Spain - 35% writedowns suggest carnage ahead

seven-day-weekend

baby_boomer wrote: »

There was a recent news item about how the exchange rate change has taken away the spending power of English expats in Spain so that many who were able to enjoy themselves were now just surviving or even thinking of packing it in.

This isn't going to help the Spanish property market, and nor is the drying up of remortgaging in the UK which funded many previous purchases.

Of course, if Spain wasn't in the Euro then its currency would have fallen along with the £ because of the severity of the recession and unemployment.

But Spain IS part of the EMU.

Ah, now we ARE feeling the effects of the exchange rate in our everyday spending!

Pobby

seven-day-weekend wrote: »

I'm glad to say we do not have a mortgage on our Spanish house. Neither is it a new-build, nor is it a holiday home, neither is it on the coast, nor in its own halfway up a mountain. It is an old traditional village house in a traditional village It is a cheap house, we did not want to overcommit ourselves when we bought it, and if we hadn't been able to afford anything for the capital we had available, then we wouldn't have bought anything..It is our full-time home at the moment.

It will weather the recession better than some and if and when we sell it (which will not be yet) we will be quite happy to get whatever we can for it - hopefully we should get our money back, but if not, well, we'll still have lived in it for so many years (coming up to five already).

We also have a mortgage -free house in the UK where we can live if necessary.

So we are not actually too bothered about our personal situation.

However, I have seen here expats with huge mortgages, and no income, who have sold everything and bought here right at the top of the price rises.. Heaven knows what they are going to do because they WILL be in negative equity.

Some friends of ours downsized to release capital, but they can't keep doing that. Hopefully this capital will last until there pensions kick in.

Not everyone has this option though.

Spain has an enormous glut of half-finished houses and apartments which they will never sell and many of them are illegal. I think the crash in their construction industry is chickens coming home to roost quite frankly.

Over the last few years I think Spanish property was a time bomb. Going back a few you could live cheaply there compared with here yet house prices were rising and, like the UK, prices lost touch with wages.

A couple of problems have arisen. Many folk there are on fixed incomes from the U.K. A couple of hundred a week would do you well. This year I surprised at how prices have risen. The poster I have quoted will be able to comment on this but with the weakening of the pound the real effect on living costs is punishing.

Gorgeous_George

baby_boomer wrote: »

"....Fitch said the loss provisions on the debt suggested a write-off of 35pc against book value. "What they are effectively saying is that property prices in Spain are going to fall by almost that much [35%]," said Andy Brewer...

That would be true if every property was mortgaged 100%. IMHO, it's likely that the %age of mortgage/present value is much smaller and the likely falls also much smaller.

The problem with the holiday homes in Spain is that they were (at least in part) bought using MEW'd money from the UK. As the UK cra...orrects itself, holiday homes in Spain are virtually worthless - again IMHO.

GG

Pobby

Spot on GG. that`s what I evidenced out there. Also there is a lot of dodgy promises. The " get the mortgage paid by the rental income" is deffo optimistic. I am amazed at how many folk from the UK are there. I visit " real Spain" and even there lots of UK folk have places. Seems to me that some of them don`t seem to have a proper income. Saw a load selling bits and pieces at a flea market.

Our friends there have only one stable form of income. £120 a week! That`s eroded because of Spanish inflation and the poor exchange rate. They make up the rest by doing a bit of work where they can grab it.

We looked at buying in Spain. No mewing but paying cash. My wife, the bright one, didn`t see any point. Maybe we would get out there twice a year. She did have a point. My plan was to retire there but we are going off the idea. Seems the better bet is to take advantage of those long term winter holidays at around 400 quid a month and be done with it.

seven-day-weekend

Pobby wrote: »

Over the last few years I think Spanish property was a time bomb. Going back a few you could live cheaply there compared with here yet house prices were rising and, like the UK, prices lost touch with wages.

A couple of problems have arisen. Many folk there are on fixed incomes from the U.K. A couple of hundred a week would do you well. This year I surprised at how prices have risen. The poster I have quoted will be able to comment on this but with the weakening of the pound the real effect on living costs is punishing.

Is this pounds?

