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Posts Tagged ‘mortgage lending’
As a property agent with a reasonably high profile, we receive a lot of requests from developers to promote their products. An increasing number of these have been Spanish developers offering 100% mortgages (including closing costs) for buyers and high commissions (6-10%) for the agents. They´re usually big developments (500 units+) with facilities such as swimming pools, golf courses, sports centres, shopping malls etc.
I´ve always had suspicions about these developments and so I visited one this week (23 Nov 2010) to satisfy my curiosity. I won´t give away too much information about the resort we viewed, but there are lots of them in the Costa del Sol and it´s highly unlikely we will ever promote one.
The development we viewed had more than 1000 units all told, and although construction has completed, most have never been occupied. The developer told me they were 80% sold, but he actually meant that they´ve taken 20% deposits for 80% of the properties pre construction and most of these buyers have no intention of completing, certainly not at 2007 prices.
As sales fell off a cliff in late 2008 and people delayed closing, the developers cashflow dried up and funds have clearly not been available to maintain the resort over the past 18 months. Mould was visible on every property we viewed with cracks on the interior and exterior walls, walkways and ceilings. No heating or lighting fixtures had ever been installed.
The golf course was overgrown, the sports centre was never started, the shelves on the supermarket were bare, and the entire roof of the indoor swimming pool will need to be replaced due to the inadequate air conditioners that were installed.
The developer clearly owes the bank a fortune and the bank is desperate to divide this debt between 100s of buyers rather than one developer (who is probably insolvent).
Hence the 100% mortgages.
The pitch is that the bank provides 80% on their “valuation”, the developer “pays” your 20% deposit plus your closing costs and then you get your free property with exclusive access to their rental pool.
Give me a break.
So you get a 2 bed property for €250,000 without having to spend a penny. You just need to service a €200,000 mortgage over 20 years at a variable interest rate with a net rental income that probably wouldn´t amount to more than €4,000 per year. Setting aside the substantial problems with the existing and non existing facilities, no other bank would give you a valuation of more than €175,000 and they wouldn´t lend you more than 70% of it.
Clients ask me about Spain all the time and I´ve no doubt Torcana would have quite a few takers for Spanish property like this with 100% mortgages, great facilities and easy access to the beaches and airports. We´d mostly sell them to people who would buy sight unseen. We might sell 50 of these over two months if we put our minds to it, and we´d make a tidy commission on them all.
The only problem is that our reputation would be destroyed within a year, because these are terrible investments.
That doesn´t sound like a sustainable business plan to me and so it looks like we´ll be sticking to places like Florida until other markets become sufficiently attractive (not to mention safe) to investors.
I´m curious about two things.
Firstly, why are Spanish banks allowed to blatantly inflate the valuations of properties on their books and then offer mortgages on them? Secondly, what sort of property agent would actually encourage their clients to invest in them?
The result of all this is that lots of naive buyers are going to get (forgive me) screwed, but they won´t purchase anything close to the amounts of properties needed to reduce the current oversupply and return some semblance of market normality to the area.
Regards
Colin
Hundreds of you have asked us about mortgages in Florida and we have been in negotiations with dozens of US based banks over the past year in attempts to secure them. It has proved very difficult to say the least - there were far too many brokers and banks talking the talk and nothing more. However, and at long last, we are delighted to announce that we have finally managed to secure local financing for our clients.
Superior Bank successfully arranged mortgages recently for foreign nationals this summer and I’ve seen the proof with my own eyes. In a nutshell, if you have a job with steady income and you can prove that you have a 30% deposit and no bad credit history your application will be successful.
Request your Mortgage Information Packs on Torcana.com
Think about it - two bed tenanted waterfront properties costing $90,000 can now be financed for just $27,000 (€18,400 / £16,375). Three bed two bath tenanted properties near Disney costing $116,500 can be financed for just $34,950 (€23,800 / £21,150). Details of both these projects are on www.torcana.com
If you’d like to receive a full information pack on financing packages available, simply visit the new US Mortgage Section of our website and we’ll send one right out to you.
Kind Regards
Colin Murphy
Torcana.com
In complete contrast to Ireland, our cousins in the UK and USA had the ability to pump enormous amounts of liquidity into their financial systems to help kick start their economies. While these countries have huge public debt as a consequence - the ripple effects of this liquidity on their housing markets has been dramatic. Anybody following international business news (or indeed the modest Torcana News Section) will surely have noticed this.
In the UK for example, every single region in England and in Wales recorded a monthly rise in house prices between June-July 2009. The average monthly increase was 1.7% - the biggest in five years.
Mortgage approvals are now at a 17 month high and 77% more mortgages were approved in July 2009 compared to July 2008. The number of transactions is also increasing steadily, as illustrated in the graph below.
For more information, please see www.torcana.com.
Kind Regards
Colin Murphy
Director
Torcana Ltd
The manager of one of the banks we deal with called me last week to let me know they’ve launched a new mortgage product specifically for people purchasing distressed properties.
This is an excellent product: loan to value of up to 90% available for anybody resident in an OECD country, low application fees (0.35%), low interest rates (around 3%) and loan terms up to 40 years.
It’s a big deal that a Spanish bank has launched a 90% mortgage product specifically for these properties, as most of them have their heads completely in the sand. For example, myself and my (Spanish) wife can’t even get 90% for a regular property in Madrid!
This is perfect to use with our Granada product, which will achieve net rental yields of up to 8%. If you would like full details, please visit the Torcana website.
Kind Regards
Colin Murphy
Director
There’s quite a lot I can’t figure out about Ireland these days. Perhaps I’m spending too much time in Spain.
For example, why is the government so preoccupied with protecting the level of house prices when most of the people trying to sell are buy to let investors and property developers? Why are major banks cutting mortgage lending by 80% while average house prices have only fallen 20-30%?
It’s a big problem in Ireland that people don’t seem to see foreclosures and fire sales as a necessary evil to stimulate demand and reduce supply. There is simply no way to recover quickly without it.
It reminds of of how the French always seem to sympathise with business owners rather than consumers.
Let me give you an example of how a more ruthless banking system can help stimulate a devastated property market. The property bubble in Orlando, Florida started in late 2006, and the banks were absolutely ruthless with people who got caught out - mostly investors and developers, but yes, ordinary people too.
The numbers of foreclosures increased dramatically, and the asking prices for them just kept falling and falling, first by 20%, then 40%, and eventually, in early 2009, by 70-75% from peak levels. Initially, the supply rocketed and demand fell off a cliff.
Without a doubt, a weaker banking and political system or a stronger lobbying group would have put a stop to it. Didn’t happen like that though. You keep dropping prices, you get rid of the rot in the system, and eventually, guess what? People will start buying again.
Let’s compare Orlando housing activity in April 2009 with April 2008
- House prices have fallen 37%
- 48% more homes were sold
- 50% of all homes sold were distressed priced or bank owned
- Properties are selling 15% quicker
- There is 20% less inventory than a year ago
Source: Orlando Realtors Association
In an ideal world of course, we would politely request points 2, 4 and 5 above. But I can’t see that happening somehow.
All comments welcome.
Kind Regards
Colin Murphy
Director
