The Bank of Spain says the banks have about $240 billion in “problematic exposure” out of $580 billion invested in real estate and construction, a situation, they say, the banks are capable of handling.
But not everyone believes that. Unlike American banks, Spanish banks have done little to open their books. Along with other banks in the euro zone, they underwent a stress test last July, and all but five of Spain’s smaller savings banks passed.
The trouble is that some Irish banks that also got a clean bill of health in that round of tests subsequently collapsed, raising a threat to the country’s solvency that has still not been quieted — on Friday, Moody’s slashed Ireland’s credit rating to near-junk status and warned of further downgrades — despite a bailout. Those failures undermined the credibility of the whole stress-test exercise and forced regulators to announce recently that the results of further tests would be published early next year.
The Bank of Spain is moving to lift confidence in its banks by forcing them next year to disclose more details about their holdings and to start acknowledging troubled assets faster. But just how much are those assets worth?
Rafael Valderrabano, who founded the Básico real estate company 18 months ago to help banks sell property they are repossessing from developers, says the country is full of situations like Yebes. Right now, he says, he is trying to sell units in 40 apartment blocks near Cuenca, an area southeast of Madrid that is sparsely populated.
“Who went to develop in this place?” Mr. Valderrabano asked. “Who did this? Worse, who financed this?”
A better known real estate debacle is a sprawling development in Seseña, south of Madrid, one of Spain’s “ghost towns.” It sits in a desert surrounded by empty lots. Twelve whole blocks of brick apartment buildings, about 2,000 apartments, are empty; the rest, only partly occupied. Most of the ground floor commercial space is bricked up.
The boom and bust of Spain’s property sector is astonishing. Over a decade, land prices rose about 500 percent and developers built hundreds of thousands of units — about 800,000 in 2007 alone. Developments sprang up on the outskirts of cities ready to welcome many of the four million immigrants who had settled in Spain, many employed in construction.
At the same time, coastal villages were transformed into major residential areas for vacationing Spaniards and retired, sun-seeking northern Europeans. At its peak, the construction sector accounted for 12 percent of Spain’s gross domestic product, double the level in Britain or France.
But almost overnight, the market disappeared. Many immigrants went home. The national unemployment rate shot up to 20 percent. And the northern Europeans stopped buying, too. But government officials now say the worst is over, with housing prices down a modest 12.8 percent from the peak, according to the Bank of Spain.
“Most of the adjustment in housing prices has already taken place,” José Manuel Campa, Spain’s deputy finance minister, said recently, though he allowed that there was a lack of good information on real estate sales.
Still, skeptics abound. One is Jesús Encinar, the founder of Spain’s most popular property Web site,
Idealista.com. He says that the Spanish authorities are striving to engineer a soft landing of the housing market that would give more time to offload surplus housing at reasonable prices.
Spanish lawmakers have voted to approve a tough new anti-smoking law, meaning that from 2 January, bars and restaurants will be no-smoking zones
.
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