I received an excellent article on the Spanish market in my inbox today from www.globaledge.co.uk - one of the best providers of property news and opinion in the market. Anybody active in the overseas property industry should subscribe to their newsletters. Please see an extract of this article below.

…………………………..

If you think the market you’re working in is tough, spare a thought for the hard working agents on Spain’s costas.

For most of us, the one positive about a working in a smaller market is that many of our competitors have fallen by the way side and there’s less competition for each potential buyer.

Agents selling overseas property in Spain have no such luxury. Buyer volumes have fallen dramatically, but in many cases competition for business has actually increased, forcing even some of the best run agencies to close their doors.

Once we were friends…

An agent’s main competition on the Spanish coasts is now increasingly the Spanish banks, companies who used to work (more or less) happily in partnership with the industry.

Imagine this scenario: You work hard “closing” a deal. Your buyer agrees and approaches the bank for a mortgage. However the bank deliberately offers tough terms (40%+ deposits) but offers your client 100% finance on another similar property and is also prepared to discount heavily to get the property it owns off its books.

This is exactly what’s happening in Spain and it is not only putting agents out of business, it’s disrupting the whole middle market as agents who want to make a living only have two choices:

1. Target cash buyers who are in a minority but at least can be closed
2. Sell high-end properties where the competition from banks is less (the majority of bank stock is low to
mid end apartments in sub prime locations)

Tight-fisted bankers
The obvious third option is of course for an agent to work with the banks but the banks seem unwilling to allow agents to make even a meager living from the process. GlobalEdge spoke with a property agent recently who sold 26 below-market value apartments for €110,000, a €90k discount from their peak valuation. The agent was paid $500 a sale which equates to 0.45%. He worked his socks off and made €13,000 in six months.

Desperate and reactive

Although the situation is clearly terrible, it would be wrong to accuse the banks of cutting agents out through a cynical and well-thought out sales and marketing strategy.

According to a number of Globaledge contacts, banking staff have been told to get properties off their books and in many cases seem willing to accept almost any price. This is a conversation one of their contacts had with a bank manager last week:

Bank manager: You seem to like the property. It’s €100,000

Potential buyer: I’ll pay €70,000

Bank manager: [pause] …….OK

Judging by this conversation, some of the properties the banks hold may be totally worthless.

The banking industry needs to act

It is no secret that the banks are hiding huge property losses on their balance sheets. Prices are being kept artificially high (at least officially) because properties are not being put on the market.

The Spanish economy depends disproportionately on construction. The property sector and wider economy will not recover until the real estate market fully corrects.

That correction could be dramatic (if banks start dumping properties onto the market because of a rise in reservation ratios for example) or it could be slower and less painful.

A slower correction is better for everyone and for this to happen, banks and agents must work together. Banks cannot sell properties alone, they don’t have the time or expertise; and their unilateral reactive approach is not in their interests, or the interest of the wider economy.

Tags: Spanish Property, Torcana

This entry was posted on Thursday, August 19th, 2010 at 12:00 pm and is filed under Spanish Property. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.