Bonuses from the banks?

Monday, February 28, 2011

Bonuses from the banks?

With billions of euros' worth of repossessed properties on the books, many of them new-build developments whose builders have gone bust, banks in Spain have reluctantly become the country's biggest estate agents.

So huge has the banking system's exposure to real estate debt become, the Bank of Spain is considering solutions such as encouraging banks to release their stock at massively discounted prices and offer 100 per cent finance for qualified clients.

The prospect of hugely discounted property - up to 60 per cent in many areas - is what is driving buyers to Spain at present. But for the average buyer wanting to make the most of these opportunities held by banks, how do you get a look in?

On first impressions, unless you have the contacts, language and experience, this might look difficult. The Spanish repossession process is a long and complex one and your average bank won't have staff who speak English or are experts in marketing properties to foreigners.However, a number of agencies dealing solely in bank repossessions and with the aim of giving British buyers access to this new area of Spain's market are springing up.

One of these is Básico, the creation of which ironically came about from the fall of two of Spain's biggest builders."Básico's staff previously worked for the two most important developers in Spain, Ferrovial Inmobiliaria and Metrovacesa," says Robert Evans, who heads up Básico's UK operation. "Due to the crisis, most of the sales teams that were employed by these companies were made redundant, so it gave us the opportunity to set up sales teams all over Spain. When the staff decided to create Básico the banks and cajas quickly trusted us to sell their properties."Banks that Básico works with include BBVA, CatalunyaCaixa, Ibercaja, Cajamar, Caja Murcia and Nova Caixa Galicia, and they have repossessions available all over Spain, from developments in more domestic residential areas, including Madrid, to those in holiday hot spots, such as the Costa Blanca.

One Spanish bank has been particularly innovative: CAM Mediterranean recently teamed up with UK estate agency chain Connells ( to market its stock of 15,000 repossessions, which at an average value of £110,000 a unit has a total value of £1.65 billion, to the UK market. In the first four weeks of this joint venture, CAM received 1,000 enquiries.
Connells Spanuih repossession property

A five-bedroom villa in Jávea on the Costa Blanca,
repossessed by CAM bank and now available for
€263,400 (£225K) - a 44 per cent discount -
through Connells
So why would anyone buy a repossessed property rather than go for one of the many thousands of other discounted, or distressed, Spanish homes on the market?

"By teaming up with a bank - and in this case, one that has been around since the 1800s - we are giving buyers the confidence that there is nothing wrong with the property. The bank wouldn't deal with it if there were issues with titles or legality in any way," says Stuart Flavell, CEO of Connells, who is testing the water with 3,000 of CAM's properties, mostly on the Costa Blanca, Costa del Sol and Costa Brava and ranging from £40,000 to £600,000. They are discounted by up to 60 per cent and, on average, by 35 per cent.

The biggest glut of properties, says Flavell, is around Orihuela and Torrevieja on the southern Costa Blanca. "It was a hot spot among British buyers a few years ago. But interestingly it's still where we're seeing most demand, mainly driven by price," he says.

By contacting Connells through their website, branches or online portals, such as The Move Channel, buyers will then be steered to CAM Mediterranean, CAM bank's in-house estate agency with 150 English-speaking staff. Last year they sold 20 properties a day - 90 per cent to Spanish buyers."We want to separate ourselves from what happened in the boom and the mistakes that were made by estate agents," explains Charles de Ros Wallace, CEO of CAM Mediterranean. "We won't do any aggressive selling. We won't fly you over here for free, pay for your hotel or persuade you it's the best investment you'll ever make. We'll just show you the properties you want to see and, if you decide to buy, we can offer finance of up to 90 per cent over 40 years."

Banks, then, are desperate to get shot of their stock - selling property is hardly what they were set up to do, after all. "It costs an enormous amount to keep properties on our balance sheet," says Wallace. "We have to clean them, maintain them, pay taxes on them. We're better off selling them off as cheap as possible."

To further ease buyers into the idea of buying one of their repossessed homes, CAM offers a try before you buy scheme, where you can rent a property at the market rate for up to seven years. If you decide to buy within two years, your entire rent can be put towards your purchase. Wayne Stevenson, a 44-year-old chef from Crewe, has taken up the offer, currently renting a two-bedroom townhouse in Playa Flamenca, near Torrevieja - home to a large expat community - for £470 a month. The house is on a development repossessed from the developer and is now valued at £120,000, having originally been on sale a couple of years ago for £160,000.

"We will definitely buy this house within two years so we will get all of our rent back to put towards the deposit," says Wayne, a first-time buyer who had agreed a price on a house in Playa Flamenca in 2007 - then Northern Rock collapsed and Spanish banks reduced their mortgage offers overnight.

