We were asked for a bit of information about buying a bank repo property in Spain. So we went to the expert – Graham Hunt – who has very kindly taken some time out of his busy Valencia schedule to help. Over to you Mr Hunt! (Ed)
Everyone has heard the news of the huge bargains to be had in Spanish property as that is all that the media is interested in promoting. A burst bubble makes news (so expect some serious news making from London in the next few years).
However what is the truth behind the Spanish bargain properties and, more pertinently for this article, can you find a bargain in the Spanish bank repossessions?
Yes and no
Firstly let’s get the navel gazing and conscience out of the way. The majority of repossessions from banks are not from people who have been thrown out of their houses (there are some of course) so you will generally not be profiting from their misfortune. The majority are new builds from property developers (mostly huge multinationals and friends of the bankers) that the banks gave huge loans to in order to overdevelop on the edge of towns so the bank could give 100% mortgages to people on overpriced rubbish.
However, that is where the first problem comes in. The majority of bank repossession properties are in places where as a foreign buyer you would have no interest in buying. Looking for central Madrid, Barcelona, Valencia, Malaga and other juicy locations on the prime coastal strip? Forget it? You very rarely find a repo in these areas because someone in the bank will have taken it before it gets onto the market unless it is extremely overpriced.
But why would it be overpriced I hear you ask!
Well, banks don’t price properties on market values or anything so sensible. They price properties based on what they originally lent to the developer or owner plus the 30-35 per cent notary, barrister and legal fees for repossessing. And of course they generally lent to the developers just before the crash in 2007 onward, so they lent too much of course when prices were astronomical and prices have dropped around 40-50 per cent since then. Therefore, the asking prices are usually well over what you can find on the market through private sales and estate agents.
Sometimes a bargain comes up. When does this happen? Well it requires a combination of factors including some or all of the following:
- The property did not have a huge mortgage on it when the bank originally lent or a lot of the mortgage or development loan was paid off by the person or entity before repossession.
- The property is one of the last ones left in a building that the developers were unable to sell just before the market crashed and they have been given to the bank as full payment of loan when a lot has already been paid off.
- The property is in an outlying area that is underdeveloped and under appreciated where external factors such as new investment or changes to planning laws have made it suddenly very attractive.
- The original loan was mostly paid off before repossession or it was used as full payment of a separate loan to get rid of a problem.
- Nobody in the bank has seen the potential. Believe me there are very rich people in banks still who go searching through the bank databases to find those diamonds in the rough. However at times they miss out because of their own inherent prejudices and lack of knowledge of the market.
- The property is in an area lacking modernized properties at good prices. When this happens there are good opportunities for property developers to put value into an apartment by making it ready to move into without any work.
Can you find these properties?
Of course you can but you need one of the following things; a fine toothcomb, luck, contacts in the banks or an agent who knows what you want and already works with the banks and knows what’s on their database.
You also need good timing and the ability to buy now. Good timing because each bank has offers at certain times where they knock x% off a selection of properties. Be ready to go because you will need to make an offer and in a position to complete at short notice if they accept your offer. Good luck though because sometimes you make an offer and the bank will put the property up for auction to tell everyone that there is an offer on the property and can anybody beat it!
So are bank repos worth it?
Again yes and no. 95 per cent of what the banks have is overpriced, badly located rubbish in places that do not suit the foreign market at all. However the remaining 5 per cent can be interesting. If you are willing to put the work in then you can buy well and if you are buying for investment or flipping there are possibilities of making money. Our experience is that there is a higher percentage of better deals on the open market than with the banks but we don’t discount the banks outright. And, after all, the best part of it all is making outlandishly low offers to the banks to give them a taste of their own harsh medicine. At times they accept as they need the money.