Spanish Luxury Property – What is going on?

As usual, the reports coming out of Spain are conflicting with reality and the vast number of repossessed houses in Spain is distorting the market considerably. No one seems to know what is going on and the recent National Institute of Statistics report suggest a drop in prices of just 7%, which is – at best – laughable. Even the banks admit they do not know exactly how many properties they hold and are slowly drip feeding them into the system at a rate that will prevent the market from collapsing completely. Unemployment is still officially around 18%, and the GDP shrank by 4% (officially) so goodness knows what the real figures look like.

There is around 1 million properties on the market, not including an unspecified number of bank repossessions that are just being moth balled, but I suspect the billions of Euros poured in by the ECB last year will be running out soon, so one of two things will happen. Either these properties will be placed on the market and we will see a genuine market price for them – or the ECB will be forced to buy more Spanish bonds.

I am not sure of the practicalities of artificially propping the market up in this fashion because sales are dismally low and sooner or later something has to give. The amount of repossessed property in Spain is being totally distorted by the “debt for equity swaps” undertaken by the large banks, although a recent announcement by the Bank of Spain that banks must write off 10% of the value of a repossession after holding it for a year may make a difference. But this does not cover developers taken over in  a swap, so who knows?