The Bailout And The Opportunity

I don’t want to sound like a vulture here but the current malaise brought on Spain by the markets is having a positive effect in certain ways. The banks are being forced to lower their ridiculously optimistic prices on their stock of properties in many cases and there are finally some decent prices around.

In the last few weeks we have sold various properties from various banks but among them are a couple of well positioned apartments in Valencia that we have managed to get for clients at bargain prices. The majority of the stuff from banks continues to be overpriced, which may change, badly located, which will never be changed and badly advertised, which again will probably not change.

As the bailout carries on and the pressure on the Spanish banks intensifies we expect the opportunity to grow. We are already starting to see properties that can earn a more than respectable rental return in areas that could not be classed as salubrious but have solid rental potential.

This week I have had various meetings with bank representatives and they have all been very keen to offer me their properties. However all is not rosy of course. Some of the banks are still holding out for unreal prices. This week we have reiterated an offer to a bank on a property in the region. The offer in my opinion is fair at 220000 Euros yet the bank are holding on for much more (They won’t get it) The reason is that the price they place on properties bears no relation to what may be its real value.

The price they place depends on how much they lent in the past to the previous owner or developer. An example could be that 2 similar flats next door to each other can have totally different prices. How? well originally the bank might have given a 100% mortgage or more to somebody in one flat, let’s say 200000 Euros and a 50% mortgage to another person on the flat next door, 100k. They are both given back to the bank because of lack of ability to pay and the bank eventually has them on their books. After the costs of repossession the debt on one will be 260k and on the other 130k. The bank try to sell at that price but cannot of course so they reduce the price by 50% on the more expensive one meaning it is 130k and the other gets reduced by just 20% giving a price of  104k. One is now possibly OK to make an offer on but the other is still above market value as prices have dropped 35-40% since peak for properties that are selling meaning, despite an advertised price at 50% off, it is still not a bargain.

So this week I have seen a property at 81% off here. All I can say is that if the original price was 212000 Euros and the bank therefore  lent around 160k on it somebody in the bank needs shooting or putting into the mental asylum. Is it a good buy at 40k? I am not convinced.

Meanwhile I am going to see the property below on Monday and if they give me a good price for this old restored palace in Valencia then yes I know I will have people interested. 81% off would be nice 😉

Restored Palace in Valencia
Restored Palace in Valencia