Worthless land could prolong Spanish banks' property woes

Tue Jul 23, 2013 4:27am EDT
 
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By Jose Elías Rodríguez and Tomás Cobos

MADRID (Reuters) - Spanish banks may have to swallow more losses to shake off the legacy of a property crash, real estate experts warn, as they struggle to sell plots of land that have ended up on their books and which are now worth less than many have accounted for.

Lenders were forced by the government to take billions of euros in provisions against losses last year after property values collapsed in 2008, with the steepest writedowns destined to cover land they were saddled with as developers went bust.

The weakest lenders were bailed out with European money and others posted steep losses as the result of the clean-up, which was supposed to draw a line under the property problem, as banks try and cope with a deep recession also dragging on earnings.

But much of the old farm land and fields on city outskirts snapped up by construction firms during a decade-long building boom are failing to find buyers even at big discounts, real estate advisers and bank insiders said.

Banks may even be forced to spend money building saleable properties on land, they said, while plots in remote areas may never recover any value, pushing lenders to write them off or sell them at steeper losses than they had provisioned for.

"There are assets which will practically have to be turned back into the farm land they once were, to grow onions," said Alvaro Martin-Ropero from real estate valuation firm Tinsa.

"Just because they had a 'for sale' sign put up on them does not mean they can be turned into an urban development," he said, adding that central regions, far from the Spanish coastlines that still attract buyers, were some of the most problematic.

Further losses on land assets would be an unwelcome extra hit for Spanish banks as bad debts to households and companies keep growing and as they try to shore up capital bases depleted by earlier property provisions against losses.   Continued...