Spain, for years a favourtie with overseas investors, is now is now suffering due over-zealous business practices of the Spain’s financial institutions. What many do not realise is just how dependent and accustomed the Spanish economy became on this excellent source of foreign income.
Economically, the market for properties in Spain reached in zenith in all likelihood between 2007 and 2008. This type of appreciation had been exacerbated by the greed of local developers and a willingness by the financial institutions to offer valuations against properties that were simply more than the intrinsic value of the asset. Anyone now looking to buy Javea property in 2010 would be looking at reductions of at least 20%.
Tiny Banks Drawn To Coastline
What people do not realise is that the banks had a vested interest in keeping the market high. In such a highly competitive arena, tiny banks from almost unknown parts of Spain were opening branches all along the Southern coastline of country in an effort to scoop some of the available foreign mortgage market. It certainly seems strange, why few have considered why, for example, banks such as Banco Galicia from the most Northern part of the country adopted that strategy. Clearly, they were not looking for savers.
Given such selfish motivations, many lenders accepted the ludicrously high valuations proffered by valuers so that the mortgage book grew exponentially. Now, many are left in desperate situations with their mortgages higher than the real market value of their property.
10% GDP Has Vanished
The governments of Northern Europe are keeping quiet and Spain in particular. The country was reliant on this source of foreign investment for at least 10% of its GDP. Interest rates continue to stay fairly low but the unfortunate situation is that banks are suffering due to the number of existing clients who cannot meet their monthly eloan mortgage payments.
Meanwhile, the only buyers in the property market are the bargain hunters from Northern Europe looking to take advantage of vendors’ desperation.
Clearly, the market still faces huges challenges. There are quite literally 1000s of unsold property many available from banks themselves who have now set up their own real estate agency offices which suggests in pure economic terms that the market could still head downwards.
Interest Rate Rises?
Currently, European interest rates are low and stable, unemployment runs at double-digit levels and without doubt many foreigners, particularly the British, have suffered as the value of the pound has diminished against the Euro.
Very few are talking about a scenario such as an economic recovery in Northern Europe economically things are already starting to look up, which might add to calls for interest rates to rise due to the threat of inflation.
Neither the poor people of Spain or the already stressed Spanish property sales market, like other countries in the Mediterranean sunshine are prepared for that.