We live on less than £600 a month from my husband's Teachers' pension. We have had to cut right back but are managing. Ant large one-off expenditure has to come from savings, but that has always been the case since we came to live here. We have no rent or mortgage, and are in one of the cheapest parts of Spain, it's probably more expensive elsewhere.

seven-day-weekend

Pobby wrote: »

Spot on GG. that`s what I evidenced out there. Also there is a lot of dodgy promises. The " get the mortgage paid by the rental income" is deffo optimistic. I am amazed at how many folk from the UK are there. I visit " real Spain" and even there lots of UK folk have places. Seems to me that some of them don`t seem to have a proper income. Saw a load selling bits and pieces at a flea market.

Our friends there have only one stable form of income. £120 a week! That`s eroded because of Spanish inflation and the poor exchange rate. They make up the rest by doing a bit of work where they can grab it.

We looked at buying in Spain. No mewing but paying cash. My wife, the bright one, didn`t see any point. Maybe we would get out there twice a year. She did have a point. My plan was to retire there but we are going off the idea. Seems the better bet is to take advantage of those long term winter holidays at around 400 quid a month and be done with it.

How true Pobby, we too have seen this.

We have seen people with huge mortgages and no income (how they have managed that I can't imagine).

People who have sold up and are living on capital (which always runs out).

People 'coming to Spain to run a business' (why they think it will be any easier in a foreign country, in a foreign language, with different rules, I have no idea).

I also see a lot of expats scratting around doing cleaning for other expats, or selling second-hand books and dvd's, or doing infrequent airport transfers - just to earn some money rather than none. The unemployment rate in this part of Spain is 20% for Spaniards, let alone foreigners who can't speak the language properly. Those who do have jobs work long hours for minimum wage (including Spaniards here).

Although our income is small, it is regular and we can live on it (just). We would not have come here if we had not this income.

Having said that, in 2010, I will get my State Pension and we are also going to spend more time in the UK, so I will also look for a p/t job (Asda with it's Benidorm leave would be good). Ideally, we'll spend winter and spring in Spain and summer/autumn on the UK. Our Spanish house will be available for rent when we are not there, although it won't matter too much if there are no takers.

Generali

baby_boomer wrote: »

....Fitch said the loss provisions on the debt suggested a write-off of 35pc against book value. "What they are effectively saying is that property prices in Spain are going to fall by almost that much [35%]," said Andy Brewer, the agency's senior director for structured credit.

Just to make the point, there is another possible explanaition. Banks are so distrusting of each other that a hint of overvaluing things that can't be simply marked-to-market (that is valued at the market price on the books) can lead to a run and destruction of the bank.

As a result banks have to take their worst case scenario for any valuations.

That's not necessarily true but it is possible.

Pobby

I find this quite amazing. In a way it sums up the insanity of the last few years. People moving abroad with unfunded mortgages....goodness me. How much I wonder was down to all those place in the sun type programs.

Tbh, I don`t think our friends really had it sussed. There idea was the villa by the sea. My buddy is a musician, just like me, and should have got work there. His wife, a care worker, again would have got paid employment. By the time they had sold in the UK they found that their funds would only buy an apartment there.

Well, rather than just throw in the idea of a villa they moved inland 30 odd miles reducing the chance of work.

Another couple we met, late 40`s, bought outright and had cleaning, unofficial taxi jobs and so forth, however they were in Alicante.

Next up was a family. They had sold up here and bought a tiny leasehold bar in Benidorm. It was so small that I really don`t know how they made a living. Added to that, they rented their home there . !5 year old daughter wasn`t attending school.

As I say, another bit of this decades madness.

baileysbattlebus

With so much new housing stock still unsold - will it get worse - there must be some bargains to be had in next year or two over there.

funnily enough, we had thought about buying a house in Spain, the plan was to spend about half the year there and half the year here - but property became far too expensive for us to even consider. Perhaps it could become a possibility again.

According to Tinsa, 75,000 new properties were sold in the second quarter of the year, the equivalent of 41% of the number of homes finished in the period, which drove up the inventory of new homes to 680,000.
Tinsa estimates there will no more than 300,000 transactions in all 2008, implying that the stock of unsold new homes will rise to 930,000 by year end.
Tinsa expects the inventory of new homes to keep rising into 2009, as construction on current housing developments finishes, and that it will take at least 2 years for the market to digest the housing overhang.

baby_boomer

Mail on Sunday

Falling £ puts the squeeze on the Costa dream.

It's not just rising living costs and falling house prices. What about those who took out Euro denominated mortgages and are having to fork out more each month for a declining investment?