Spain’s “bad bank”, Sareb to speed up distressed property sales in an ambitious new timetable for liquidation.

The bad bank is hoping to sell almost 42,000 housing units in the next five years. This is about half of the properties in its €50 billion (£42.5 billion approximately) portfolio.

However, falling house prices and a desire among buyers for modern properties in prime locations could hamper these plans for swift sale. Already the value of assets is being slashed by Sareb to clear their books, but attracting investors is proving to be no easy task.

At the beginning of March the International Monetary Fund (IMF) declared: “The clean-up of undercapitalised banks has reached an advanced stage, and key reforms of Spain’s financial sector have been either adopted or designed.” Sareb has also been praised for its receipt of distressed real estate assets from the country’s weakest banks. The bad bank has also finalised agreements with participating banks to manage the transfer of assets.

Cleanup “Advance Stage” Nonsense from IMF

To suggest the cleanup of undercapitalized banks is in an “advance stage” is complete nonsense. It only makes partial sense if there is a zero percent probability of haircuts on Spanish sovereign debt.

I suggest the probability of haircuts on Spanish government bonds is far greater than 50%. And since Spanish banks are loaded to the gills with sovereign debt, the banks are severely undercapitalized by implication.

S&P; Predicts 20% Drop in Spain’s Housing Prices

Courtesy of Mish-Modified google translate from El Economista, please consider S&P; predicts that housing in Spain fall by 20% over the next four years.

The credit rating agency Standard & Poor’s does not see “signs of improvement” in the Spanish property market given the “precarious economic conditions and the heavy weight of the ‘stock’ of unsold homes,” and anticipates that home prices will fall 20% over the next four years.

“We see little chance of that Spanish households become more solvent, as prices continue to fall, the purchasing power continues to decline and interest rates are stabilizing. This should keep demand very depressed,” said S&P; in a report on the European property market.

Sareb’s plans to sell 45,500 homes in the next five years, about half of its portfolio, will likely determine the pace of declines in housing prices.

Should the divestiture from Sareb be gradual, housing prices in Spain will fall 8% in 2013 and 5% in 2014, after falling 10.5% in 2012 and 28% from their highs reached in March 2008.

Falls widespread in Europe

On the whole of Europe, the agency notes that the downward trend in most European property markets continue this year as a result of the economic downturn. In most countries housing prices will continue on a path “down” this year and only start to stabilize or slowdown in 2014.

After Spain, the largest decreases will occur in the Netherlands (-5.5%) and France (-5%).

S&P; Optimistic

I am of the opinion the S&P; is overly optimistic about Spain, about France, and about the Netherlands.

The European recession is worsening, credit conditions are awful, employment conditions are awful, and there are scant buyers of property because discounts are not large enough and credit is nowhere to be found.

None of this remotely takes into consideration the very strong likelihood of a Spanish debt writedown in the next year or so.

Mike “Mish” Shedlock