Wednesday, November 06, 2013
The Lawlessness Of Property
There are parts of Spain which have greater amounts of unoccupied housing stock. The disparity between an excess of homes and actual households is greatest in regions such as Andalusia, Galicia and Murcia. The Balearics, reassuringly perhaps, don't have quite the same problem.
This vast stock of properties, especially the ones that haven't been completed, is the consequence of the property boom that went bust. And a good number of these properties have ended up on the books of Sareb - the Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria, or better known as Spain's bad bank, the one into which properties financed by the various failing banks were placed. Sareb, though it doesn't intend doing so straightaway, has a plan that will involve demolishing the uncompleted housing. Whether it will be able to shift those properties which are built is another matter. Some banks are taking massive hits on properties they are lumbered with, selling them in some instances for a quarter of their original prices. But with so many unsold properties available and with so many mortgage holders desperate to sell properties they bought at what proved to be inflated prices, there isn't anything like the demand to match the supply. There has to be a major rationalisation of the total housing available in some parts of Spain in order to take the property market out of the doldrums. It could take years and even then there would be unsold properties.
In the Balearics, though there isn't the level of unsold or incomplete stock as elsewhere, the market at the lower end remains depressed, even though sellers now do appear to be willing to let properties go at prices which are more realistic for the current circumstances. There are, nevertheless, always those sellers who want more. The stereotyping of the money-grabbing Mallorcan is not entirely inaccurate. I heard of one apartment in which a British buyer expressed an interest only for the price to shoot up by 30,000 euros. It happens and it has long happened.
The luxury end, so we are repeatedly told, is buoyant enough in the Balearics but this is small comfort. It just emphasises the enormous and growing gap in Mallorcan and Balearics society, one in which poverty levels are at record highs. It also emphasises, because much of the selling is to overseas buyers, the erosion of this society. Whether properties are being bought to actually live in, whether they are being bought as "residential tourism" properties or whether they are being bought for other reasons, they all amount to the same thing - the increasing colonisation of Mallorca from overseas.
Any number of factors have given rise as to why the Mallorcan property market is at is. On prices, a factor has been the cumulative effect of tourism. There is a direct relationship between tourism and its growth and the price of property. The construction of hotels, and the land they occupy, is one reason. But one should also look at what happened in the 1990s to appreciate why even relatively modest property went up in price. It was then that a construction boom was in full swing, and it was partly tourism-inspired. Apartments were gobbled up precisely because they were seen as investment opportunities for residential tourism, i.e. being let for holiday rental. There was also the euro factor. While the euro has been blamed for pushing prices up generally, its introduction created a major headache for those who were in possession of unbanked stashes of pesetas. They couldn't take these stashes to the banks for them to be converted for an obvious reason; the stashes were undeclared income. Black money. Mallorca's property became a target. In effect, property prices were artificially inflated because of money laundering.
On top of this came the willingness of banks to lend and not just for first homes. When economic crisis hit it became apparent that many owners of second, holiday homes in the resorts had bought them with mortgages guaranteed on their first homes. Even now if you look around residential areas in some resorts, you will see plenty of places up for sale.
Property markets are in some ways a law unto themselves, but in Mallorca and Spain they were at times virtually lawless. The speculative developments, some of which may not even be finished, were built on the sands of the boom times which proved, as mostly anyone with any sense could have predicted, to have been unstable. These were sands made of credit with little to support them and even less once crisis took over. And these developments are now worthless. The demolition gangs will be moving in, if not tomorrow but some time soon.