Although Stevenson says he could rent a similar property cheaper on the open market, this rent-to-buy scheme effectively gives him an interest-free loan for two years, he says."We've been trying to get on the property ladder since the last purchase fell through and this way you can't really lose," says Stevenson, whose property will be revalued by CAM when he decides to buy it, and then he will almost certainly get a 100 per cent mortgage, he says. "They will only revalue it based on average values in the area - they won't visit our house - so we can improve the property while we're renting, knowing we're adding value."

Basico Spanish reposession property

Two examples of repossessed properties available through Básico; the top is an apartment block in El Verger, near Dénia, where prices start at €180K (£154K), the bottom is the Bahía Golf Retamar development in Almería where prices start at €110K (£94K)

Basico Spanish reposession property

Peter Birkett, who runs Property Repossessions Spain (, also acts as a middle man for British buyers wanting to buy bank-owned properties, mainly new-builds on the Costa Blanca, Murcia and Almería."We have 2,000 properties to sell - all coastal properties, as we know they will sell and they will rent out - and there are genuine reductions. There are superb quality flats in Porto Fino in Almería, 30 yards from the water, which used to cost £220,000. Now they're going for £120,000," says Birkett, a former financial advisor.

Birkett will show buyers the properties, deal with the banks - who do all the due diligence - and accompany buyers to the notary, source furniture packages and introduce them to rental companies.

"Buying a repossessed property is the same as buying any property, but people are nervous, so I lead them through the whole thing," he says. Banks will offer 100 per cent mortgages - fixed at 3 per cent for three years - for someone buying one of their repossessions. "Buyers just need to put down £5,000 as a deposit and to cover buying costs."

Beware that buying a repossession isn't always the best solution. Robert Evans at Básico agrees that not all repossessed properties are bargains: "It will depend on the price that the bank will take for the property; normally this is the value of the mortgage but sometimes, because of the repossessed company's situation, the bank will add other debts that company had to the property to 'clean' the other loans, and this is then reflected in the prices that the bank wishes to charge for that developer's repossessed properties."Also affecting prices of repossessions are the provisiones, or write-downs, that banks must apply to the value of their stock.

"The Bank of Spain requires every bank and caja to apply an annual write-down in value of their repossessed property portfolio of a minimum of 10 per cent," continues Evans. "But some banks take a more proactive stance and write down from the value they repossessed at in one go - they provisionar a greater amount of the value of the property and in some cases this is 40 per cent - these are the real bargains!"

Adrian Kelly at the IP Partnership ( thinks repossessions don't necessarily represent value for money."Clients can pick up better bargains from distressed vendors looking to get out of the market," he says. "The banks may have an excessively high number of properties on their books, but the best ones stay within the banking community - sold to employees and their friends - and they are unwilling to take significant reductions on the price of the rest as this will materially affect the value attributable to their balance sheets," adds Kelly.
Connells Spanish reposession property 2

A four-bedroom, two-bathroom duplex in Salinas, inland of Alicante city, repossessed by CAM bank and now available for €110,600 (£95K) - a 37 per cent discount - through Connells

Repossessed stock is often unattractive "and may not make a good investment", adds Mark Stucklin, head of the independent - and impartial- website "Bank commissions have tended to be small, so some agents are up to all sorts of tricks adding on their commissions to sales of repossessed properties. And some agents are taking advantage of the crash to make you think you are buying bargain when you are not," he adds.

Be careful, too, of outstanding debts on the property, which any new buyer will inherit. "Usually the ex-owner of the property has not just accumulated mortgage debts but also other debts such as community fees, local property tax, rubbish collection tax and utility bills," says Raquel Perez, Managing Director of the Marbella-based Perez Legal Group. "The buyer's lawyer will have to request certificates from all the public offices, the land registry and town hall to check the history of the property and what debts are registered against it."

Perez also recommends that buyers demand an updated valuation of the property, carried out within the last three months, "as banks can be pushy and not necessarily 100 per cent truthful with regards to the value of the property", she says.

Spain is undoubtedly a land of opportunity again for property buyers - and the banks have taken over from estate agents as the pivotal players. And as Evans at Básico highlights, "it is easier to get a mortgage in a repossessed property than a resale property because the banks and cajas must sell and you can get a higher loan to value and lower interest rates". But with so much on offer, the message for buyers is that there are deals to be had from banks or agents representing the banks, but be choosy and don't rush into anything. There's no need - it's unlikely you will miss out on bargains for quite some time.


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