Property prices set to tumble again

Spanish property prices are set to tumble even more following the Bank of Spain's move to force them to face up to right down their losses and set aside reserves of up to 30pc on their property porfolios. This could have the knock on effecting of forcing more repossession, as more home owners go into negative equity.

Ambrose Evans-Pritchard, comments "The crackdown will bring matters to a head rapidly, forcing cajas to disgorge property holdings onto the market. This is a gamble, risking a house-price crash that could tip Spain deeper into debt deflation. "

Since the crash the Spanish banks have been forced to acquire properties driven by high unemployment, the collapse of the property market as well as the wider financial crisis.

Hans Redeker, currency chief at BNP Paribas reckoned, "It had reached a point where investors no longer believed in Spanish balance sheets because equity ratios are distorted by overvalued holdings of real estate. This move was absolutely the right thing to do. You can't camouflage bad debts any longer".

It was expected that the banks would drip feed the property market, however this may force them to liquidate their assets and sell property at the current market price, forcing a sharp correction in property prices.

29-05-2010

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