Value of Spanish property market could halve, says O'Neill

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Spain’s property sector could see as much as 50% of its value disappear, says Merrill Lynch Wealth Management’s Bill O’Neill.

Bill O'Neill

Bill O’Neill

The Banco de España has described the financial system’s exposure to construction and real estate as “problematic” and O’Neill – chief investment officer for Europe, Middle East & Africa at Merrill Lynch Wealth Management – believes current real estate prices could sink further.

O’Neill says: “So far, real estate prices have fallen about 22% from their peak. It is credible to expect a lot more to come, with an ultimate decline of 40-50% looking plausible given the extent of the boom and what we have seen in Ireland and the US.” (article continues below)

Should prices demonstrate a decline of greater than 50%, O’Neill predicts that either government intervention or support from the Troika (the European Commission, the International Monetary Fund and the European Central Bank) will be required.

Last week, Spain’s government unveiled the most austere budget in the country’s modern history, following Spanish prime minister Mariano Rajoy’s announcement that the budget deficit would be 5.3% in 2012, increasing from its current 4.4% level.


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Readers' comments (1)

  • This is perhaps the start of the good news. At last we can see an end to the downward spiral, though it's some time away and we are not at the foot yet. Everyone has known, but it's never been formally acknowledged, that the Spanish banks have not valued the property to actual market level. Now they will be forced to do so, either by sale of the property or by having such a quantity of property marketed and sold at low prices that higher valuations cannot be maintained. If they had honestly declared the collapse of assets as it was, in the same way as those banks in Ireland and the UK, yes the short-term loss of face would have been substantial, but the long drawn out damage that is currently being done might not have occurred.

    For private sellers, without the ability to offer mortgages to buyers, the prices will have to fall even more to be competitive. This, plus the costs of purchase and sale, will mean that any buyer of bank property will immediately be in negative equity of 20+ per cent. Only the best properties, by location and facilities, will be bought by occupiers who are not looking for instant capital gain, but are seeking an ideal home for themselves. The other buyers will be speculators who will negotiate with the banks to sell at even lower than their discount prices and be prepared to hold the property for a few years until the world economy drags Europe and Spain upwards and out of its present malaise. Keeping these properties in condition to occupy and paying off the community and local taxes, will be a cost that the speculators may not be prepared to cover until the property is sold, with the result of starving local communities and town halls of current income from these 'assets'.

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