortgage loan (effectively 71.3%), hopefully at the bottom of the market, with a buyer who has had to prove to be financially sound, plus of course the 30,000€ euro originally paid by the investor. And the Government is a winner too, with the taxes on both the property sales and the mortgages.